# Compensation for xToken Hack

### Purpose

With the goal of retaining early project supporters, capital, and achieving a stronger community, this proposal seeks a fairer restitution for victims of the recent xToken hacks, resulting in $25m in losses. The current Team proposal offers 1% of XTC supply, a current market value of $2.5m, vested over 1 year. This proposal reflects a consensus view from victims: a fair restitution would be 2% of XTC supply, vested over 1 year.

### Fair restitution

The expectation of fair restitution, when possible, should be an insurance policy for users of early stage protocols. New protocols, like xToken, are high-risk ventures. Of course this is understood and the high APYs are to help compensate this risk. But project communities, and the teams behind them, can be more attractive by adopting a social contract involving the expectation that losses resulting from hacks be answered with reasonable compensation.

The pre-hack market valuation for XTK was ~$500m FDV. This valuation could be restored if trust, capital, and community were bolstered and interests aligned around ensuring a successful future for the xToken project. The $25m lost is around 5% of this prior FDV. 2% restitution is a fair compromise between the fault of the project resulting in the loss of funds, and the inherent risk participants should have expected.

### Current xToken Team Proposal

| What | Team |
| -------- | -------- |
| Total XTK Supply| 1,000,000,000 |
| 1% XTK | 10,000,000 |
| Total Funds Lost | $25,000,000 |
| XTK per USD Lost | 0.40 |
| FDV to Break Even | $2.5b |
| Example Funds Lost | $5,000 |
| Example XTK Restitution | 2,000 |

### Fair Restitution Proposal

| What | Value |
| -------- | -------- |
| Total XTK Supply| 1,000,000,000 |
| 2% XTK | 20,000,000 |
| Total Funds Lost | $25,000,000 |
| XTK per USD Lost | 0.80 |
| FDV to Break Even | $1.25b |
| Example Funds Lost | $5,000 |
| Example XTK Restitution | 4,000 |

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**APPROACH #2 : I wrote out a quick draft here earlier based on what I read from others but then got pulled away by work:**

We propose that we invest 2.5% of the "Community Vesting" XTK reserves into reparations for the victims of the 5/12/2021 hack. This would have two vesting periods:

*1.5% vesting over the first year, and 1% vesting over the 2nd year*

**What's the ROI? Why is this a better use of the reserves than other options?**
*Members of the community appreciate the team's response and handling of the situation so far, but many have voiced that the 1% is lower than expected or hoped for, given the size of the losses. We believe that 2.5% would feel more commiserate to the size of the losses for the LPs, which would help retain users, strengthen brand value/trust, and foster long-term community. While there's a lot of appreciation potential for XTK and we fully expect XTK's price to reach $2 or more in the future, that doesn't account at all for the opportunity cost of the losses today (ETH, SNX, BNT) likely also being worth 2-3x more in 1 year. Which is why we believe 2.5% would be more appropriate.*

*By providing 2.5%, I think a lot more of us would walk away being stronger supporters and continued users of xtokens. We think of it as a long-term investment in community that's higher ROI than saving an additional 1.5% of XTK for future community emissions programs. This is also a long-term investment in xtoken's reputation in the Defi community, which is a small world and word travels fast.*

**Why 2.5%? Why over 2 years?**

Before the hack, the FDV was ~$500m. The ~25m loss is ~5% of this. Splitting the difference (~2.5%) and vesting it over the long-term (2-years) feels like a more equitable approach to affected LPs, driving long term community engagement and loyalty.

**What are the negative tradeoffs? Is it still worth doing this despite these risks?**

Risk #1 - we are using up too much of the reserves
There is still plenty of XTK in reserves (e.g., Community Vesting portion started with 50% and likely has more than 35% available for future incentives). We believe the spirit and outcomes of providing this would align with the Community Vesting portion's goals, and this still leaves the vast majority of emissions incentives untouched

Risk #2 - this will negatively impact XTK price
Given that this is being vested over 2 years, that should minimize most of the negative price action. Of course this will still have some increased selling pressure, but we believe in the team's ability to execute and by that point, XTK's brand, market cap, and value will grown a lot, resulting in fewer sellers and more liquidity to absorb any selling.  One way of mitigating this if needed is to add a 6-month cliff, so that the first investment doesn't occur until later

**We wanted to share this perspective on behalf of the community. We have seen that you always value the community's perspective, so we hope that you may reconsider the 1% investment as you see this increased feedback from us.**