[Proposal] Collaboration in Crisis: A Balanced and Fair Compensation

Security Incident
1

Updates

  • Update 25/May: Updated Analysis of $ALEX Selling Pressure and STX/ALEX Liquidity Impact if the Proposal Passes (the end of this post)

Key Terms Explained:

  • Guaranteed STX: This is the amount of STX that each community member should ideally have had there been no security exploit, as determined by the state of accounts at block #150610.
  • Guaranteed ALEX: Similarly, this represents the amount of ALEX that should be in users’ wallets, based on the snapshot at block #150610, assuming no exploit occurred.
  • Remaining Cycles: This term refers to the originally set waiting period for withdrawing funds from the Liquidity Pool (LP) under normal conditions.
  • Recoverable STX: This is the amount of STX that the ALEX team has managed to secure back from various sources post-exploit.

Proposed Solution Steps:

  1. Fair Distribution: The ALEX team plans to distribute the Recoverable STX fairly among all LP holders based on their share of the pool. For example, if a wallet accounts for 1% of the LP’s total value, it will receive 1% of the Recoverable STX, referred to as Restored STX.
  2. Calculating Loss: The team will determine the STX shortfall, termed as Lost STX, using the formula:
    Lost STX = Guaranteed STX - Restored STX
  3. Compensation with ALEX: To address any Lost STX, the ALEX team will provide ALEX tokens at a rate agreed upon by the community vote, such as 1 STX = 10 ALEX. This will be termed as Compensated ALEX.
  4. Respecting the Waiting Period: The original Remaining Cycles will be used to determine when users can start accessing these compensated ALEX tokens.
  5. Supportive Vesting Period: To further support the ecosystem, the compensated ALEX will be released over the maximum cycle duration used in farming, which is 32 cycles (about 128 days). Each cycle, a portion of the compensated ALEX will become available to the users.

To determine the amount of ALEX released per cycle during the vesting period, the following formula is used:

ALEX Released Per Cycle (for 1 wallet) = Total Compensated ALEX (of that wallet) / 32

Where:

  • Total Compensated ALEX is the total amount of ALEX tokens allocated as compensation for the Lost STX of a wallet

Example:
If a user is to be compensated with 320 ALEX tokens, the amount released per cycle would be calculated as:
320 ALEX / 32 cycles = 10 ALEX per cycle

  1. Reward Adjustment: Recognizing that users would have earned rewards if the exploit hadn’t occurred, the ALEX team will also add these expected rewards to the compensated ALEX, ensuring no loss on potential earnings.

To calculate the rewards users would have earned if not for the exploit, an additional amount of ALEX needs to be added to the Compensated ALEX:

Final Compensated ALEX = Compensated ALEX + Expected Rewards

Where:

  • Compensated ALEX is the initial compensation calculation from Step 5.
  • Expected Rewards is the estimation of rewards that would have been earned during the period affected by the exploit, calculated based on historical data or average yield rates.

Example:
If the Compensated ALEX were 320 and the Expected Rewards calculated based on past yield were 20 ALEX:
Final Compensated ALEX = 320 ALEX + 20 ALEX = 340 ALEX

Handling Unforeseen Circumstances:

I. Recovery of Additional STX:

If the ALEX team recovers additional STX or secures more through borrowing during the compensation period, they will distribute these newly recovered STX directly to users as outlined in step 1. Following this, they will recalculate the required compensation in ALEX based on the previously agreed-upon rate, as described in step 3.

