Guys i love decentralization. This vote made me want to make a better proposal. People who only know how to complain without helping, be nice, at least help to vote next time.
5 Likes
Hello folks
The following is Aave Request for Comment (ARC). I tried my best to follow Governance docs. Please review this improved proposal and give feedback on what do you think should be different/changed/improved. I will update this post with any suggestions below.
ARC: Recovery of ONE holders on AAVE Harmony
Short Description
Following the Harmony bridge exploit, AAVE users who staked their ONE coin into AAVE are now not able to withdraw ONE from AAVE. The goal of this proposal is to compensate these users.
What Happened
In June 2022, an exploit in Harmony bridge caused an essentially infinite print of 1Assets, such as 1USDC, 1USDT, etc. This caused them to depeg and fall in value essentially to 0$. Read more about the exploit here. Now, having huge amounts of these 1Assets, bad actors have deposited them into Aave Harmony and borrowed out ONE tokens staked by other users. Aave protocol was using global price feeds for USDC, USDT and other tokens, so it allowed these transactions. Since then, Aave paused all operation on Harmony. Owners of those borrowed out ONE tokens are now unable to withdraw their coins, despite being technically unaffected by the original exploit.
The Problem
There are currently 54.30M ONE tokens (1.04M$ at the time of writing) fully borrowed out on Aave Harmony. These belong to holders of aHarWone token (0x6d80113e533a2C0fe82EaBD35f1875DcEA89Ea97), which is the deposit proof Aave issues upon deposit. This token is 1:1 with the ONE token deposited. Normally users could redeem their aHarWone for ONE tokens, but now they are borrowed out and thus unredeemable. This loss of assets originally unaffected by the exploit really broke the trust for Aave users, and is bad reputation for Aave as an ecosystem.
The Solution
I propose Aave to take responsibility for the borrowed out ONE coins ONLY, and compensate the depositors. According to the Dune Dashboard, Aave DAO has a reserve of 86M USD (at the time of writing), with roughly 2M USD of profits coming in every month. I propose Aave DAO to dollar cost average 50% of profits coming in, into ONE coin, until the total number of ONE coins in Aaveās ownership reaches 54.30M tokens - the exact amount of borrowed out ONE (+ small amount for gas). Once the full amount is reached, Aave Dao will transfer these tokens to holders of aHarWone, in proportion with their holding. This plan is designed to not instantaneously deplete Aaveās treasury, but to gradually save some of the profits. This would make innocent users whole and improve Aaveās reputation and popularity.
- Yes, I would vote for this proposal
- No, I would vote against this proposal
- Abstain
0 voters
2 Likes
I am for this proposal, AAVE would be left holding the bag so to speak, but they would also have/gain complete control over the depegged assets and be able to decide how to move forward from this mess, wether that means selling all the depegged assets at a loss, holding out for Harmony team reimbursement, participating in the recovery process, closing down Harmony AAVE or reopening Harmony AAVE without any bad debt. 
Edited: because my late night phone reply got grammatically butchered by autocorrect.
1 Like
This proposal is well written. Thank you.
Reputation and Trust are the keys in Financial System. Otherwise, no one wanna supply assets to AAVE anymore. The AAVE Treasury was meant to deal with this kind of event (similar to the traditional bank insurance system). It is crucial to regain trust to investor/depositors that benefits all stakeholders including aHarWone holders and unaffected AAVE holders
2 Likes
How do you propose:
- The Aave DAO goes about purchasing ONE?
- The Aave DAO moves assets to the harmony chain?
Other questions:
a) Have you considered how this redirection of funds will impact other functions of the DAO?
b) How does this fit in with the Harmony Teamās recovery plan (if at all?).
Very good questions, thank you
- The Aave DAO goes about purchasing ONE? & 2. The Aave DAO moves assets to the harmony chain?
- Just checking where it trades, there are many CEXās that support ONE. Largest one being Binance, which would also solve the second question.
However, if CEX are unusable, there are alternative decentralized bridges that work on Harmony:
Harmony ONE-ETH Bridge (This one is the new official bridge, hopefully no exploits this time
)
https://synapseprotocol.com/
Aave can collect the sum on Ethereum, then bridge and convert into ONE on a local DEX. I figured I can leave implementation details to the team, theyād know way more than me about how to do this best, with lowest fees, etc.
