The Leveraged Yield Farming Protocol was exploited in 2021
Alpha Homora appears to have conceded $32 million in client funds to Iron Bank to service an bad debt it incurred in February 2021.
On March 2, Iron Bank, an offshoot of the embattled CREAM Lending Protocol, abruptly paused v2 contracts of leveraged yield farming protocol Alpha Homora after talks between the two protocols deteriorated.
On Wednesday, Iron Bank suddenly resumed Alpha Homora v2 on the Optimism, Avalanche, and Fantom blockchains, allowing Alpha users to withdraw their wealth for the first time in almost a week. However, Alpha’s users’ fortune worth $41 million is stuck with Iron Bank’s Ethereum deployment.
On Thursday, Alpha Homora proposed that Iron Bank keep nearly $32 million of Alpha users’ funds to pay off debts and return about $8.7 million in excess of debts to its users . Alpha has also asked Iron Bank to return the 63 million ALPHA tokens it provided as collateral.
“We will work with Alpha depositors to clear the bad debt amount and make depositors as complete as possible,” Alpha Homora said. “This means that the bad debts between the two protocols will be transferred to one between Alpha Homora and its depositors.”
Alpha also urged its users to withdraw their assets to minimize risk. Alpha Homora’s total locked value (TVL) fell from $68.3 million to $59 million on Wednesday, according to DeFi Llama. Iron Bank’s TVL is $21.2 million.
Alpha Homora and Iron Bank work in partnership through a “protocol-to-protocol” lending mechanism.
take advantage of debt
After Alpha ran into bad debts worth $32 million through a malicious exploit in February 2021. Alpha Homora also provided Iron Bank with 50 million ALPHA tokens as collateral.
On February 14, Iron Bank requested Alpha to offer a solution to resolve the under-collateralization of the debt due to the depreciation of the pledged ALPHA tokens. Alpha said they reached out to the Iron Bank on March 1 with a proposed solution and tried to set up a meeting to discuss the details, but received no response.
But tensions between the two protocols peaked last week after the Iron Bank paused Alpha Homora’s credit accounts on March 2.
“Iron Bank]ignored the message and [made] a code change that appears to have occurred unilaterally and without notice and now prevents lenders from withdrawing their liquidity,” Alpha Homora said in an open letter on March 2.
On Discord, Iron Bank said that Alpha’s monthly repayments have fallen to just $5,000 over the past three months. It also said the loan is now undercollateralized as ALPHA’s value has fallen amid the bear market, although collateral had previously been topped up to ALPHA 63 million.
The Iron Bank responded with its own open letter on Twitter, claiming that Alpha Homora ignored its demands under the protocol to provide additional collateral. It also found that Alpha had only repaid $481,746 of its $32.4 million debt in 25 months.
Iron Bank said liquidity for ALPHA is also decreasing on exchanges, creating additional risks for its use as collateral. Iron Bank asked Alpha to pay off its debt in full by March 6, pledging to pause the accounts again if repaid. “Otherwise, the Iron Bank will pay off Alpha Homora’s exploit debt,” she warned at the time.
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