Here’s How It Works:

  1. Give Back Recovered STX:
  • As soon as the ALEX team recovers any STX, they give these STX directly to the users based on how much each person originally lost. For example, if you were supposed to get 1% of the total lost STX, you’ll get 1% of the new recovered STX.
  1. Adjust ALEX Compensation:
  • After giving back the recovered STX, the team recalculates how much ALEX they still need to give to fully compensate for any remaining lost STX. They use a set rate to convert STX into ALEX (like 1 STX = 10 ALEX).
  • This means if they give back more STX, they need to give less ALEX because the total loss has decreased.
  • The formula for recalculating the compensation if more STX are recovered is:

Adjusted Compensated ALEX = Current Compensated ALEX - (Recovered Additional STX × STX to ALEX Rate)

Example:
If 10 additional STX are recovered and the current Compensated ALEX is 340:
Adjusted Compensated ALEX = 340 ALEX - (10 STX × 10 ALEX/STX) = 340 ALEX - 100 ALEX = 240 ALEX

Where:

  • Current Compensated ALEX is the ALEX amount currently set for compensation before the recovery of additional STX.
  • Recovered Additional STX is the amount of STX additionally recovered.
  • STX to ALEX Rate is the conversion rate from STX to ALEX agreed upon by the community (e.g., 1 STX = 10 ALEX).

What This Means:

  • This method is ongoing. Every time the team recovers more STX, they adjust how much ALEX they need to give out. It ensures that everyone gets back what they lost in a fair way.
  • The ALEX team keeps doing this throughout the whole period they’ve set for giving back losses, making sure every new bit of recovered STX is accounted for and users get their due share.

II. Shortage of ALEX:

If there are not enough ALEX tokens available, the ALEX team will tap into the founders’ and team’s reserves to meet the compensation commitments. In such a scenario, it is essential that the founders sacrifice a portion of their tokens to demonstrate their responsibility.

Key Points of Fairness and Balance:

  1. Equitable Compensation: We are set to receive fair compensation for our losses through a combination of restored STX and ALEX tokens. The formula used ensures that everyone receives a proportionate share based on their original investment, which feels just and equitable.
  2. Vesting and Stability: The decision to distribute the compensated ALEX over the original remaining cycles (32 cycles) respects our initial expectations regarding liquidity and helps prevent market flooding with ALEX tokens. This approach not only protects our investments from potential price dumps but also shows foresight in maintaining the overall health of the token’s market value.
  3. Inclusion of Expected Rewards: Including an adjustment for the rewards we would have earned had the hack not occurred adds another layer of fairness. It acknowledges not just the direct losses from the stolen assets but also the opportunity costs, ensuring that our potential earnings are respected.
  4. Dynamic Adjustments for Additional Recoveries: The proposal’s flexibility to adjust the compensation based on additional STX recoveries during the compensation period ensures that the compensation remains fair and aligned with actual losses. This dynamic adjustment mechanism is crucial for maintaining trust and fairness as it adapts to new developments.
  5. Use of Founders’ Token if needed: The readiness to use the founders’ and team’s reserves in case of an ALEX shortage underlines a strong commitment to fulfilling the compensation promise. This reassures us that the team is prepared to prioritize user compensation over other potential financial allocations.

Overall Fairness and Transparency:

From a user’s perspective, this proposal not only aims to make us whole to the best of the team’s ability but also does so in a way that ensures the long-term viability of the ALEX token. By inviting community feedback and putting critical decisions to a vote, the team is maintaining transparency and inclusiveness, crucial for rebuilding trust.

In conclusion, the proposal represents a thoughtful balance between compensating users fully and protecting the ALEX ecosystem’s integrity and stability. It acknowledges the sacrifices we, as users, have made in terms of both the significant amount of STX lost and the extended vesting time. The measures taken to ensure the stability of the ALEX price further reflect a responsible and user-centric approach, making this proposal a fair resolution in the wake of the challenges we have faced.

What is lacking in this proposal?

There are shortcomings in the liquidity of this proposal.

The proposal for recovering and distributing STX and ALEX tokens omits crucial details about reinforcing liquidity pools, which are vital for the smooth functioning of decentralized exchanges.

Key recommendations:

  1. Direct Funding of Liquidity Pools: It’s essential for the ALEX team to allocate additional resources directly to liquidity pools to ensure market stability and user confidence.
  2. Separation of Funds: The plan should clearly separate funds used for compensating affected users from those allocated to enhance liquidity. Using recovered STX for liquidity could undermine the compensation process.

