Proposal for compensation for xToken hack

I can only echo this.

I think it well written and well argued. No platform can survive if affected users are left hanging.

The number i had in mind was closer to 50/50 or 2,5%, as i fully agree that victims has part in the responsibility as well. And this can be funded without compromising future growth perspective of the platform or for other non-affected users.

Running users under the bus, is not a sustainable way to achieve hyperbolic growth in long term.

Coming together as a community, and sharing the responsibility is.

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I’d like to make this proposal stronger in terms of what the project/community can expect in return for fair restitution - perhaps the quid pro quo can be more explicit. What about ensuring (via locking) that capital matching what was lost remain with the project (in some xToken, or staked LP, etc) for the duration of the vesting period. Locked capital could be a requirement for receiving the restitution.

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Agreed 100%. 5 - 10 % with any length of vesting (years long) seems much more fair. 10% value of funds lost is very disappointing.

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Could the 1% be adjusted up or down towards a 50% value lost target based on the XTK price in a year from now?

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I like the idea of a staggered vesting period with 2% vested over one year, and .5% vested over the second year. Or 1.5% vested over the first year and 1% vested over the second year. Even 1% vested over the first year and 1.5% vested over the second year. The supporters who were the earliest and strongest should be acknowledged for their contribution.

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This proposal refers specifically to losses to LPs. All xBNT value and the vast majority of xSNX value will be returned in full.

First of all, many thanks to all the community members who contributed to this post. It’s great to see coalitions of stakeholders debate the best path forward and then taking the time to follow through with a gov post.

From tracking conversations in the Discord and now here, there does not seem to be a clear consensus on the best resolution. It’s clear that our community has a variety of opinions and voices, ranging from full immediate compensation to no compensation at all.

We floated the idea of 1% of total XTK supply (1% of the permanent equity in our protocol) allocated to xBNTa/xSNXa LPs over a 1 year vesting period. There are some voices who want a higher payout. In some cases, it’s quite difficult to determine which voices are advocating for the best long term interests of the project and which simply want higher payouts.

In order to bridge this divide, I’d like to propose an increase in compensation to 2% of total XTK supply allocated in a way that most benefits true long-term believers in the project. We are extremely disheartened about the loss of LP funds and we want to keep the community members who are aligned with our long term success as engaged as possible.

Here’s how it would work:

  • We (xToken) will calculate total $ value of xSNXa and xBNTa LP losses for each address and distribute vXTK (vested XTK) proportionately

  • We will deposit 2% (20m) of total XTK supply to the vesting contract. These tokens will vest linearly every second over the course of one year

  • At any point, anyone can burn their vXTK for their proportional share of currently vested XTK. An example:
    – Person A owns 100 vXTK
    – Total vXTK supply is 1000, meaning their share is 10% of total
    – The year is 20% complete and no one has burned vXTK yet
    – 4 mil XTK (20% of 2%) has been linearly vested
    – Person A’s 100 vXTK are currently redeemable for 10% of total vested, which equals 400k XTK (10% * 4m)
    – Person A burns 100 vXTK for 400k XTK

    – Total vXTK supply is now 900
    – Person B owns 90 vXTK
    – Pre-burn, they owned 9% of vXTK supply (90 / 1000 = 9%). Now, they own 10% (90/900 = 10%) of vXTK

    – Fast forward a few months. We’re 50% into the year, meaning 50% of XTK is vested and 9.6m is available ((50% * 20m) - 400k) = 9.6m. No one else has burned.
    – Person B decides to burn their vXTK. They own 10% of vXTK supply and will receive 960k XTK (10% * 9.6m).
    – Person B owned less vXTK at the beginning of the period but received far more because they waited longer to burn.

While not always true, we can generally assume that those that wait longer are more long-term aligned with the project. This model for compensation achieves a higher payout for LPs while rewarding long term believers as well. Looking forward to the community’s feedback.

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Thanks for updating this. Can we do 2% on the first year + 0.5% in the 2nd year? That is what most of the community seems to think is fair.

Total loss was around 5%, so splitting it midway is only ethical. And its vested overs years so no threat of immediate dumping.

