Summary of Community Feedback and Suggestions - 26th May, 2024

Security Incident
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Summary of Community Feedback and Suggestions

Please Note: The second part of the summary, focusing on returning assets that are unaffected or recovered, as well as the third part of the summary, focusing on ALEX reopening roadmap, will be published in 12 hours.

The Proposed Treasury Grant Program by the Foundation For everyone’s reference, please see the summary of the Treasury Grant Program proposed by the Foundation to facilitate the community feedback and suggestions here: Here.

Part 1: Treasury Grant Program Proposals

Proposal Category 1: Seek Funding from VCs or Borrow STX through Collateralized Loan from Stacks.

Pros: This would be the ideal solution, as it would fully cover all LP losses.
Cons: It’s uncertain whether VCs would be interested in an OTC deal currently. Additionally, the ALEX Lab Foundation has attempted to structure a two-part collateralized loan to borrow a total of 6.7 million STX, consisting of - a $7 million USDC loan. - an over-collateralized loan using 16% of ALEX token from various Stacks entities that hold a large sum of STX.

So far, we have not received any concrete interest. Pursuing this solution could take longer than expected, delaying compensating users.

Related proposals:

Proposal Category 2: Issue 1-1 Pegged Synthetic Assets to Add into Liquidity Pools

Proposal 2.1: Synthetic STX (14 million STX) Summary: Using $7 million USDC + 16% ALEX reserve (current valuation around $40 million, with over collateral value 1.5x) as collateral to mint 14 million aSTX or iouSTX. Any recovered STX and the protocol revenue will be sent to the collateral pool to maintain the collateralization ratio of 1.5x.

These synthetic STX will be added back to LP pools and eligible for future farm rewards. The token may be redeemed with the underlying collateral distributed to the token holders, subject to a governance vote.

Pros: Synthetic assets issuance significantly alleviates immediate recovery pressure and reduces performance pressure on ALEX tokens, gaining more time for long-term recovery.

Cons: Synthetic assets have de-pegging risk, depending on the platform’s future performance.

Related proposals:

Proposal 2.2: Synthetic USDC or Bond Structure (28 million USDC)

Summary: Using $7 million USDC + 16% ALEX reserve (current valuation around $40 million, with over collateral value 1.5x) as collateral to mint 28 million aUSDC.

Any recovered STX and the protocol revenue will be sent to the collateral pool to maintain the collateralization ratio of 1.5x. These synthetic STX will be added back to LP pools and eligible for future farm rewards. The token may be redeemed with the underlying collateral distributed to the token holders, subject to a governance vote.

Pros: Synthetic assets issuance significantly alleviates immediate recovery pressure and reduces performance pressure on ALEX tokens, gaining more time for long-term recovery.

Cons: Synthetic assets have de-pegging risk, depending on the platform’s future performance.

Related proposals:

Proposal Category 3: Fairly Distribute the Remaining STX in the Vault to Cover LP Loss

Summary: Fair distribution of recoverable STX among LP holders (i.e. no categorisation), calculation of lost STX and compensation with ALEX tokens, vesting period for compensated ALEX, and adjustment for expected rewards if any stolen STX is returned.

Details:

  1. 150k STX recovered so far is distributed fairly among all LP holders.
  2. The remaining loss is substituted with $ALEX token with an exchange rate at 10 $ALEX per STX.
  3. The substituted $ALEX can be redeemed over the next 32 cycles in equal amount (i.e. 32 installments)
  4. Any recovered STX during the redemption period will be returned fairly to all LP holders in exchange for reducing the $ALEX to be redeemed at the same exchange rate of 10 $ALEX per STX.
  5. All other recovered assets will be returned to the LP holders immediately.
  6. The $ALEX to be redeemed will accrue staking reward in accordance with the $ALEX staking yield pre-exploit.
  7. The Foundation will deploy $7m to create a STX/$ALEX to provide liquidity to the platform.

Pros: This proposal received the most positive comments from the community. Please review the details of the original proposal in the forum link below.

Cons: The grant will be vesting and may be adjusted based on the progress of assets recovery.

Related proposals:

Proposal Category 4: Fully Utilize XLINK and LISA Funding and Tokens

Pro and Cons: -

@LisaLab_BTC is a joint venture between ALEX Lab Foundation, @Ryder_ID, and @XverseApp , and therefore, the Foundation cannot unilaterally decide on its token allocation.

