Harmony Recovery: Round 1
Summary of Funding Round 1
In mid-October, 2022, the Harmony treasury issued a total of $150,000 USDS to three “burn partners” in equal increments. These partners consisted of the Recovery One Foundation (R1), Tranquil Finance, and Modulo, all of which were selected for their capacity to distribute the grant capably and in line with the years-long recovery plan. Over the course of approximately four years, the Harmony Treasury expects to issue grants for the purpose of removing depegged 1assets which resulted from the Horizon Bridge hack this past June. The remainder of this article will briefly review the results of Funding Round 1.
Each of the three partners is responsible for the mechanisms and methods that they use in order to exchange USDS for the depegged tokens. After the exchange, the depegged tokens are burned through the original Horizon smart contract and are thereby removed from the circulating supply. In practice this reduces supply and aids in the gradual increase of 1asset price over the redemption period. At the start of round 1, the onchain price of 1USDC (Horizon version) was in the $0.07 range, which allowed burn partners to redeem far more than anticipated- a staggering $1.55M was removed from the supply and more than 150 unique wallet addresses participated.
Tranquil Finance chose to support the recovery process through a direct market buy-and-burn, exchanging $50k USDS for $566k 1USDC, which immediately drove the price up closer to $0.10 (although the market did retrace afterwards). This is the most straightforward approach used in round 1, and quite effective in terms of value.
Modulo, guided by contributor Aaron Li of the 1wallet, launched a dutch auction exchange to secure the best price action within a designated token price range. This proved to be the most effective in terms of dollar-cost value, redeeming $573k 1USDS with the $50k USDS allotted. Over the one month redemption period, 85 unique wallet addresses participated in the exchange.
R1 targeted the middle ground, seeking to capture a blend of best price action as well as offering premium redemption rates earlier on for users who participated in the ecosystem wide recovery vote, which preceded the round 1 funding process. Their method offered static redemption rates that were always above market price in two tiers- the first offered slightly higher rates to ensure that the incentive was there for users to exchange and to set a new target ceiling price. Second, R1 voters were given a higher than standard deviation price with a limit on redemptions of up to $5k USDS. Their recovery method was the least successful in terms of funding to burn ratio, exchanging $425k 1USDC for $45k USDS, and attracting 78 unique wallet participants (note that their maximum redemption limit was set 5x higher than Modulo).
Importantly, there are various actors and goals within the process that are worthy of discussing and reviewing.
- Harmony Foundation: make users whole while ensuring healthy growth.
- Harmony Treasury: preserve the treasury and ensure the financial capacity for network growth and maintenance.
- Burn Partners: exchange as much of the depegged assets as possible with the funded amount, while also attracting user participation.
- Users: participate in the recovery process, profitably.
There is an immense amount of depegged 1assets left on market that each burn partner can target. Many of the depegged tokens are no longer in users possession (check the liquidity levels and explorer data), which offers us a unique opportunity to do more with less, as illustrated with the above figures. Alongside this opportunity is the potential for users to be engaged with and for there to exist a profitable exchange as we work towards a healthier ecosystem in light of the hack.
Originally published at https://medium.com on November 12, 2022.