Update 25/May: Updated Analysis of $ALEX Selling Pressure and STX/ALEX Liquidity Impact if the Proposal Passes

I’ve conducted a detailed analysis to predict the selling pressure of $ALEX under the worst-case scenario.

Assumptions:

  • STX/ALEX ratio is set at 1 STX = 10 ALEX, deemed satisfactory for all.
  • Current financial overview of ALEX as detailed here: ALEX Financial State

Financial Summary:

  • ALEX holds 160 million $ALEX tokens, currently valued at $32 million (assuming $ALEX price is $0.2).
  • They possess $7 million in USDC, with $1 million allocated for operational expenses over the next year, leaving $6 million USDC.

Worst Case Scenario:

Compensation Calculation:

  • Original STX loss is 13.7M STX.
  • With a 1:10 ratio, ALEX would need to return 137M ALEX and 13.7M STX.
  • With only 150k STX recovered, the final STX required = 13.7M - 150k = 13.55M STX.
  • This translates to a need for 135.5M ALEX for compensation (1:10 STX/ALEX rate)

Remaining ALEX:

  • Total ALEX left after compensations = 337M (total holdings) - 137M (returned ALEX) - 135.5M (compensation ALEX) = 64.5M ALEX.
  • With $6M USDC, equivalent to about 3M STX, they can add 3M STX and 30M ALEX to the liquidity pool, leaving 34.5M ALEX.

Adding to Liquidity Pool:

  • It is advised that ALEX be added to the liquidity pool before starting user compensation.

Market Impact:

  • Even in scenarios where no additional STX is recovered and no further liquidity is added, the pool would still hold a value of 12M, which is 20% of the TVL before the exploit. (Data on Defillama and Signal 21)
  • Assuming a 1-month average cliff time for users, with a 4-month vesting period, if all compensated ALEX (272.5M) is sold off, it would equate to 8M ALEX being sold every 4 days over 32 cycles.

Conclusion:

  • The calculated selling pressure of 8M ALEX every 4 days under a no-buy scenario isn’t as severe as anticipated. This scenario provides a more manageable outlook on $ALEX’s market stability post-compensation.

This analysis intends to provide a clear view of the potential market dynamics following the implementation of the proposed compensation plan.

8 Likes
2

Best solution I‘ve read so far. To address the liquidity issue you could add the rule that one is only entitled to COMPENSATED ALEX if the RESTORED STX is locked up in a liquidity pool over 32 cycles (the vesting period of the compensated Alex).

1 Like
3

Very well, and extensively, put.
Major hic about this, is your last point (“lacking in this proposal”).
If we want this to be a win for all/most users, we need ALEX to stay strong and evolve.
The part of making sure ALEX stays flexible and liquid is probably one of the, if not the, most important thing to think of.
I’m all aligned though that with what and how things went with the phishing attack, ALEX’s team needs to show they have skin in the game and needs to be ultra transparent regarding funds and that they took the hit with all users also, keeping in mind that a business needs to insure liquidity to survive (and pay back what was lost, in time).

4

Your proposal is the only one to salavage the alex token with measures to make us whole

5

Thank you Khao. Well formulated and communicated proposal. I appreciate the emphasis on fairness and the understanding of the limitations in resources that ALEXLAB has to meet our requests. Like many other large and long-term supporters of ALEXLAB (including LISA and XLINK), I was dismayed at the proposed unequal distribution of STX by grouping multiple small accounts in CAT 1 in order to announce an 80% reimbursement rate of STX. This is a slight to the most loyal and involved accounts and serves to deteriorate this important base of support. Like many others, assets I have allocated into the ALEXLAB ecosystem extends beyond the affected pools. I have a strong interest in seeing ALEXLAB, LISA, and XLINK succeed and believe that a fair approach maintains the foundation for future rebuilding. I had hoped ALEXLAB would find another way to obtain STX for reimbursement and liquidity. I am sure OTC trades, loans and raises has been explored. I do have to mention that one area of communication I have found problematic is the lack of ownership of fault. This leak was preventable and sloppy. Communication continues to emphasis lost user funds but has not mentioned teams personal responsibilities to the theft or their users. Thank you for bringing up these issues and developing solutions.

