AIP-12: Handling of bad debt from the recent stkBNB's depeg
Background:
As many of you are aware, on 2nd December, there was an exploit on Ankr BNB (aBNBc) which caused a temporary depeg of stkBNB’s price, due to the dumping of aBNBc in pools shared with stkBNB on other protocols, which allowed the exploiter to drain stkBNB and subsequently sell it in other pools. Alpaca Guard worked as intended and managed to save a noteworthy % of positions from liquidation. However, due to the extent and duration of the depeg, some LYF positions on the stkBNB-BNB pairs were still liquidated and the platform incurred some bad debt.
You can read more details from our tweet here: https://twitter.com/AlpacaFinance/status/1598685838686138368
Proposed implementation:
The total bad debt from this incident is 1,587.87 BNB which represents ~0.2% of the lending TVL at the time of the event.
You can see the detailed breakdown of liquidations here: https://docs.google.com/spreadsheets/d/1KA3NXXrnWvo4MaDx-BOWdvEU8c_alBhclYCVEksbFSk/edit#gid=1119361929
We are putting this up for the discussion to activate the Insurance Plan, so xALPACA holders can vote for if the event fits the conditions to be covered by the Insurance Plan. As a reminder, you can read more about how our Insurance Plan works here.
What the Alpaca Insurance Plan covers
It will cover any shortfall event for which Alpaca Finance’s code or infrastructure is responsible, including: bad debt for lenders, smart contract risk, exploits, economic design failure, severe oracle integration failure, etc.
In this specific case for stkBNB where the depeg happened due to events on a sequence of external protocols (ankr exploit → stkbnb wombat pool), and our liquidation engine and Oracle Guard still worked as intended, one could argue that Alpaca Finance’s code or infrastructure was not responsible.
Ultimately, it's up to xALPACA holders to decide if this event falls under the cover conditions, keeping in mind that fair activation of the Alpaca Insurance Plan is what gives lenders and users of our platform confidence to use it, which ultimately drives all the protocol revenue coming into Governance.
Please note that we’ve discussed with Ankr, pStake, and Binance about if they can do anything to cover the losses from stkBNB, and none of them have given a positive response. So at this point, the Insurance Plan is the only avenue to cover the bad debt.
To summarize the key point, if the Insurance Plan covers this, 50% of the protocol revenue going to Governance will be used to cover this bad debt until it is paid off to BNB lending. The locked ALPACA in governance will not be touched and the remaining 50% of protocol revenue will still be paid out to Governance during this time.
As for any losses to the LYF positions that were liquidated, unfortunately, since the protocol operated as designed during liquidation, it does not fall under the cover terms of the Insurance Plan. So this discussion, and subsequent vote, would only be to cover the aforementioned bad debt to lending.
Voting:
This proposal will be a simple YES or NO vote.
YES vote would activate the insurance plan and start directing 50% of the protocol revenue going to Governance to cover the bad debt until the full amount is paid off while NO vote would not activate the insurance plan.
Resolution:
Community voted to activate insurance plan.
Repayment is going to be done through a smart contract which can be tracked here.
To see the remaining amount to be paid, Go to "Contract" -> "Read as Proxy" and view the remaining amount
Total debt to be repaid is 1,587.87 BNB * 242 USD / BNB= 384,264 USD
References:
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