Proposed Make-Good For Users Affected by April 2, 2022 Price Manipulation Incident

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Proposed Make-Good For Users Affected by April 2, 2022 Price Manipulation Incident

Summary

Full repayment for users affected in the April 2, 2022 price manipulation incident utilizing multi-tranche revenue and debt options.

Background

On April 2, 2022 Inverse Finance was subject to a price manipulation incident that affected holders of WBTC, ETH, and YFI on Anchor. Core contributors within the DAO collectively agreed to work towards a framework to put before the DAO whereby users would be made-whole as quickly and prudently as possible.

The purpose of this proposal is to secure DAO approval to begin working towards a multi-proposal process to effect a make-good. This proposal also seeks approval for an initial $300,000 payment to begin addressing affected users.

Framework

  1. Overview
  • Full repayment plan for affected users in the native token affected
  • Repayment scheduled in multiple tranches and delivered as quickly and as prudently as possible
  • For purposes of this plan, liability incurred by Inverse currently marked at $8.8 million for planning purposes
  • This plan is subject to governance vote
  1. Tranche A: $300,000
  • Initial Treasury Payment
  • Paid on June 1, 2022.
  1. Tranche B: Minimum Monthly Revenue Sequester ($5.4MM estimated contribution)
  • Steady Allocation of Inverse Revenue to Debt Repayment
    1. Source of revenue: treasury and lending operations
    2. Revenue is diverted to repayment fund via dedicated sequester contract
    3. Repayment amounts subject to monthly or quarterly DAO approval
  • Begins July 1, 2022, paid out monthly, estimated to provide $300K per month or $1.8MM in Year One and $3.6MM in Year Two
  1. Tranche C: Retire Revenue Sequester Contract Early Via Long Term Debt
  • In Q3/Q4 2022, Inverse will confirm the revenue flows from the dedicated revenue sequester contract and evaluate bids to sell that contract to a third party lender
  • A lender(s) would provide Inverse with the full $5.4 million against future revenue flows from the revenue sequester contract, allowing for more rapid repayment to affected users.
  • Multiple configurations of this long-term debt are possible.
  1. Tranche D: Inverse-operated Liquidations ($3.1MM estimated contribution)
  • Allows Inverse to capture revenue previously reserved for third parties on Anchor. 100% of liquidation fees will be diverted to repaying affected users until fully repaid.
  • Liquidation fee: 12.5%
  • Begins Aug 1, 2022
  • Estimated to provide an average of $100,000 per month in Year 1. Revenues from liquidations estimated to exceed this significantly in Year 2.
  1. Tranche E: Additional Treasury Ops (TBD)
  • Allows TWG to engage, if necessary, in additional revenue generating activities to offset shortfalls from other tranches.
    1. Yield Farming
    2. Bond Sales
  1. Target Repayment Schedule
  • There is no firm repayment schedule as the DAO seeks to complete this make good as quickly as possible but wants the flexibility to accelerate or decelerate payments based on market conditions. The DAO therefore will make affected users whole as quickly and as prudently as possible while:
    1. Fiercely defending DOLA’s USD peg
    2. Ensuring continued success of our DOLA liquidity strategies on Curve and elsewhere
    3. Avoiding the abuse of INV governance tokens
  • At this time we do not envision a need to cap the DAO’s liability in this plan, we will monitor the price of WBTC, ETH, and YFI and should the value of one or more of those assets rise unexpectedly and beyond our ability to reasonably generate DOLA revenues to repay those debts in a timely manner, the DAO may vote to limit the total amount of DOLA diverted towards repaying those debts.
  1. Governance Approval Required
  • Governance may vote to adjust parameters of this plan at any time

On-Chain Actions

Approve authority for TWG to transfer 300,000 from Treasury and effect an equivalent repayment in WBTC, ETH, and YFI.