JPEG’d DAO (Decentralized Autonomous Organization), the NFT-backed loans protocol that lost nearly $12 million in crypto to the Curve exploit earlier this month, is now seeking to address the repercussions of paying a $1 million bounty to recover most of the stolen funds.
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How the Curve exploit damaged JPEG’d
JPEG’d is a lending app that issues a derivative of ETH called pETH to customers who use NFTs as collateral. Many of these customers sought higher yields and placed their pETH in a liquidity pool on Curve, a widely-used DeFi (Decentralized Finance) protocol on the Ethereum blockchain.
The plan went awry in early August when an exploiter drained the Curve pool. To recover the stolen assets, JPEG’d agreed to pay the exploiter a 611 ETH bounty, which led to the return of 5,495 ETH (90% of the stolen amount). The move saved the protocol from financial ruin and prevented customers from suffering heavy losses on their investments.
DAO settling the losses fairly
The DAO’s investors are now deciding who should bear the burden of the 611 ETH that was paid as a bounty. A vote is currently underway for six different proposals and will run until Saturday.
Option D currently leads the vote, which proposes to share the loss between JPEG’d’s non-paying customers and the DAO itself.
Under option D, pETH price speculators and yield farmers who did not use JPEG’d’s in-house service, Citadel, to deposit into the Curve pool will receive most, but not all, of their money back. In contrast, pETH minters who paid a small fee to earn interest in a Curve pool through Citadel will be fully compensated.
Should the proposal pass, the DAO would face a net deficit of 484 ETH, roughly equivalent to $802,000, along with a shortfall of 861 million JPEG tokens, valued at around $450,000. Additionally, the DAO plans to replace pETH with a new derivative token that will be airdropped to all holders, regardless of the option chosen.
A pseudonymous user experience (UX) developer for JPEG’d, known as 0xtutti, described option D as an “in-between” solution to the problem. According to 0xtutti, “everyone gets a share of the recovered assets” regardless of which option ultimately prevails.
The community’s primary concern is protecting paying customers as much as possible, 0xtutti stated. The results of the vote will determine how JPEG’d handles the aftermath of the Curve exploit and how it can move forward in a way that is fair to its users.