Acala community debates mass token burning to recover from exploit
Key points to remember
- The Acala community has offered to conduct a coin burn to help the aUSD regain parity with the dollar.
- After a referendum vote, the project could burn 1.3 billion aUSD by sending it to the Honzon protocol.
- The project was exploited yesterday as an attacker minted the same amount of aUSD through a vulnerability.
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The Acala community has offered to burn tokens to help its stablecoin regain dollar parity after the attack this weekend.
Acala could run Coin Burn
Acala could proceed with a coin burn to restore the value of a USD to $1.
In a proposal published on August 15, community member Dotverse proposed a referendum to decide whether to burn some of the stablecoin aUSD’s coin supply.
If the referendum is successful, it would effectively “burn” $1.3 billion, which was issued in error, returning those funds to the Honzon Protocol. This would also burn 4.2 million aUSD which is still in the iBTC/aUSD reward pool in the same way. This action would “help resolve the mint error, restore [the] aUSD peg and take over Acala operations,” the proposal reads.
Coin burning has gained tentative community support. However, some users have expressed the wish to have more information before deciding. A person involved in the project, Bette7, confirmed that “other traces[s] on more funds are underway” to help with recovery decisions.
Acala was exploited yesterday, August 14, through a vulnerability that allowed an attacker to mint 1.3 billion aUSD ($1.3 billion). The attacker exchanged these tokens for various cryptocurrencies, including the project’s native ACA token.
These events caused the value of Acala’s stablecoin aUSD to drop to zero. Additionally, the Acala network is currently frozen.
Acala is intended to serve as a DeFi hub for Polkadot, with USD functioning as the de facto stablecoin for Polakdot and related blockchains. As such, it is necessary for the project to relaunch its stablecoin in order to resume its activity.
Acala is not the first stablecoin to experience a major depegging crisis this year. Terra, which saw its TerraUSD stablecoin rapidly devalued in May, also offered a coin burn in response. However, this solution and others failed and the asset eventually collapsed.
Disclosure: At the time of writing this article, the author of this article owned BTC, ETH, and other cryptocurrencies.