Proposal to Reimburse Users Impacted by Hack

Proposal to Reimburse Users Impacted by Hack


As we all know, a hacker attacked the DFX protocol on November 10, 2022. I won’t belabor the point here, but massive effort went in to mitigate damage immediately and had success. Unfortunately, some liquidity providers did lose money in the hack. In total, $4,220,413.84 (USD) in value was lost by users. This is a proposal to reimburse the users who lost money in the hack, and to make this the “turning of the page” to the next chapter and growth of DFX.

Here is the TLDR – this is a proposal to pay back any person who lost money in the hack one (1) DFX per one (1) dollar lost. If you lost $1,000.00 usd worth of stablecoins, you would receive 1,000 DFX. To avoid flooding the market with DFX, the DFX will be time-released, block by block, over a three (3) year period.

It is also important to note at the outset that new security measures have been put into place by the DFX team and the protocol will be safer than ever upon relaunch in the coming weeks. In addition to a brand new audit, which will be published before relaunch, we will have an active Immunefi bug bounty program now that actively rewards and incentivizes white hat hackers to seek out and report bugs/issues to the team. On top of that, I know there are community members and discussions by the team with our friends at Insuredao, which would provide an option for any liquidity provider to purchase insurance on their liquidity if they so choose.


Without liquidity providers, the DFX protocol cannot function. It is imperative that our liquidity providers know that the team and community have their back. It’s equally important that everyone knows moving forward, the team did the right thing by their liquidity providers and will continue to strive to grow and expand the protocol.

We all agree that the next wave of crypto expansion into foreign markets will bring the need for non-USD stablecoins. DFX is uniquely positioned to be the market-leader in this space and we need to take advantage of that positioning. In order to do that, the DFX protocol will need cash flow to market and grow. It is my opinion that the debttoken idea, while a good idea in theory, would result in massive amounts of cash – which should be used for marketing and growth – leaving the protocol. Indeed, in order to buy back the debttokens, the team would’ve needed to spend anywhere between $3mm - $5mm over the next four to five years. That money comes directly from protocol fees that otherwise would go to growing the protocol. For that reason, I believe the debttoken is a bad idea.

A better idea would be to use DFX to repay those who lost in the hack. I believe it is (more than) fair to give DFX an assumed value of $1.00, especially given the time period of a three-year unlock. (In my opinion, the value of DFX could be over 100x that by the end of that period, but I digress :wink:). Of course to do this, we would need 4,220,414 DFX. I do not want to “steal from Peter to pay Paul” and take DFX from future emissions to fund the proposal, as I don’t believe that is beneficial to the protocol.

After discussing the matter with the founders, they have stepped up to the plate in a big way. This proposal will be funded as follows:

  • ~1.42mm DFX that was saved during the two-month revamp that otherwise would’ve gone to monthly rewards/emissions will be used.
  • The founders will provide the entire remainder of the amount needed, which will be ~2.80mm DFX, from their DFX allocation.

This is a HUGE move by the founders and, in my opinion, shows their dedication to the project and their users. I think they deserve a ton of credit for stepping up to the plate to help make this right, and while I’m typing here – I will give them a huge tip of the cap for leading the protocol the way it ought to be led. Mistakes and hiccups will happen, and it’s how you respond to them that matters. This is a masterclass in stepping up and doing the right thing by your users.

By providing the DFX out of their own wallets, they save the protocol literally millions of dollars in generated fees over the next several years that will help fund, grow and expand the protocol into dominating this segment of the cryptosphere.


  • The DAO would order the team to create a DFX Recovery Wallet.

  • The DAO would order the team to use its published list of wallets who lost money in the hack to apportion the appropriate number of DFX to each wallet, based on a 1:1 ratio of 1 DFX per $1.00 lost (usd).

  • This wallet will release each person’s DFX allotment over a span of three (3) years. This release will occur block by block, so we will not have a “cliff” or a massive flood of DFX into the market.

  • To fund the Recovery Wallet, the DAO would allocate the DFX saved over the two-month shut down/revamp to go into the recovery fund. This is 1,420,000 DFX. For simplicity, the DAO instructs the 1.42mm DFX saved be sent to the Recovery Wallet.

  • This will leave a balance of 2,800,414 DFX needed for full reimbursement. The founders will personally provide this DFX to the Recovery Wallet.

Proposed Changes

  1. There is no current plan to reimburse those who lost money in the hack. This plan would put into place a very simple, easy-to-understand recovery plan that gives each impacted user 1 DFX per USD lost in the hack. This will be paid out over the span of 3 years, block by block, to each impacted user.

Pros and Cons of the Proposal

Pros –

  • This model for reimbursement aligns everyone’s interests. Everyone – from holders to impacted users being reimbursed – are all focused on growing the protocol. The more the protocol grows and thrives, the better the token price will be, the better for all involved.
  • This allows protocol fees earned to be spent on marketing and growing the protocol, as opposed to buying back debttokens over the next 3, 4 or 5 years. The protocol is in a position to thrive with a loyal community. In my opinion, all that is needed is continued outreach and marketing to really make DFX the stablecoin marketplace of crypto. This proposal puts millions of dollars back into the protocol that can be used to do just that.
  • This proposal costs the protocol almost nothing. Because it is being funded by DFX that otherwise would’ve already been sent out as rewards and by the founder’s personal DFX allocations, the protocol is not “out” and DFX and is able to resolve its debt. Again, this is made possible only because the founders took responsibility and stepped up to the plate to provide their own DFX – at their expense – to help the protocol and its users thrive.
  • This proposal will not flood the market with DFX. It will release 117,233 DFX per month to the impacted users. This is not a massive increase, as the protocol already releases 710,937 DFX monthly in rewards/incentives. Many users who will receive the DFX from the Recovery Wallet will still be providing liquidity on the protocol and will be incentivized to lock the DFX to increase their rewards and voting power.
  • This proposal allows us to finalize debt repayment now and put the hack behind us, and build going into the future. The debttoken would’ve necessarily stifled growth and honestly, who wants to spend time talking about debt? Let’s rip the band-aid off and move on.
  • This proposal actually gives those impacted by the hack a chance to come out well ahead of where they started. In three years, would any of us be surprised if DFX is $25.00? $50? $100? I wouldn’t. Let’s just say a person lost $1,000.00. With the debttoken, the most the person would ever receive back (maximum) is $1,000.00. With this proposal, the 1,000 DFX the person receives may well be worth $100,000.00 in three years.