Should I include the above in the proposal? ^^^
a. Have you considered how this redirection of funds will impact other functions of the DAO?
- I havenāt looked deeply into Dao operations, but assuming the 86M figure for Aave treasury is correct, eating up 50% of revenue for less than a month should only put a little dent in it. We can discuss decreasing the percentage, to say 25%. This would make recovery slower, but put less dent into Aaveās revenue.
- How does this fit in with the Harmony Teamās recovery plan (if at all?).
Harmony recovery plan is not for ONE token, itās for depegged assets only, afaik. Thatās the reason this proposal targets ONE holders only. Once the debt is released, Aave Dao can decide whether to participate or not, using the depegged assets still deposited in Aave Harmony that will now belong to the Dao.
2 Likes
Harmony Team has been giving funds to āRecovery Oneā (A team of validators/dApps/community members) to repurchase and burn depegged assets. They have been buying them at market value wich deppeged is ~1/10th value. However eventually they will run out of market value deppeged assets to buy and burn and/or market value will increase as supply diminishes, and they will have to pay more to continue.
AAVE could either sell the depegged assets for 1/10th value or hold and wait for the value to increase.
Why only aHarONE? Whatās about aHarLINK? Both assets are not unpeged so why only release one and not the other?
Letās make a full solution and not just a 50% solution otherwise we will discuss this still in the next 2 years.
Full release and then close the v3 on Harmony as on Fantom
Last proposal was rejected partially because it was too broad. I donāt want to blow up scope on this one.
If this one succeeds, you can copypaste this one and replace ONE with Link, how about that
So, eventually, Recovery One will bring all depegged asset to peg? Seems like when that happens the market could resume and ONE holder can withdraw without any other issues?
Yes, but the issue is time, they project it will/ could be a couple years. Us small holders would like to be able to access our money before then, invest, reinvest, spend, acrue staking rewards etc, this would be less of an issue for a protocol such as AAVE where this $ is just a drop in the bucket, vs being peoples entire life savings
3 Likes
Waiting a couple more days (to give a week to review ARC)
Then I will adjust the proposal to include answers to some of the good questions people have posted, and then we can try again.
I see that 50% of votes are still against the proposal. If you voted against, please elaborate on why? Is there anything that can be improved to make you vote yes?
2 Likes
Some issues still outstanding (imo)
High Priority issues:
- unclear what the mechanism of swapping the assets to ONE will be. the DAO cannot use a CEX, weād have to work with a service provider to facilitate this trade. This will incur additional cost (see Llamaās CRV purchase on the DAOs behalf). Additionally, since ONE is a low liquidity coin, the DAO could experience both slippage and front running on such a ābigā trade.
- If ONE is transferred to aONE holders, what happens when the depegged assets return to peg? The aONE holders can withdraw their ONE and receive 2x their ONE tokens? There are many simple solutions to this that dont involve sending ONE to aONE holders.
Lower priority issues:
Note these increase complexity but should at least be acknowledged if not discussed imo.
- Should aONE holders receive the interest on the underlying ONE? When the bridge attack first happened the APR rose to ~250% for nearly a month, aave could reduce the cost by some amount (5-15%?) by not bailing out post hack interest.
- Could aave offer aONE holders the option to exit their aONE at some discount now or hold to redeem the full underlying collateral if the harmony team successfully executes their recovery plan? This could also offer instant liquidity to those who want it with higher returns for users with a longer time horizon.
^ I realize both of these ideas are less appealing to aONE holders, but may be more digestible to the DAO who will ultimately decide on this.
just my 2c.
Harmony team itself might be able to facilitate a trade from their treasury with no slippage, but I cant speak for them.
Should aONE holders receive the interest on the underlying ONE? When the bridge attack first happened the APR rose to ~250% for nearly a month, aave could reduce the cost by some amount (5-15%?) by not bailing out post hack interest.
If(If) AAVE allows us to trade our aONE for ONE at a 1:1 basis.
aONE holders also lost the ability to exit their positions when Harmony was 3X-5X times its current value, 5-15% is fiarly negligible, considering AAVE would be getting the aONE and its locked 
ONE equivalent, they would then also gain control of the depegged assets and their currently depreciated value, but potentially full value upon repeg. Effectively doubling their money +/- any impermanent loss that occurs between now and the time that loss or gain is realized.
