Alcala Resumes Operations After Printing Over $3 Billion in Stablecoins by Mistake

Some blockchain projects have to deal with hackers, and others, like Alcalà, have to deal with their own developers. A “human error” a few weeks ago nearly killed the entire project. However, thanks to the mutual effort of the community and developers, the problem has been solved, somewhat.

On September 26, the Acala network announced the reactivation of its operations after recovering $2.97 billion in USD of its team’s $3.022 billion.
printed in error in August.

The Community Referendum for Phase 1 of Acala Operations Restart has passed and has been executed.

LPs who choose to split LP tokens or withdraw liquidity to 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 burning almost all ($2.7 billion USD) of printed tokens.

A very costly mistake

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

Second batch tracking results + summary below. 16 addresses claimed a total of 3.022 billion aUSD error coins. Acala Referendum #21 burned ~1,292B. 1,682B of aUSD errors in iBTC/aUSD LP tokens, obtained after the incident, remain in 16 Acala addresses. https://t.co/8MTBinhrVP

— Acala (@AcalaNetwork) August 17, 2022

Due to the failure, the network decided to stop exchange operations, inter-chain communications on Polkadot and oracles, among other considerations. The team also said operations would resume “in a safe and gradual manner” once the error is resolved and parity with the US dollar is restored.

“To contain miscoined aUSD, urgent govt votes passed to pause horizon protocol, xtoken (xcm transfer out), EVM, non-ACA token transfer, oracle pallet and LDOT instant exchange” .

Since then, the network went into maintenance mode freezing users’ funds to recover unsecured tokens. The community later voted to identify and destroy misprinted tokens, which helped restore operations despite the USD remaining at $0.77, which is far from the proper benchmark of $1.

Alcalá and the state of aUSD today

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

In addition, the protocol has already managed to recapitalize and rebalance the Acala Swap liquidity pools to pre-incident levels, thanks to the support of the Alcalà foundation, which donated 2,489,614 ACA, 80,853 DOT, 0.164 iBTC, 995,020 LD INTR.

“As all USD in circulation have been re-collateralized and liquidity pools are recapitalized and rebalanced, the Acala network is in a state ready to resume normal operations.”

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

Centralization vs. decentralization

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

Although Acala’s decision was criticized by some users on social media, the collapse of another stablecoin, such as aUSD, could have been chaotic for the crypto market, given the precedents of UST and LUNA.

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

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

Although Acala has resumed network operations, it now has to work to regain user confidence. And that is sometimes more difficult than coding a smart contract.