Cons –

  • The founders take a hit to their DFX holdings. This proposal was done with their consent and is not in any way malicious toward the founders.
  • There will be increased DFX released to the market each month, as discussed above.

Summation of Proposal

  • We instruct the team to create a DFX Recovery Wallet and fund it with 1,420,000 DFX from emissions that were saved during the shut down and 2,800,414 DFX from the founders.
  • We instruct the team to allocate those DFX to each impacted wallet on a ratio of 1 DFX per 1 USD lost in the hack.
  • We instruct the team to create the wallet in a manner that would disburse this DFX slowly, block by block, over 3 years (36 months).
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This is an unjust proposal. the bulk of the loss is allocated to impacted LP providers and they are forced to take >80% loss at current DFX valuations. The future expected valuation of DFX is not a relevant consideration unless it can be hedged. Meanwhile, DFX token holders and team treasury take a much smaller haircut. In typical insolvencies, users are to be prioritised ahead of equity holders.

To pass this proposal, it has to be unanimously agreed upon by hack victims. No one else, not DFX token holders, and certainly not the team have the authority to dictate what hack victims are repaid in. If this were to pass, I would expect potential future lawsuits could personally implicate the DFX team.


“To pass this proposal it must be unanimously agreed by the hack victims”

That statement is your wish not fact. To pass the proposal it needs to be approved by the DAO as per all other proposals.

There is another alternative, nobody gets any compensation. There are no terms and agreements signed or any enforceable law currently in DeFi (which I personally would welcome) which means that only because the protocol, the team and the DAO agree things do they happen. You are assuming DeFi is like a high street bank with all the terms & conditions and legal backing. At this point in time it is not.

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I think you are also missing quite a big point of this proposal, the founders are personally using their own private dfx allocation to fund this repayment proposal.

I don’t see many CEOs or company founders taking their own private funds to repay any victims when things don’t go well in established high street companies.


To put into perspective: in the last cream hack, the cream founders gave up their entire team allocation.

  1. DFX total supply 100mil
  2. Known DFX Allocation: LP emission 35%, Treasury 20%, Founders 15%, Future sale 5%
  3. Compensation plan: 4.2% or 4.2mil DFX to be compensated of which 2.8mil DFX is from 15mil DFX team allocation.

I would like to understand how the $1/dfx valuation is being used at an implied $100mil FDV with 3yr linear vesting.

My alternative will be to allocate 8.4mil DFX and at $0.5/dfx instead with same 3yr linear vesting. With a much fairer valuation for the earlier LP supporters we will be able to retain our current community of users. As for the additional 4.2mil DFX or 4.2% of the total supply, it can be drawdown from the existing allocations such as LP emission, future sales, treasury and team allocation.


Average 6months, 3m or 1m DFX price should be used for compensation. Not arbitrary number of 1 DFX = 1 USD.

Locks are too long imho, 1 year is better.


My alternative proposal based on the discussion so far:

  1. Issuance of ~4.2mil debt token to all impacted users

  2. Allocate ~4.2mil DFX to debt token/usdc LP balancer pool over a period of 2 yrs

  3. Debt token buyback from the team using up to 25% of the protocol revenue

The above is mainly to address a few concerns that were discussed

  1. $1/DFX valuation for the reimbursement plan: While Ryan has proposed 4.2mil DFX, I feel that a valuation of $0.5/DFX (8.4mil DFX) is a fairer approach or a TWAP formula can be used as highlighted by another member. With this proposal, impacted users will not only get additional 4.2mil DFX by contributing to the balancer pool, they will stand to be made whole with the buy back plan.

  2. Insufficient funds for protocol growth: With more DFX being used for the debt token/usdc pool, we can reduce the % of protocol revenue so that the team has sufficient leeway to use the remaining 75% of the revenue for further protocol growth.

In summary, this revised plan will allow the impacted LPs to be made whole again with the buy back plan(given sufficient time for the protocol to grow). Impacted LPs who trust the project long term will have no issues since $1 debt token will eventually be worth $1 USDC and they stand to gain additional DFX from the debt token/usdc LP pool which can be further used for veDFX lockup. As for the minority who wish to get out of the debt token or do not trust this project, this will also give them an avenue to accept the liability and sell their debt token. All other stakeholders will be covered since this 4.2mil DFX will be given to those “strong hands” who trust the project long term to put their money where their mouth is. Additionally, there will be no need for more DFX to be taken from the team/emission/treasury/future sales.


Agree with this. Brushing off impacted LPs with DFX 20C on the dollar is unacceptable. At a minimum, there must be a proportion of revenue allocated to buy-back debt tokens.

@chef you are right DeFi is not like a high street bank, but do not forget the team can be held personally responsible in the current legal framework. As someone that has lost six figures from this, I will not hesitate with initiating a lawsuit if an unfair outcome is forced upon me.

Will gladly cheap in for attorney fees if you decide to proceed this way.