On April 2nd, 2022, our money market product, Anchor, was subjected to a price manipulation attack. The attack resulted in a sharp rise in the price of INV which subsequently enabled the attacker to borrow $15.6 million in DOLA, ETH, WBTC, and YFI.
Immediately after the attack we publicly stated our commitment to make affected users whole, and to fiercely defend the DOLA USD peg. Every DAO’s respond differently to incidents like this one, but from the beginning our goal was to make our users whole as quickly as possible.
We are now ready to share our proposal for honoring our commitment to make users whole.
For Inverse, repaying means balancing multiple risks – DOLA peg, risk of price rise of affected assets, minimizing the impact on the INV governance token – with the need to provide a viable but sensible plan. For a DAO still in “startup” mode, this initially looked like a very big hill to climb but after much debate and – we think – creative product and financial planning, there is a framework that not only will keep users whole but points to new growth areas for the DAO that were less obvious before April 2nd.
Today we can share the details of the plan we’ve proposed to keep affected users whole. The proposal, which has been posted via on-chain governance , provides for the full repayment of users affected in the April 2, 2022 price manipulation incident utilizing multiple tranches of revenue as well as debt.
Our multi-tranche approach
This plan provides for the full repayment of affected users in the native token affected, not DOLA. So if you deposited WBTC, you’ll be getting WBTC back. The value of assets on April 2, 2022 was marked at $15.6 million, however for purposes of this plan, liability incurred by Inverse is currently marked at $8.8 million. This is due in part to the $4 million in DOLA that was included in the $15.6 million which is, in effect, being absorbed by other DOLA borrowers. The number is also reduced due to recent downward price action in WBTC, ETH, and YFI.
To repay the $8.8 million, then, we’ve created multiple repayment mechanisms – tranches – that will be pursued more or less in parallel. As revenue or assets are generated through the execution of these tranches, the DAO will replenish the affected markets and notify affected users that they can withdraw. Withdrawal, therefore, will take place over time and not in a single transaction. Regardless, due to the risk of the underlying assets increasing in price, we plan to move as quickly and prudently as possible to complete each tranche.
The proposed tranches are as follows:
Tranche A: An initial treasury payment of $300,000 to be paid on June 1st, 2022
Tranche B: A minimum monthly revenue sequester ($5.4MM estimated contribution) and steady allocation of Inverse revenue to debt repayment. The source of revenue will be treasury and lending operations. Revenue will be diverted to repayment fund via a dedicated sequester contract. Repayment will be subject to monthly or quarterly DAO approval. We propose the revenue sequester begin July 1st, 2022 and be paid out monthly. We estimate the monthly revenue sequester will provide $300K per month or $1.8MM in year one and $3.6MM in year two.
Tranche C: Retire revenue sequester contract early via long term debt. In Q3/Q4 2022, Inverse will confirm the revenue flows from the dedicated revenue sequester contract and evaluate bids to sell that contract to a third party lender. A lender(s) would provide Inverse with the full $5.4 million against future revenue flows from the revenue sequester contract, allowing for more rapid repayment to affected users. Multiple configurations of this long-term debt are possible.
Tranche D: Inverse-operated liquidations, allowing Inverseto capture revenue previously reserved for third parties on Anchor.100% of liquidation fees will be diverted to repaying affected users until fully repaid. We estimate that Inverse-operated liquidations could affect $3.1MM in estimated contributions. We propose beginning the liquidation on August 1st, 2022, and we estimate liquidations would provide an average of $100,000 per month in year 1. Revenues from liquidations estimated to exceed this significantly in year 2. Liquidation fees would be 12.5%
Tranche E: Possible additional treasury opportunities. If necessary,this tranche allows for additional revenue generating activities to offset shortfalls from other tranches, including but not limited to yield farming and bond sales.
When Will Payments Be Completed?
Currently, we are not proposing a firm repayment schedule, but will seek to complete this make good as quickly as possible. Our goal is to preserve the flexibility to accelerate or decelerate payments based on market conditions. The DAO therefore will make affected users whole as quickly and as prudently as possible while:
Fiercely defending DOLA’s USD peg
Ensuring continued success of our DOLA liquidity strategies on Curve and elsewhere
Avoiding the abuse of INV governance tokens
At this time we do not envision a need to cap the DAO’s liability in this plan, we will monitor the price of WBTC, ETH, and YFI and should the value of one or more of those assets rise unexpectedly and beyond our ability to reasonably generate DOLA revenues to repay those debts in a timely manner, the DAO may vote to limit the total amount of DOLA diverted towards repaying those debts. This plan is a first step in the repayment process. If the DAO approves this plan, we will move forward with the requisite plans and proposals to execute other tranches mentioned above. One of those tranches—an initial $300,000 payment for affected users—is included in the current proposal and, if approved, will be disbursed on June 1, 2022.
We hope you’ll join us in supporting this plan. While the numbers may seem large in light of our size today, we think the value of our community, our xINV holders, our 409’ers, our partners, and other members of the Invader ecosystem are under-valued by the market and in the coming months, this commitment to keep our DAO on track towards our goal of 1 billion DOLA in 2022 was not just the right thing to do, but the thing that got us to that goal even faster.