Stablecoin protocol Resupply proposes burning 6 million tokens after $10 million exploit

DeFi protocol Resupply has proposed burning six million reUSD tokens in its insurance pool as part of a recovery plan.

Resupply, a stablecoin protocol that leverages the liquidity of lending markets, was exploited for around $10 million earlier this week. 

The attacker manipulated the share price of the platform's crvUSD-wstUSR pair, specifically targeting the platform's solvency check by exploiting an edge case in the oracle and exchange rate calculations, according to Resupply's post mortem on June 28.

Since the exploit, the protocol paused the affected pair and temporarily blocked assets from leaving the insurance pool, which is a safety net to protect lenders and maintain the protocol’s stability. 

"Stolen funds remain on-chain," Resupply said in the post mortem. "The situation is being monitored and necessary steps are being taken." 

To offset the stolen 10 million tokens, the Resupply treasury has paid over 2.86 million reUSD tokens, leaving an outstanding bad debt of 7.13 million reUSD, the protocol's recovery proposal said .

The latest recovery plan proposes burning 6 million reUSD of bad debt via the insurance pool, which is around 15.5% of the total amount of reUSD tokens in the pool.

"The remainder of bad debt (1,131,168 reUSD) will be paid off over time by the DAO through a mix of future revenue sources such as but not limited to protocol fees and/or potential RSUP OTC sales program to be decided on at a later date by treasury or governance," the proposal said. RSUP is Resupply's governance token.

The proposal, if passed, would be enacted three days after voting, Resupply said.

Resupply is also planning a retention program for users that had their deposits in the insurance pool and had their funds slashed when the proposal would be executed.

Users would be incentivized to stay in the insurance pool after the burning with an additional stream of RSUPs. Users can opt out and withdraw their funds from the pool, Resupply said.

"It is not intended to offset the slashing, though it may or may not do so," the protocol noted.