BeethovenX

Proposal Use DAO Treasury funds to reimburse losses to those users affected by the misconfiguration and subsequent exploit of the first incentivised iteration of the Dollar Dollar Bills pool on Optimism.

This proposal is to use USDC and/or USDT to reimburse users with the entire value of losses as priced in USDC at the time of loss.

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Background and Motivation The affected pool (ERN / bb-rf-USDC / bb-rf-USDT) with contract address 0x7FE29a818438Ed2759e30f65c2302295711d66Fc was launched with incentives in July 2023. A misconfiguration was identified and users were instructed to move funds to a replacement version of the pool, but unfortunately the misconfiguration allowed a bad actor to exploit the pool and led to loss of user funds valued at approximately $79k.

Please see the below Post-Mortem Report for details of the events leading to the loss of user funds. https://beethovenxio.medium.com/dollar-dollar-bills-post-mortem-4cf46a2ccad4

Pool creation is permissionless but this particular pool was created and promoted by Beethoven-X core contributors and official communication channels, so there is arguably greater responsibility of Beethoven-X DAO for the loss to users.

The incident and a potential reimbursement plan has been discussed in public channels of Beethoven-X Discord server. Please see there for motivations raised by various DAO members, but reasons for reimbursement include maintaining trust in Beethoven-X’s execution of Balancer technology.

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Impacts/Risk Assessment This proposal would see users affected by this incident entirely reimbursed for the value of their pooled token losses. This would likely have a significant positive impact on these affected individuals. Such a move may help to engender trust in Beethoven-X and hence aid liquidity attraction efforts; but the predominant driver of TVL will likely remain swap fees, technology, and incentives.

Not reimbursing users may result in significant damage to the relationship between users and Beethoven-X DAO, and by extension with Beethoven-X as a protocol.

The DAO Treasury would be affected by a reduction of balances, with the distribution of ~$79k amounting to approximately 6.5 times the Treasury earnings from protocol swap and yield fees for the month of July 2023. As well as the reduction in nominal value, this will also affect considerations of Treasury deployment and likely mean a reduction in the percentage of Treasury funds actively deployed in liquidity pools or other revenue generation positions.

There is also a risk that enacting this proposal may in future be taken as precedent for using DAO Treasury funds to replace losses faced by users in future adverse events. This could theoretically lead to further significant drawdowns of DAO Treasury, though approval of such actions would generally go through Beethoven-X governance. If this was to occur, then Beethoven-X may lose the ability to fund ongoing infrastructure and operations.

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Specification/Execution Plan A list of affected addresses will be compiled and verified, with losses of each address calculated in USDC equivalent (using prices at time of loss) and used to determine the value of USDC and/or USDT tokens for distribution to each affected address.

Beethoven-X Composers and Music Directors will coordinate and execute a series of transactions to distribute the tokens to those users affected by the exploit of the pool, with funds being sourced from Beethoven-X DAO Treasury on Ethereum, Optimism, and or Fantom.

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Vote Options: Yes, reimburse users fully with USDC/USDT No, further discussion is needed