LIP#10: Remediation

MOTIVATION We are aware of an issue where an individual (or group of individuals) was able to profitably trade against the AMM by actively manipulating BNB prices on Binance while simultaneously taking profit on a number of perpetual DEX’s, including LEVEL. The trades began at 2023-02-16 09:00:53 UTC with a series alternating long and short positions that resulted in a total profit of ∼$260,000 across several wallets. A hot fix was implemented on 2023-02-19 2pm UTC by capping BNB shorts at $1M and tightening Chainlink parameters. This is similar to measures taken by GMX when a trader manipulated the AVAX price and drained about $430,000 from GMX LP’s. In our case, the trader erased roughly 1 and a half days of platform revenue.

PROPOSAL While these types of situations are easily addressed under a centralized orderbook model via trade cancellation and the prevention of withdrawals, LEVEL is a decentralized liquidity protocol. It can neither cancel trades nor prevent users from withdrawing; even those who act with malicious intent. The team however is committed to do right by the community and proposes to purchase all existing LLP tokens at par on the date of the BNB manipulation. If the proposal is successful, we will first begin by retiring the mezzanine tranche, which was most affected by recent BNB manipulations, at $1. Affected LP’s may surrender their existing LLP tokens along with LVL rewards earned during their staking period in exchange for USDT at par. Once 80% of the mezzanine LP’s have been redeemed, we will redeem Junior and Senior tranche in a similar fashion. Going forward, the Protocol, along with the team will become the primary liquidity providers to the platform. As it was already a part of the original roadmap in 1.5 to carve out a portion of daily fees generated into a separate LVL staking pool, users can still benefit from the platform's success by staking LVL tokens.

In the event the LEVEL community chooses to not redeem existing LP tokens, we will go back and create a snapshot of all positions within the contract on 2023-02-16 17:00:53 for Junior, Mezzanine, and Senior tranche and airdrop the difference in either LVL or BUSD. The exact methodology and timeline will come in a subsequent proposal and be voted on by the community.

Separately while undergoing remediation and itemized re-calculations for each of the existing LP’s, we found a bug in the LLP pricing mechanism where some of the fees earned from leverage was not being added back into the final calculation of the LLP token price. This resulted in an additional ~$1m of accrued interest in the contract that is owned by existing LP’s but not reflected in the token price. A hot fix will be deployed in the next 12 hours to remedy this issue, and a subsequent proposal for claiming these fees will also be made if the community chooses not to redeem existing LP tokens as proposed herein.

The team is fully committed to doing right by the LEVEL community. While we cannot be certain that mistakes will not be made given the complexity of LEVEL, we endeavor to act in an honest and transparent fashion. Thanks again for your continued support, and your feedback along with our efforts have once again advanced LEVEL one step closer towards becoming a leading marketplace for decentralized liquidity.

VOTING OPTIONS Choose one of the following options to vote on:

1. YES - redeem all existing LLP’s in Tranches and let the protocol assume future LP risks going forward.
2. NO - continue deploying LEVEL 1.5, make whole existing LLP’s, and airdrop the difference caused by the attack.

ELIGIBILITY Only LGO token holders are eligible to vote.