1 Like
6

This is very well thought out and well explained.

However, I have misgivings about some elements.

Firstly, missing from the outset has been more detail about the security mishap itself and an acknowledgement of fault. Messaging framed in terms of “supporting the community” will not cut it. I strongly believe that this needs to be addressed or users will lawyer up. It’s really that simple.

Secondly, the “reserves”, which I believe is what would fund the proposed full restitution for the smaller 3200 wallets, are not meant to cover losses derived from a compromised key. They are there to cover collateral shortfalls due to market events. AlexLab should not use these funds without community support, period. I’d actually support this idea, but I wouldn’t be happy at all if it were done without my say so.

Thirdly, shit happens… However, we took STX/ALEX rebalancing risk by locking into the contract, evidently in exchange for yield. What wasn’t part of the deal were keys being compromised. Therefore, I cannot see the “community” supporting any type of deal that doesn’t impose losses (even partial) on the foundation, the founders, the employees and the “early investors”. This is what would happen IRL. We can, and likely will have to, bear some cost in order to keep AlexLab afloat and to enable it to recover and then thrive again, but this must be seen as supporting the efforts of the team to make things right, not the starting point of a proposal. The right order would be for the “team” to first asume a loss and then ask for support from the community, which I think would be forthcoming.

Fourthly, if the ALEXnomics still stand, this core group of token holders should own roughly half of all circulating ALEX tokens at this stage, a position that is worth considerably more than the 13.8 mn STX lost. These resources are the ones that should be used (or at a minimum leveraged) right now to make all users whole. If this would make AlexLab unviable, or not provide suitable incentives, then ask the community for help.

There are some other issues, albeit minor ones. I’m not altogether sure about the 32 weeks… Part of my LP commitment was that long, but another wasn’t. Every user will have different circumstances. Personally, I believe there will be ALEX “price discovery” post any agreed proposal, which in itself could take longer than many hope for. In any case, I don’t see much point in delaying this. It’s probably best to get it over and done with.

In summary, I think your idea is really good in terms of how the making whole of users could be executed. However, it seems flawed in terms of the source of funds to accomplish the desired goal.

Thank you anyway!

2 Likes
7

Simply LOVE the plan except for repayment is based only on what the community wants, not what is available. I personally want back everything I had, repayment for every cycle missed, 100 sUSDT, and 10k alex for my troubles. Now get me this and the head of the person who had their keys stolen and we can talk.

8

Also- would be nice if ALEX would issue a iouSTX token (compatible with STX for LP purposes) to replace all the lost tokens in the pool. That way LP/farming can operate as normal, but we aren’t left in limbo on how much we should be owed.

1 Like
9

First, Alex team should own up to their mistakes and prioritise its users first as they are the people who make Alex protocol possible. Any company that prioritises their team before their users and clients will eventually fail.

Second, reimbursements should not be grouped into categories of users in a way that makes Alex look good at the expense of their most loyal users and believers.

Specific proposal adjustments:

  1. All recovered assets should be made available to the users who held them before the phishing attack (in accordance to any locking periods that the users had set).
  2. Any reimbursements (current and future) should be made proportionally to the users total value locked so that users who invested more into the protocol are not punished for that but instead are treated fairly.
  3. Users should be reimbursed in the tokens they have originally deposited. An option to take ALEX instead is fine if certain users want it but that should be their choice and it should not come at the expense of users who prefer otherwise.
  4. Instead of offering users ALEX tokens, the team should think of ways to leverage their own Alex holdings, reserves, and potential new issuance to acquire STX and return it to their users. Afterwards, they can try multiple ways to get back the stolen funds (as they are doing at the moment) and with them cover their own losses after they have taken care if their users and clients.

