Yesterday, Alex, the head of the DAO of the cross-token liquidity market Onyx, presented a new proposal for the protocol's reimbursement plan to address the financial challenges resulting from the November 1 hack. This new proposal serves as an alternative to the two earlier suggestions: selling XCN, the Onyx token, from the protocol's treasury and allowing Strike Finance to acquire the protocol.
According to Alex, the third proposal emerged from discussions within the Onyx community during an AMA held on November 8. This session provided a platform for protocol users to deliberate on solutions to mitigate the aftermath of the hack. As Alex explains, "These mechanics would help recover funds for the v1 users without causing a large XCN utilization of the token facility with LDA and others and without giving up the Onyx brand and XCN token to Strike."
Read also: Onyx Community Is Against Protocol Acquisition by Strike Finance
The third proposal suggests that the Onyx Protocol should focus on leveraging its XCN DAO to overcome the financial issues stemming from the exploit. The strategy outlined in the proposal aims to reduce inflation, address staking rewards, wind down lending markets, and implement measures for sustainable yields and lower XCN inflation.
One of its key points is to "reduce the staking rewards to a floating 10% APR, which are currently at 40%," which is supposed to promote the decline of the XCN token staking by over 30%.
The proposal also outlines the reimbursement process, which will include the following steps:
- Pausing all existing lending markets and initiating their wind-down process;
- Taking a snapshot of user balances, including wallet addresses, and publishing it in a public post;
- Repaying users based on their balances in a rolling manner using the accumulated protocol revenue.
Read also: Onyx Protocol May Be Acquired by Strike Finance
Additionally, the proposal outlines potential adjustments before the launch of the v2 Onyx money market protocol."The DAO would reduce the APY in the money markets of the v2 launch to make yields more sustainable and lower XCN inflation," the Onyx team says in the proposal, adding that "reserve factors would be increased so that protocol revenue would accumulate."
As of the time of publication, there were limited opinions about the new proposal. Some users praised the solution simply as "great," while others expressed concerns about the financial capabilities of the Onyx V1 treasury to cover the $2 million loss from the recent exploit. "It seems that the 'treasury' of Onyx V1 is only 114,434.47$, and therefore, it is hard to imagine that the protocol revenue will cover the loss of users in Onyx V1, and the proposal has no structure of the Onyx V2," community member Kyokoirisu pointed out.
Apart from the uncertainty regarding full user compensation, some users also raised concerns about the potential negative impact on the protocol structure. Lowering the already modest incentive structure might discourage liquidity and reduce Total Value Locked (TVL), leading to lower income and recovery funds. The XCN brand could further lose its reputation if the protocol’s funds are diverted to the recovery fund, as a cryptocurrency with revenue-generating capabilities is typically perceived as more valuable.
Up to now, the Onyx community has viewed the possibility of the protocol’s acquisition by the decentralized money market Strike Finance as an especially undesirable and unnecessarily drastic solution.
Strike Finance proposes to acquire Onyx with a specific roadmap designed to minimize losses for Onyx Protocol users. Under this scenario, the Onyx protocol would need to cease its markets, including staking features. Meanwhile, users would safely withdraw staked XCN tokens and accumulated rewards. Uncirculating XCN tokens would be burned and swapped for STRK at a ratio of 20,000 per 1 STRK token.
If this proposal is accepted, Strike is expected to finance the compensation for the hack.
As of press time, the Onyx team has not shared detailed information about the exploit, except for the fact that it occurred "due to a bug in the rounding implementation."
