Yesterday we shared a summary of the price manipulation incident that occurred on April 2, 2022. We will continue to provide updates throughout the coming days and weeks. Today we would like to share several high-level comments on mechanisms for addressing those affected users.
In addition to our commitment to making affected users whole, we are also committed to fiercely defending DOLA’s USD peg as well as avoiding using the INV governance token as a means of repayment. I’d like to explore these two commitments a bit further in the context of our current discussions and also share a brief update on our plans.
Keeping the DOLA USD Peg
As a fully-collateralized stablecoin that does not engage in governance token manipulations to maintain DOLA’s USD peg, Inverse cannot simply mint $15.6 million in DOLA today in order to effect the make-good. Flooding the market with DOLA in this way would tak e DOLA off-peg, likely in an irretrievable way that would end DOLA as a stablecoin. Therefore, sudden or massive minting of DOLA in this manner is off the table as a path forward.
Continuing our Support for INV
A similar impulse for some DAO’s and stablecoin operators is to mint new governance tokens to hand out as a make-good. This method would result in heavy downward price pressure on INV and is not part of our path forward.
In committing to make affected users whole, Inverse is bearing the burden of making good on what effectively is debt denominated in WBTC, ETH, and YFI. If the price of those assets rises, the amount of DOLA required to repurchase those assets also rises. Since we are seeking to reduce, and not expand, this exposure, as a DAO we are highly motivated to conclude this as quickly as practical and possible.
Note that there is a new proposal on GovernorMills that has passed quorum which reduces borrowing rates on WBTC, ETH, and YFI temporarily to 0%. This proposal is meant to minimize the accumulation of further obligations that the DAO will incur as part of the make-good. This also addresses interest costs being incurred by those who borrowed the affected assets. Implementation of this proposal will take approximately one week.
Joining The Curve Wars
Behind our approach is a shift in thinking about increasing the demand for DOLA. Until now, we have worked hard to avoid investing not only in Curve bribes but also in outsized liquidity mining incentives that become a crutch for many DAO’s. In November, we began to shift to Protocol Owned Liquidity with our first bonds on Olympus Pro, and in February we accelerated those commitments considerably with our INV+ implementation.
But while in the past we have viewed Curve bribes as an unsustainable and in-organic means of boosting liquidity, we now believe that in the short term, the interests of the DAO and those affected by the incident are best served by increasing DOLA liquidity (and, by extension, lending revenues) as Inverse Finance participates in the war for Curve incentives. While our actual strategy here is unannounced, we are bullish on our prospects for rapid expansion of DOLA circulation once execution begins.
It bears mentioning that Inverse’s partner ecosystem is proving invaluable as we analyze various options for Curve liquidity. We will leave that there but some of this will be apparent in the coming weeks.
Still being modeled are options for utilizing existing treasury assets, raising outside capital, and issuing bonds. We are considering all available options and will update the community as soon as there is relevant news to share.
In terms of how a make-good is likely to be executed, as the DAO generates or raises DOLA for purposes of the make-good, the current plan is for that DOLA to be converted into the assets held by those affected — WBTC, ETH, YFI — and deposited into Anchor. After the DAO makes the deposit, you will be able to withdraw your WBTC, ETH, or YFI just as you would have before the incident occurred.
In terms of the timing of the make-good, affected users would most likely withdraw assets in phases. In other words, affected assets on Anchor will be replenished on a periodic basis, not in a large, single replenishment. Whenever there is an Anchor replenishment, we will inform the community.
Our commitment to fully transparent and on-chain governance continues! There have already been two proposals submitted to GovernorMills since the incident: the first proposal re-allocates INV rewards previously directed to rewards for assets on Anchor (xINV stakers excluded) and the second reduces borrowing rates on affected assets as mentioned above. We will continue to announce any new proposals in Discord.
Thank you for your messages of support as well as your suggestions. The outpouring of encouragement from INV holders, other DAO’s, and many others is heartening! We are confident our community will emerge stronger from this experience.