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Alcala resumes operations after accidentally printing over $3 billion worth of stablecoins

Some blockchain projects have to deal with hackers, others, like Alcala, have to deal with their own developers. A “human error” a few weeks ago almost ruined the whole project. However, thanks to the combined efforts of the community and developers, the issue has been resolved – somehow.

On September 26, the Acala Network announced the reactivation of its operations after recovering $2.970 million from its team’s $3.022 million
mistakenly printed in August.

The community referendum for Phase 1 of Acala’s resume operations has been passed and conducted.

LPs who choose to de-stake LP tokens or withdraw liquidity on Acala now have the option to do so. https://t.co/yzvOz7zwxT

— Acala (@AcalaNetwork) September 26, 2022

According to Acala, the community voted to resume network operations after nearly all ($2.7 billion per USD) of printed tokens were burned.

A very costly mistake

On August 15, DeFi platform Acala published a report explaining how it mistakenly printed over 3 billion of its aUSD stablecoin, leading to its instant collapse. At that time, a USD plummeted more than 99%, reaching a price of less than $0.01 per coin.

2nd batch trace results + summary below. A total of aUSD 3.022 billion in error minting was claimed by 16 addresses. Acala Referendum #21 burned ~1,292B. 1,682B aUSD bug mints in iBTC/aUSD LP tokens received after the incident remain on 16 Acala addresses. https://t.co/8MTBinhrVP

— Acala (@AcalaNetwork) August 17, 2022

Due to the outage, the network decided, among other things, to stop swap operations, inter-chain communications on Polkadot and oracles. The team also said operations would resume “safely and gradually” once the bug was fixed and parity with the US dollar was restored.

“To contain the erroneously minted aUSD, urgent governance votes were passed to pause the horizon protocol, xtoken (xcm transfer out), EVM, non-ACA token transfer, Oracle range and LDOT instant redemption.”

Since then, the network has gone into maintenance mode, freezing user funds to recover unsecured tokens. The community later voted to identify and destroy erroneously printed tokens, which helped restore operations, although aUSD remains at $0.77, which is far from the proper reference of $1.

Alcala and the status of a USD as of today

According to Acala’s latest report, the network has a total circulating supply of $10,961,589. Of this, a total of aUSD 5,837,712 was re-collateralized by the Acala Foundation.

Furthermore, the protocol has already managed to recapitalize Acala Swap’s liquidity pools and return them to pre-date levels thanks to the support of the Alcala Foundation, which donated 2,489,614 ACA, 80,853 DOT, 0.164 iBTC, 995,020 INTR, 530,700 LDOT to compensate for the incident.

“Now that all outstanding aUSD have been re-collateralized and the liquidity pools have been recapitalized and rebalanced, the Acala network is in a state where it is ready to resume normal operations.”

However, some assets are still frozen by community votes, while others are locked on a number of centralized exchanges (CEX) that have supported aUSD recovery efforts. Acala even offers rewards of up to 5% for users who return the funds involved in the incident.

Centralization vs. decentralization

Although the Alcala team acted quickly, they had to freeze users’ funds to get the situation under control. This contradicts the censorship-resistant decentralized nature of the protocol.

Although Acala’s decision drew criticism from some users on social media, the collapse of another stablecoin, such as a USD, can be chaotic for the crypto market considering the precedents of UST and LUNA.

I think it would have to go to governance to be “decentralized” finance (DeFi). If Acala centrally controls this decision, is this really DeFi?

— Gr33nHatt3R.dot ⭕ (@Gr33nHatt3R) August 14, 2022

Although Acala has restarted its network operations, it now has to work to regain user trust. And that is sometimes more difficult than programming a smart contract.

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