Moonwell Proposes Using Digital Assets to Offset FRAX Debt: Controversy Follows
Summary:
Moonwell, a DeFi borrowing and lending protocol, has proposed using its $2.3 million worth of digital assets to offset bad debt from a nearly two-year-old hack affecting its Frax Finance pools. The proposition, endorsed by 25 million votes in an online plebiscite, suggested using a mix of Nomad collateral and protocol reserves. However, few users, including Horatio Lukas, criticized the move, arguing that individual stakeholder approval is required before using their assets. None of these allegations have been legally verified. Discussions surrounding Moonwell's recovery from the security breach, including potential strategies for repayment, continue to be ongoing.
Moonwell, a decentralized finance (DeFi) borrowing and lending protocol, has proposed using its digital assets, worth $2.3 million, to rectify financial damages from an almost two-year-old hack affecting its Frax Finance (FRAX) pools. However, this proposition has received mixed reactions from users. An online vote held on December 31, 2023 sought to garner approval for this initiative, with 25 million WELL tokens (Moonwell's currency) advocating for the utilization of Nomad collateral and protocol reserves to deal with the FRAX debt. However, the current protocol reserves stand at $466,000, which falls short of the FRAX liabilities.
The voting saw a staggering 98% approval, surpassing the 10 million WELL requirement, albeit with only 57 participating entities. The protocol proposed the exchange of selected Nomad assets to repay the FRAX liquidity if the proposition was approved.
A user, Horatio Lukas, however, argued that the Nomad assets intended for use belong to individual stakeholders and cannot be used without their approval. He alleged that Moonwell stands to profit from these misappropriated funds and argued that it does not seem fair for those not holding Nomad assets to vote on the issue. None of these accusations have been substantiated legally. A lawsuit against Nomad provided by Lucas, interestingly, does not list Moonwell or Frax as defendants.
In 2022, Moonwell and Nomad token bridge had formed a collaboration for incorporating Bitcoin, Ethereum, and other stablecoins and altcoins into their platforms. The connection proved problematic when Nomad bridge was manipulated on August 2, 2022, to siphon off $190.7 million, thereby also affecting Frax Finance. Currently, Moonwell's bad debt concerning FRAX tokens stands at $2.9 million. Users who had submitted collateral for DeFi lending through Nomad on Moonwell were also impacted by the breach.
The ongoing deliberations regarding the hack aftermath have led to Moonwell’s proposal. A representative from Moonwell rebuffed the allegations, stating that the snapshot vote was a non-binding way of determining the Moonwell community's consensus. Any actual withdrawal of dormant Nomad assets needed a binding on-chain vote with a higher requirement. The spokesperson also criticized dissenting users for circulating misinformation about the vote, inviting open discussion for amicable resolutions.
However, discussions about Moonwell's recovery measures continue. Some participants in the exploit declared intentions to return the tokens. With Nomad bridge resuming its operations, albeit with reduced popularity, the consequences of the exploit endure. Frax Finance did not provide comment on this matter as of the time of publishing.
Published At
1/19/2024 5:00:00 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.