I personally have invested substantial part of my crypto portfolio in Lisa and Alex and continue to believe in the company despite time and again I am disappointed by the team’s communication, decisions, and lack of integrity.

2 Likes
10

This proposal is better than the team’s original proposal, but fundamentally, it is the same compensation plan. It uses ALEX tokens as compensation, with differences in the details of distribution.

Regardless of the details, the unchanging fact is that using ALEX tokens as compensation will inevitably lead to a large price drop, and ultimately, the users will bear a large loss. Also, one of the most likely scenarios is delisting from centralized exchanges where they can be cashed out. In this case, users’ loss will be -90% or more.

The team should consider utilizing the team’s cash reserves, apart from the ALEX tokens. The funds raised using users’ assets should be allocated for recovery. Restoring users’ assets (in form of being cashed out) must be the top priority.

1 Like
11

Yes, Distributing the STX evenly is the right thing to do.
no matter what kind of proposal is ultimately adopted, we must ensure that the plan meets the three principles of fairness, justice, and transparency.

2 Likes
12

Not everyone plans to sell their compensation immediately; I’ll hold onto mine if the team commits to working as diligently as before the exploit. Plus, the vesting period for $ALEX will help reduce selling pressure.

1 Like
13

Just posted an update on the $ALEX proposal based on their latest financial transparency report. I’m examining the potential selling pressure and STX/ALEX liquidity in a worst-case scenario if the proposal passes. Check out the detailed analysis at the end of the post

update proposal
update proposal896×1211 196 KB

@bitxia @HYL @cryptographic @rozar.btc @buntlinea @safonamoto @superhiro @3daura @birdsong @merlin

4 Likes
14

They mention they have 16% available from their allocation…shouldnt this be enough to make us whole? If not immediately, eventually?

15

Read the updates, they have enough fund for making us whole

2 Likes
16

I strongly agree that this proposal is more sophisticated and improved compared to the plan proposed by the project team.

However, simply distributing tokens does not guarantee the project’s revival. Before any token distribution, we need two critical things:

  1. Robust Business Restoration Plan
    First, the Alex team must present a comprehensive revival plan outlining exactly how they will resurrect the protocol. Having a clear roadmap detailing the path forward is essential for us to have long-term confidence in holding the tokens after receiving them.

  2. Sacrifice by the Leadership
    Second, we need to see a profound personal sacrifice from the CEO, who bears the ultimate responsibility here. This may include partially selling the business as well as relinquishing ownership of the Alex team. There must be a material and substantial sacrifice that demonstrates the Alex protocol is now an appealing investment opportunity to VCs and potential investors. Without this, they have no incentive to reinvest. Placing the full sacrifice burden on users is not the right approach.

Without these two elements - a comprehensive revival strategy and demonstrated sacrifice from leadership - lingering skepticism about the project’s future will remain even after tokens are distributed. Presenting a clear plan coupled with authentic personal sacrifice is crucial to restore confidence in the protocol’s prospects.

3 Likes
17

The personal sacrifice should be giving up their own profits to make users whole. Its that simple. If they did that alone I’m sure many of usbwould stick around

1 Like
18

Then they can do this is a manner that isnt going to dilute their own token. Its appauling that the options presented didnt include measures to make us whole, for cat2 anyhow. Everyone should be throw into cat 2 opt 2 but be reimbursed stx instead for holding thier alex. As another member mentioned similar to an iou

1 Like
20

Your exchange rate isnt fair in this instance. The ratio should be closer to 1:15 at current prices, alex 0.13c, stx $2. Please correct.or better yet caluclated dynamically, based on STX/ALEX, = exchange rate, so we are always getting paid by the value of stx in alex tokens at the market price

21

I note that the latest communication from Alex Lab does not cite the plentiful feedback suggesting that the team (I’d add “early investors”) needs to contribute a “pound of flesh”. The Foundation funds are everyone’s, whereas the team’s are not. A haircut is only palatable if the team is diluted.

1 Like