On Friday, the decentralized financial (DeFi) stablecoin project Origin Finance announced a plan to compensate users affected by a $ 7 million exploit in November – part of a broader trend of developers, users and merchants seeing actors In the DeFi space on a larger scale insurance companies are embracing products and other exploit backstops.
On November 17, Origin Dollar announced it has its interest-bearing stablecoin project had fallen victim to a $ 7 million flash loan. While the attack is just another example of what a brutal summer and fall for DeFi protocols facing hacks and exploits, the response from the Origin Dollar team is notable for its attempt to fully compensate users.
In a blog post On Friday, Origin Dollar product manager Micah Alcorn explained a multi-tiered plan that would immediately refund 75% of users for their lost money in the “controlled, and relaunched with new security measures” stablecoin OUSD.
However, for larger savers, payments would be a more complicated process, with a 1-year time limit from the ecommerce utility token OGN. Whether or not these larger savers are fully compensated for their loss therefore depends on the performance of the OGN token.
Even with the timelock, Alan, a semi-anonymous core developer at the insurance-adjacent “ coverage ” protocol Cover, says Origin’s effort could help draw new users to the space.
“I believe protocols (and their auditors) should take responsibility for the code they put out,” he said. “Whether it be by providing coverage themselves or paying back money, this type of behavior sets a strong precedent and allows users to have more confidence in the platforms they use, boosting TVL, so a win-win. “
In the past, DeFi protocols have offered users little more than a disclaimer “don’t risk more than you can afford to lose,” but market moves seem to be moving in the direction of better protection.
According to Alan, Cover has nearly tripled his total value since his lockdown users decided to cover the Pickle Finance hack, rising to $ 39 million.
Likewise, Nsure Network – another testnet-phase coverage protocol and scheduled to launch in the first quarter of 2021 – has gone into a rip, up nearly 60% over the month.
As these coverage tools evolve, Alan recommends developers to seriously investigate launch with coverage plans and include clear contingencies as a core feature of DeFi protocols.
“DeFi must set a precedent that the protocol itself must be held accountable if it is hacked. From what I’ve seen with the recent exploits, getting hacked just means ‘Oops, we’ll fix this bug and do better next time’. […] Having an ‘insurance fund’ really reassures users knowing that if the protocol they deposit in is hacked, their deposits will be covered. “
Plus, he adds, if DeFi is ever going to really break mainstream, these kinds of protections could be a requirement and not just a luxury for shy savers.
“Having a hedging / protection fund is the best choice going forward if DeFi really wants to achieve mass adoption.”