Acala Community Debating Massive Token Burn to Recover From Exploit
Acala's community is debating a token burn to restore the value of its aUSD stablecoin.
- The Acala community has proposed carrying out a coin burn to help 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 via a vulnerability.
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The Acala community has proposed burning tokens to help its stablecoin recover dollar parity following this weekend’s attack.
Acala Could Execute Coin Burn
Acala could carry out a coin burn to restore aUSD’s value to $1.
In a proposal published August 15, community member Dotverse proposed a referendum to decide whether to burn a portion of the aUSD stablecoin’s coin supply.
If the referendum succeeds, it would “effectively burn” 1.3 billion aUSD, which was erroneously minted, by returning those funds to the Honzon protocol. It would also burn 4.2 million aUSD that are still in the iBTC/aUSD reward pool in the same way. This action would “help resolve the error mint, restore [the] aUSD peg, and resume Acala operations,” the proposal says.
The coin burn has gained tentative support from the community. However, some users expressed the desire for further information before deciding. One individual involved in the project, Bette7, confirmed that “further trace[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 swapped those tokens for various cryptocurrencies, including the project’s native ACA token.
Those events have caused the value of Acala’s aUSD stablecoin to drop to zero. Additionally, the Acala network is currently frozen.
Acala is intended to serve as a DeFi hub for Polkadot, with aUSD functioning as the de facto stablecoin for Polakdot and related blockchains. As such, it is necessary for the project to revive its stablecoin in order to resume 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, similarly proposed a coin burn as a response. However, that solution and others failed, and the asset eventually collapsed.
Update: Acala has executed the coin burn and aUSD is now valued at $0.92 as of 1:30 p.m. PST on July 16.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.