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I like MJC’s proposed solution a lot. It’s elegant, as it rewards long-term holders, and it provides an early exit for those that don’t believe in XTK’s long-term success. It sounds like it’s even tradable/transferable as well.

My only suggestion would be to see if we can make vXTK a total of 2.5% spread over a longer period of time (so a larger grant, but spread over 1.5 years). I think this is meeting a little more in the middle, per the calculations others have shared, while not having much negative tradeoffs/risk.

If that’s not possible, then I think MJC’s currently proposed solution is a great upgrade and sign of progress, and demonstrates that xToken really listens and cares about its community. Thank YOU!

[EDIT - Per dass2’s comment below, I edited this slightly, as I agree I didn’t think enough about opportunity cost. Also I believe delitzer makes very good points down below that I agree with.]

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Hi, I don’t think increasing the vesting period of the entire 2.5% is beneficial at all. 2% in 1 year is much better than 2.5% in 2 years considering opportunity cost.

I think if anything, it should be 2% in the first year + 0.5% in the 2nd year.

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I like this idea too. 2,5% still isnt that much but way better then 1%.

I know its also hard for the project and all holders but to compensate early investors/members/users seems really important for the trust into the project and the trust into the coming new products of it. If this will be done in a generous way this will be remembered over a long time.
If people stay salty, this also will be remembered forever.
I am just a small holder but to be honest for me its more bullish if the project tries to regain some trust here.

The loss was 10% with current worth of 25c. So 2,5% is 1/4 of that.

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This mechanism seems overly complex, introduces MEV risk, and is designed to further delay the already under-sized compensation being offered to affected LPs. [EDIT: @mjc716 corrected my understanding of the mechanism and I no longer believe it introduces MEV risk]

That last point should be emphasized further: I believe the overall compensation proposal to LPs is far too low. The increased proposal is only 20% of losses, paid out over a year, which is significantly below the standards set by other teams who have experienced hacks, such as Alpha Homora, Harvest, Yearn, and Rari Capital. In the latter case, their core team is contributing 100% (an overly-generous amount, IMO) of their allocated tokens back to the DAO, and the community held a vote to overwhelmingly support 100% reimbursement of losses.

All of the protocols mentioned above should be considered much higher-risk for users than xToken, whose core value proposition is “we help you capture the native yield of a token as simply and safely as possible.” While I think the xToken concept has incredible potential, this reimbursement plan sends a message from the team and community that users should not view xTokens as a safe place to allocate their capital, because even with massive team and community allocations held in treasury due to a quite sizable fully diluted network valuation, there is no willingness to fully backstop the users. This message will be heard loud and clear and will ultimately be far more destructive to long-term token value than the risk of market impact from making a much more generous reimbursement proposal now.

If we really want to make sure we only reimburse users who will hold XTK over the long term (which I think is misguided, but alright), we should consider working with UMA to do KPI options that are redeemable for XTK only once certain targets of TVL or liquidity are met. Current tokenholders should not be worried about this dilution, given it will only actually happen if the protocol is doing well and therefore the price should be up significantly from today.

Full disclosure: my fund (Nascent) was among those affected by the hack, but our loss was significantly less than the 7-figure (USD) exposure to XTK we have between what we currently hold and are vesting. We benefit far more from XTK increasing in value than getting reimbursed for our losses from the hack. We want to see xToken succeed over the long term, and hope XTK holders and the team reconsider this reimbursement proposal and move towards something more generous, which we believe will ultimately lead to better outcomes for all.

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Thank you for listening and taking the various appeals into consideration. To me this solution represents and an even fairer restitution for parties involved since it better aligns the interests of longer term supporters.

Couldn’t agree more with this. It’s in stark contrast to how the rari team is recompensating their users and building even more trust then there was before the exploit.

Long term focus of building XTK value would be to build trust from this exploit by compensating near 100%, not giving people a small pittance back and imposing vesting rules on top. If 2.5% is the best they can do, it will ensure I never touch xtoken products again.