  • @XLinkbtc raised $1 million earlier this year, primarily for operational expenses, with a current burn rate of $500K per year. Including XLINK tokens into the ALEX Treasury Grant Program could be initiated via an ALEX governance vote.

Related proposals:

Proposal Category 5: Borrow from Zest Protocol

Pro and Cons: Unfortunately, @ZestProtocol protocol currently does not have a large enough amount of STX to lend out.

Related proposals:

Proposal Category 6: Work with the Stacks Foundation for a Network Upgrade to Freeze Hacker’s Funds

Pro and Cons: We spoke to @StacksOrg and other Stacks entities, and was told that Stacks foundation will not support it and this ”SIP” is unlikely to pass.

Related proposals:

Thank you for your ongoing support and feedback.

Your input is invaluable as we work together to rebuild the ALEX platform.

1 Like
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@Josh_ALEX
When would users be able to unlock LPs and get the assets of the LP back if Proposal 2.1 passed? I prepared for multiple choices below.

  1. the date according to the cycle you had chosen before this incident
  2. immediately when synthetic STX added to LP
  3. Not decided yet
  4. please tell us the plan if the team has different idea
2 Likes
5

I really agree with this opinion. Of course, it is important preserving the value of stolen STX and continuing Alex Lab’s business but also important when can we get the opposite LP pair that was not stolen back. It would be good to clearly indicate when the opposite LP pair will return to strengthen trust of users in Alex Lab.

6

The Foundation holdings of ALEX, etc. are in theory everyone’s, whereas the team’s assets are not. Something similarly could be said about those held by “early investors” (strategic partners who have funded the protocol). Given the nature of the security mishap, the latter two categories need to be seen to take some pain (a haircut) for any proposal to prosper. This is what would happen IRL. If this doesn’t happen, I am convinced it will end in litigation. In summary, the team (and strategic partners) need to add their holdings as collateral, at a minimum, for this to work. There has been more than sufficient feedback put forward so far to make this patently obvious.

2 Likes
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[choice 5] urgent community concerns – exchange rate clarification

As Choice 5 has been gaining traction from community votes, serious conversation regarding the much-needed clarification on specific aspects of the proposal have come to surface. One of which is the exchange rate.

EXCHANGE RATE PROBLEM:

The community is under the impression that the exchange rate, as presented in Choice 5, is bidirectional. But as described in its current on the POLL voting site, does NOT specify whether you can exchange ALEX BACK to STX at the SAME fixed rate of 10 ALEX per STX AFTER receiving the ALEX tokens as compensation. This exchange rate is ONLY mentioned for the initial compensation calculation. Clarification is needed on this matter to ensure an informed voting.

Fairness Concerns:

  1. Value Risk: The actual value that LP holders can realize by converting ALEX back to STX might be lower if the market rate differs from the fixed rate issuance (1:10), exposing them to market risk and potential value loss. Due to the nature of the incident, it is expected that the market rate will not be in favor of the original holders, as significant sell pressure and compensation emissions (liquidity injection) will cause downward price action and market dilution.
  2. Asymmetry in Compensation:
  • Foundation’s Advantage: By compensating at a fixed rate, the foundation transfers the risk of market fluctuations and token value loss to the LP holders. This is AGAINST the argument to have the Foundation take more accountability for the mishap.
  • LP Holders’ Disadvantage: LP holders might not get the full value of their lost STX if ALEX’s market value is lower than the fixed rate suggests. They have to accept market risks and potential losses upon conversion, which is expected to occur, at least in the short-term. There are no protections in place to safeguard holders against this.

Solutions:

  1. Provide a mechanism for a bidirectional fixed-exchange rate (1:10) post-compensation to prevent value discrepancies - allows holders to trade their ALEX for STX at the same ratio they were compensated with.
  2. Modify the ratio of the fixed exchange rate to accommodate for expected ALEX token value loss, perhaps with a community vote as originally proposed
  3. Use a bidirectional MARKET-exchange rate instead

Conclusion:

Without a guaranteed mechanism to exchange ALEX for STX at the same fixed rate, LP holders bear the risk of unfavorable, downward, market fluctuations, which can lead to unfair outcomes. Implementing a fixed-rate redemption option (ALEX to STX at 10:1) or opting for a bidirectional market-rate compensation plan instead, can address these fairness concerns and ensure LP holders are made whole as intended.

1 Like