Alpha Community’s Decision On Next Step Towards Getting Users’ Funds Back from Iron Bank

View on Google Doc: https://bit.ly/3ZDDEXN

Summary

Per users’ feedback and suggestions after posting Alpha’s Open Letter 4, we have revised the proposal accordingly. Alpha Community should agree on the best course of action with regards to the ~$8M of user funds that are locked in Iron Bank (IB). ~$8M is users’ funds and represents the amount in excess of bad debt that has been frozen. We understand that IB may not agree to release users’ funds and thus the Alpha Community has to choose the best course of action to secure the release of ~$8M of user funds by the IB team.

To enable things to move forward, Alpha proposes the following to mitigate the harm to users. We assume that IB will release the ~$8M of user funds which represents the remainder of locked deposits minus the bad debt the IB has demanded payment of. To reduce the losses to users, Alpha will make users whole as much as possible for the remaining amount, in which options will then be presented for users to vote upon. Considering all contextual factors, this path will allow lenders to get funds back as much as possible and as fast as possible.

Rationale

It is important to note that Alpha has been following the debt repayment agreement since the start and ascertained that users would not be affected by the incident as it is a responsibility and liability between Alpha and IB. Since the day the IB team froze Alpha Homora’s user funds on March 1, 2023, Alpha has made many attempts to negotiate with IB, including proposing to use a significant amount of our token treasury to pay down the bad debt, but none of the proposals was accepted by the IB Team.

As of now, the IB team is freezing ~$40M of Alpha Homora’s user funds on the ETH chain, of which ~$32M is the bad debt between IB and Alpha and ~$8M is the excess. To resolve this issue and get buy-in from the IB team, Alpha lenders need to make a decision together as one united voice and as a community.

For all the lenders, please vote on the decision to move forward whether to request ~$8M funds back from IB.

There are currently 3 options that Alpha community can take:

• Option 1 (YES): Negotiate with IB to return the excess amount of user funds. This is the only viable path that will allow us to move forward in resolving this issue as soon as we can. Alpha users will get their funds back, albeit partially. Afterwards, we will proceed to presenting solutions on how we will make users whole as much as possible on the remaining ~$32M amount.
  • Implication: This is the option that will allow Alpha Homora users to get some deposits back as fast as possible.
  • Next step:
    • Communicate the proposal to IB, in which IB has to agree to before executing.
    • Alpha Homora users and Alpha determine the next step forward, for example, pursuing legal action against IB, remediation plan to make users whole as much as possible, etc.
• Option 2 (NO_1): Negotiate with IB in other ways to retrieve funds.
  • Implication: Alpha Homora users may not be able to withdraw for longer, since more time may be required for a reasonable negotiation with IB.
  • Next step: Alpha Homora users agree on conditions for a new proposal for IB.
• Option 3 (NO_2): Cease negotiation with IB.
  • Implication: Alpha Homora users and Alpha stop negotiating with IB.
  • Next step: Alpha Homora users and Alpha determine the next step forward, for example, pursuing legal action against IB, remediation plan to make users whole as much as possible, etc.
• Option 4 (ABSTAIN): Abstain your votes.
  • Implication: Whatever winning option wins.

We’ve put forth this proposal for lenders to vote on the next step towards recouping their funds. Getting user funds back as fast as possible is our priority and, for that to happen, we need to make a united decision on the next step. If we cannot agree on the next step, the longer user funds will be held with IB.

In the meantime, Alpha team will make its best effort to engage external cybersecurity experts and investigators to track down and recover the funds stolen in the hack as well as negotiate with the hacker to return the stolen funds in exchange for rewards.

Governance Action

By voting YES, Alpha community agrees with Option 1 for Alpha to negotiate with IB on the following:

• IB to pause interest accrual immediately
• IB to return the total excess ($8,686,364.33)*, which unequivocally belongs to Alpha Homora depositors, in 2 parts. These funds will then be returned to users.
  • IB to return the outstanding excess ($5,326,879.99)*, as calculated below, by March 14th, 6AM (UTC).
    • As of current, total liquidity in IB excluding bad debt = $57,452,881.48 - $30,689,988.09 = $26,762,893.39
    • As of current, non-Alpha’s total deposit = $18,076,529.06
    • As of current, Alpha’s current borrow = $3,359,484.34
    • So, the outstanding excess value = (i) - (ii) - (iii) = $5,326,879.99
  • IB to redirect any repayments from Alpha Homora positions from iii) ($3,359,484.34) back to Alpha within 3 days after each repayment is made.
• Alpha Homora users and Alpha determine the next step forward, for example, pursuing legal action against IB, remediation plan to make users whole as much as possible, etc.

By voting NO_1, Alpha community disagrees with Option 1, and Alpha will continue to negotiate on behalf of users with other conditions (Option 2). We will take users feedback into account in order to come up with the next steps. Alpha Homora users may not be able to withdraw for longer, since more time may be required for a reasonable negotiation with IB.

By voting NO_2, Alpha community disagrees with Option 1, and Alpha will cease negotiations with IB (Option 3). Users will vote to agree on next steps, for instance pursuing legal action, moving forward with a remedy plan from Alpha to users that users will vote on.

The numbers are as of March 9th, 11:08AM (UTC). The actual numbers will need to be agreed upon as stated in the Specification section.

Voting Mechanism

Only Alpha depositors on the 4 affected tokens (ETH, USDT, USDC, DAI) on Ethereum chain are able to vote. Each depositor’s voting power is dependent on the dollar value of their deposits (represented by ibTokens). The ETH price used for voting power calculation is ~$1529. The prices used are as of Mar 9, 11.08AM UTC.

The proposal will pass ONLY IF the following holds:

• >= 50% quorum is met.
• YES votes > NO_1 votes + NO_2 votes.

Specification

Here are the technical details of what will happen if the proposal passes and if IB agrees.

1. IB to pause interest accrual immediately on the 4 markets on the bad debt (ETH, USDT, USDC, DAI).
2. Alpha and IB to publicly confirm the final numbers for the total excess before execution. This can be done via social media platforms such as Twitter.
3. IB to return the total excess to this multisig address as agreed in step 2 by March 14th, 6AM (UTC), which will be returned to users.

Conclusion

We believe the best way forward is for our community to agree upon the plan to negotiate with the IB team to secure the return to Alpha Homora’s user deposits. This is the fastest way to get our user funds back, albeit partially.