The fact that they thought to start at 1% with stringent vesting makes me immediately lose confidence basically hoping for an 11x in xtk price just to break even from current eth/defi price levels. Imagine if ETH and defi continue running, people will continue losing confidence in this product

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agree 100%

believe the overall compensation proposal to LPs is far too low. The increased proposal is only 20% of losses, paid out over a year, which is significantly below the standards set by other teams who have experienced hacks, such as Alpha Homora, Harvest, Yearn, and Rari Capital.

we should at least match the average compensation of the above projects

rebuilding trust = rebuilding the token price

anything other than this will cause the token price to further decline

this is a learning experience, and thus should never happen again. we will all come out of this stronger if we build the trust back and keep it.

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Well said.
Everyone who holds XTK has been affected by the hack so I can understand the sentiment of being fearful of compensation getting dumped and pushing the price lower still. However the Xtoken’s reputation will be tied to how this situation is handled.
Weighing reputation vs decrease in token value my thought would be to err on the side of having a solid reputation.

Even bad publicity is publicity and right now there are many of eyes on Xtoken. This is an opportunity to show that the team stands up for it’s community.
This publicity can actually turn out to be positive in the long run if handled well!

I believe even if there was compensation that caused a price dump of say 20%, that would be easier to overcome than people speaking negatively in their respective communities because they felt uncompensated and dismissed.

Tiered vesting seems like an easy solution in which it will behoove those who receive compensation to continue to support and facilitate growth in the project.
Anything less than 2.5% I believe is unreasonable and puts too much of the onus on the community supporters.

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I think this is true and the best post right now.
How should anyone invest or use xToken, if they just move on and give 1/10 or 2/10 back vested? For their mistake? Them holding around 40% supply for the team?

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2% of supply is 20m XTK, and the hack was $25m, so the vested tokens will cover the hack value at 1.25, which isn’t even the previous ATH. Seems pretty fair to me, at least way more fair than many in the comments have been painting (and I also am both a very large XTK holder, and significant hacked LP victim)

If you don’t think we’re going to break ATH, then I question your belief in the project long term. I also think that no matter what the restitution there will always be people who don’t feel it is enough. The price is currently low due to the recency of the hack, and I don’t feel its fair to peg the long term restitution to the short term price action.

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I agree with @delitzer 's great points as well. I think it makes a lot of sense and resonates with a lot of the community. I wasn’t fully aware of the relevant benchmarks (Alpha Homora, Harvest, Yearn, and Rari Capital), so thanks for sharing that with us. After reviewing those, I think it’s a very high ROI investment in xtoken’s long term value that this is handled in a way that creates confidence for both current and future users, who will want to know that the team is behind helping make affected users as whole as possible, in the fairest way possible while balancing xToken’s long-term future.

Like @delitzer , my current vesting/vested stake in XTK is currently worth much more than my hacked losses (because most of my holdings were fortunately in xAAVE and xINCH), so I’m saying this as a long-term XTK holder/believer as well. This is great dialogue and I’m glad we are able to have this kind of engaged community.

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I would and I know a lot of community members would want a full compensation in vested XTK. This was also discussed on the discord by a few members but was dismissed strongly by the team.

I personally feel that 100% or close to that would be beneficial to XTK as well as the LPs. Rari was the recent example that made every victim whole and they are a small project too, so that excuse doesn’t really hold any merit.

The team and investors hold 33% of the supply and more than 50% is for the community. I don’t see a more accurate and ethical use of the 50% other than making community members whole. Ethically the team should take inspiration from Rari and use some of their own tokens as well but that might be too much to wish for at this point.

I indicated support at the 2.5% proposal out of not much choice. I think most support was due to this reason.

Long term, I am almost certain that no current LP will continue with XTK if they compensate only 10% of the hack amount and any new LP will think 10 times before joining. DEFI is still a small space and word travels fast. Projects like rari, yearn, etc regained confidence and came out much stronger than even before the hack. We should take inspiration from that rather than projects that failed the communities trust.

Also, @psybull is a mod so while I respect his opinion there is a very clear conflict of interest here. The $1.25 figure is a 500% increase from here. The price is what it is now, we should not be speculating on future prices as that makes no economical sense at all. Would you buy XTK from me at even +50% from the current price? No, right? Why not? Because nobody knows the future price, let alone a 500% increase. Saying people who don’t think the price will rise 500% don’t believe in the project is pretty absurd and an argument just for the sake of it.

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