Summary
This is a counter proposal to the initial draft of the compensation plan proposed by the core team and the snapshot vote DIP-18. We think our following proposal will best compensate all the affected LPs and making the protocol more transparent with brighter future.
Issues with the initial draft
The examples of Corn and Grain cited in the initial draft should not be considered successful recovery attempts. Their respective value is trading far below 1$, and the burning progress in the first year for Corn happened in the broader context of an unprecedented bull market. Burning progress over the past 6 months is far less impressive, that’s the picture we would most likely be looking at in the case of DFX.
It doesn’t seem fair that the DFX project team is not pitching in from their corporate funds to help with the recovery. They are asking LPs to bear the entire risk and burden of their coding mistake. DFX project team needs to help in more material ways for DFX to regain trust and have a chance at a future.
It would seem fair that the DFX team offers transparency over the status and amount of their corporate treasury.
Issues with snapshot vote
With only 4 days after the initial draft being published, the core team quickly moved the proposal to snapshot vote without enough discussion with the community and allowing alternate proposal.
The snapshot only allows for veDFX to vote which only comes out together with v2. A decent number of LPs have not yet got ve token since it is quite new.
ve token holder may not act the best interest of the community and the victims of the hack. One of the big voters voting “yes” for DIP-18 looks very suspicious, looks like VC or core team member who just lock in the ve token for the voting.
Return all the recovered funds to all the affected LPs based on the snap pre-hack. This shouldn’t be contingent to a vote by the community.
In addition to the emission of the debtDFX token described in the initial draft, the DFX team will disclose publicly the state of their corporate treasury. A quick calculation based on the DFX emission plan, founders and the treasury hold 35% of the circulation which is roughly 2.8 mil USD, this is in addition to a 5 mil USD raised from private investors in 2021. For the sake of the demonstration, let’s assume that DFX currently holds $2m liquid asset.
After emission and distribution of the debtDFX token to all the impacted LPs, the DFX team will buyback debtDFX tokens from LPs that are willing to sell using their entire corporate treasury at a value of 1$ per debtDFX token, the DFX team will now be holding $2m in debtDFX token to continue operating.
Total missing funds from the exploit are approx. $5m, in this scenario assuming $2m distributed from the DFX team to LPs, these end up holding 40 cents on the dollar in cash, and 60 cents on the dollar in debtDFX tokens.
All the affected LPs are eligible to vote for the proposal. For this major incident of the protocol, the decision shall be made among all the LPs instead of ve token holder.
Benefit of the new proposal
Stakeholder (Team + LPs) end up having a vested interest in the future success of DFX and can keep the LPs for the protocol for longer time.
Minimize the present value of the losses for all the LPs.
“let’s assume that DFX currently holds $2m liquid asset.” seems to be very optimistic, Many people don’t want to hear about the possibility of issuing new DFX simply because of dogmatism, but I think it’s a good option, which can be used in coordination with other options.
I think we need more transparency from the DFX treasury, while in the initial plan by the core team there is no material ways to compensate LPs from their treasury.
An expected buy back of under 20 cents per debtDFX token
Zero remaining cash for continued operations
There needs to be a very clear acknowledgement by the community that “this proposal will trigger the immediate dissolution of the DFX development team”
A major consequence of this may be the future value of DFX tokens and the operations of the protocol
Alternate proposal 5:
Votes are done via veDFX, based on onchain verifiable commitment to the long term health of the protocol. This is by design because LPs and short term DFX holders can be mercenary and intend to only hurt the protocol for personal gains. veDFX incentivizes/signals long term commitment to the protocol. Voting should be decided by those with long term incentives to create a prosperous protocol
Hi Kevin,
I would like to highlight the above point you have mentioned. Do you mean to say that the DFX team has ~$1mil in treasury runway left? If so, I have the following questions:
How much runway(in mths) does this equate to?
Is this $1mil in cash? What about the team token as well as unallocated DFX token earmark for future sales?
I understood someone mentioned about the 750k/yr revenue for the 1bil vol DFX has made over the past yr, what happen to these funds in question?
I believe no one is looking to dissolve the DFX team but rather we are looking at a solution which benefits all parties.
I won’t comment too much on runway and treasury, but you can draw your conclusion based on the numbers provided.
There is 5M DFX allocated for a future token sale, but given the current market conditions and the token price, this will not provide much relief, if any.
Protocol revenue was not turned on in v1, 750k/yr revenue is projected based on previous volume.
If the project is dissolved, any unallocated DFX will probably be useless(or worth much). My initial proposal on the DFX telegram is to seek for LP compensation from various allocations(treasury, team allocation, future sale). Using the recent cream hack as an example, the team gave up their team allocation as part of the compensation. The key is to strike a balance between what is acceptable by the team and all affected LP and to get v2 restart ASAP. What I have earlier proposed in the TG chat is using current DFX allocations without minting additional tokens. I suggested using 14mil DFX tokens as a compensation based on ~$0.36/dfx price at pre-hack. This in a way make all affected LPs be liable for 50% loss incurred from the $5mil hacked (since selling at current price will imply a 50% haircut or more if slippage is factored in).
Do let me know what are your thoughts on this as well as any further proposals from the DFX team
