Update June 19th: https://forum.alchemix.fi/public/d/146-legendary-aleth-returners
Check out the linked post above to know how the returning of ETH/alETH will work once it becomes available.
At roughly 12:30 PM UTC some users of the Alchemix alETH vault discovered they had no outstanding debt even though they previously borrowed alETH at a 4:1 collateral ratio. In addition to this, the debt ceiling of almost 2,000 ETH was freed up to mint new alETH again.
The Alchemix team noticed this issue and got all hands on deck immediately. The minting of new alETH was paused temporarily until the issue was pinpointed and a solution could be produced. The incident was quickly and efficiently dealt with in a collaborative effort between Yearn and Alchemix.
Root Cause Analysis
An issue with the deployment script of the alETH vault accidentally created additional vaults, the Alchemist then used the wrong index in the array of vaults which caused the outstanding rewards to be calculated wrong, forcing the transmuter funds to be sent entirely to pay off user debts.
The harvest that caused this can be inspected under tx id 0x38ecc8363836e43aca99d994bb9325a8f3770d7a1d1fffd62c82cf5230525836
How long did it take until we had stopped the issue?
~ 15 minutes after Alchemix team started looking into the issue a pause on the mint function for alETH was executed (tx id 0xc4dac8a2df7c34b1ca6e886a5447bab249518b503551b06828ba42fdc5fab802), the work on the incident report was started about 2.5 hours after the incident first came to light.
Were user funds lost?
No. Individual users could withdraw all of their ETH, and so can anyone else currently in the contract. The loss is limited to the backing of alETH only. Meaning, users were allowed to withdraw collateral they shouldn't have been.
Did the incident affect Yearn?
No. Their vault was functioning appropriately and Yearn did not suffer any losses.
Are existing funds at risk of this happening again?
No. We are going to redeploy a new Transmuter that correctly deploys a single vault at index 0 to ensure that this can not happen again. We will also deploy a new Alchemix Vault, which will clear out the maligned state of the current contract.
How did our security measures avoid this being worse?
- Conservative initial debt ceiling
- Only allow multisig addresses to call harvest
- Being diligent in verifying results when looking through new processes
How are we going to put this right?
First of all, we know we have the most amazing community in DeFi. This is an indisputable fact, so we are asking: If you would like to support the protocol, the DAO, and the devs, please consider distributing any excess ETH gained during this time to the new Transmuter, to allow it to back the outstanding loans that it created (and you are likely still holding). A portal will be created in the next few days to facilitate this. This will go a long way towards correcting the alETH shortfall and will impact DAO's treasury much less. Those that choose to do this will be duly recognized in the future. While we can't say what form this shall take at this time, we can promise you will not be ignored.
After this, in order to return the system to solvency we plan to do the following:
- Temporarily increase the protocol fee which will generate additional revenue towards filling the gap. That revenue will go directly into the Transmuter to add backing to alETH tokens
- A small jumpstart by adding some of the ETH in the treasury to the Transmuter to add instant backing to alETH
- Selling some DAI from the treasury for ETH and adding that to the Transmuter
At the time of this writing alETH backing currently has a -2,688.634 short fall. At current price that is about 6.53m USD.
We thank the Alchemix and the wider crypto community for their tremendous outpouring of support today. Join us in Discord and follow us on Twitter for more updates.