ābuying aONEā doesnt mean āthey would then also gain control of the depegged assetsā.
Thatās not how Aave works.
They can just turn the APY back up to 2,000%, the collateral Eth/Stable coin assets will be liquidated.
The exploiters arent coming back for their depegged assets.
I suggest to include LINK all other is just unfair and should voted against!
The last proposal was not rejected because it was to broad, it was just very unclear and not well written. Specific also rONE, when Recovery ONE declined earlier to give rONE to AAVE why now it should work with just a vote. There was no specific announcement or confirmation from Recovery ONE. No one can speak for Harmony Team or Recovery ONE except themselves but the person who should have take care of this didnāt take care at all and made jokes about stealing money 
I think you misunderstood. Itās not about rONE here. @Tobes was explaining that a trade to buy the ONE to reimburse aWone holders could maybe be facilitated by harmony team with no slippage because the question asked was about how and where AAVE could buy the ONE needed to get rid of the bad debt.
For the accrued interests, letās not forget that huge APY got displayed on AAVE during a month. Many users, with no idea of what was happening, ended up being exit liquidities for others by depositing due to high attracting APY. Accrued interests represents no more than 10% at maximum IF you had aWONE before and after the hack. For the one who deposited in the middle, its much less. Also, as said, people are stuck since 10months, could not do anything and were not able to exit when ONE price was much higher. Hence, I agree that this could be discussed only if full aWONE is exchanged for ONE.
For the latest question, can anyone from the DAO explain how can AAVE be owner of the deppeged assets after reimbursing users? If AAVE propose to exchange the aWONE against ONE, does this mean AAVE would become owner of the current lending/ borrowing by being owner of the aWONEs? And in case of a repeg on long term from Harmony repeg plan, being able to recover fully the amount?
Apart from that, thank you so much @ThunderingTias and @aaveone for making things progressing. I also fully agree to only include ONE in the proposal in a first step to make things simpler. It has been 10months, we finally see some progress, letās try to make it efficient and not to mix too many things at once if possible.
1 Like
Hey there, thank you for pointing out issues. Hereās my thoughts:
- Does proposal have to be specific? I wonder if I could just write āservice provider hired by AAVE is to decide on the most cost-effective way to move funds/exchange them to ONEā? Something like this requires a lot of research and deep knowledge of the market, so Iām not really the best person to decide. If anyone had ideas/thoughts on this, please post them!
- If Aave Harmony remains shut down, then aONE holders wonāt be able to take out the collateral even if the assets are fully repegged (which is unlikely to ever happen imo). Originally I thought Aave should just deposit the tokens into the protocol and let aONE holders withdraw, but that requires at least partial reactivation of the protocol, which a lot of people seem to be against. You mention āsimple solutionsā that are better then just sending over ONE, well, please post them here and we can incorporate into the proposal if they are actually better and simpler
- Iād love to receive interest on ONE stuck for 9 months, but I think that would complicate the proposal. I think most of people stuck would agree with me that they just want they ONE back and safely in their wallet.
- The key part is āif the harmony team successfully executes their recovery planā. Harmony seems to be moving very slowly, AAVE has no desire to actively reach out, and thatās why weāve been stuck for 9 months now. We need a quicker time horizon.
Either way, thank you for voicing your concerns!
For the point 2., how about AAVE creates a smart contract which does the following:
- allows users to redeem X ONE from X aONE every month with a maximum per adress in order to make the reimbursing gradual.
- the aONE would not be burn but stored in a multisig wallet of AAVE
However, i do not know how new devs can be done within the DAO to implement this smart contract, but my guess is that it is not a difficult one to write when you have experience in solidity.
AAVE would become owner of all the aONE, meaning that they would have two options:
- if asset are fully reppeged at the end of the harmony recovery plan, AAVE could simply reactivate AAVE harmony and redeem aONE to ONE using their protocol.
- if reppeg is partial, AAVE could change the oracle to trigger liquidations, and retrieve what is left in the protocol whenever they want.
What do you think? Can anyone knowledgeable on this tell if this is a possible option? @MarcZeller or @bgdlabs maybe?
Thank you