U-Tokens recovery with Waves DAO and Feature 23
Hello guys,
This is a discussion topic for the Waves DAO participants, miners and the entire community.
As you probably know, on 1st of February the incident happened, which isn’t connected to Waves at the first look, but eventually threatens its stability (again): the CrossCurve exploit. CrossCurve is a 3rd party bridge which provides essential tokens to both Units Network and Waves Protocol: WBTCu, ETHu and USDTu. The exploit happened despite all audits, large VC rounds, big names in investors list – and became an unfortunate example of black swan event.
The total losses account for $1.5m out of which $1.3m are taken by Units and Waves users. My project Puzzle and I personally became one of the largest victims with $740k in affected assets – this includes but is not limited to WEBU pool, Puzzle reserve fund and Rome Keeper. The list of affected users is also huge, because many used USDTu as a safe haven.
Multiple recovery processes are still ongoing:
– CrossCurve announced a recovery program,
– hacker tracing,
– negotiations with CrossCurve,
– I’m personally trying to reach out to the hacker on-chain to explain how crucial his actions are.
However I am also willing to ask your opinion on whether we can help fix it with Waves DAO and Feature 23 activation. Let me explain the idea in this post.
About Feature 23
Feature 23 is not accepted, yet, but is positioned to be a “fix it all” update for the Waves protocol, boosting WAVES token inflation x10. The feature suggests using this inflation to buy and burn more XTN (previously USDN) as a big step towards making users from 2022 whole. Additionally, Feature 23 boosts rewards for miners and the Waves DAO, both parties are getting 20 WAVES per block each.
My idea is to set up a DeFi environment and run a proposal in the Waves DAO to use 7 WAVES per block for U-Tokens recovery in the next 300000 blocks after feature 23 activation.
Unlike USDN buy&burn mechanics, the setup for U-Tokens recovery shall be designed differently: in a way that the DAO keeps the tokens and gets a small chance to earn upside on them.
Technical implementation
- Create megapool with affected tokens and WAVES
PuzzleSwap has a megapool functionality. A special pool (or “range” without the min/max prices) will be created consisting of:
-
20% in WAVES
-
80% in WBTCu/ETHu/USDTu - weights split proportionally to USD values of affected assets
- Setup smart account
The account will have a verifier controlled only by the Waves DAO and one callable function: extendPosition – which uses WAVES on the account balance and adds it to the pool using singleTokenDeposit function in the pool. This function automatically buys all tokens in correct ratios and puts them in liquidity. As a result of such invocation, Waves DAO will get an LP token from the pool – basically it will hold the U-Tokens and earn commissions from their trading.
- Vesting 7 WAVES per block with a limit of 2.1m WAVES to this account
Run a regular proposal to the Waves DAO to vest tokens to that smart account. Let bots call the smart account function to do the rest of the job. Allow the DAO to manage its LP position and U-Tokens in future with new proposals.
Calculations
With this, the DAO would be expected to spend 2.1m * 0.8 = 1680000 WAVES on U-Tokens purchase, which at current price is roughly equal to 800k USD. With $1.3m of affected assets, this means an average price of purchase would be 800k / 1300k = 0.61 USD per 1 USD worth of debt.
To put it simple: victims can exit by accepting -39% loss, the DAO gets a chance for +66% upside in case if CrossCurve compensation plan works out, hacker gets traced or some other positive event occurs, which looks not too likely, but would be so good to have.
…
Most importantly, this idea positions U-Tokens next to USDN in a list of issues that have to be resolved and can be resolved with Feature 23.
I’m sharing this concept to know your opinion on the CrossCurve situation and this possible solution. I know that this proposal would be supported by a vast group of exploit victims and a part of the community which is afraid that Waves can barely live through another bridge failure. I also know there might be an opposing opinion, often published by WFN “why do miners have to pay for others’ mistakes?” – which I also understand.
Hence, I would really appreciate your feedback on this idea and overall thoughts regarding CrossCurve exploit consequences. I have some WAVES and feel inclined to vote for Feature 23 if this idea gets preliminary support – to “fix it all”.
Let me know your opinion!
And thanks for mental support during this difficult time.
Vlad from Puzzle