## Introduction
In the aftermath of a significant exploit that compromised over $128 million from Balancer’s Version 2 pools, the decentralized finance (DeFi) protocol has announced an ambitious plan to reimburse its liquidity providers (LPs). This initiative aims to restore confidence among stakeholders and is a testament to the proactive measures being taken to address vulnerabilities within the ecosystem.
### Key Findings
– Balancer has committed to returning $8 million to affected liquidity providers following the exploit.
– Collaborative efforts by whitehat hackers and internal teams have facilitated the recovery of a portion of the stolen funds, specifically $28 million.
– The reimbursement process will take place over a 180-day claims period, with distributions occurring pro rata in the same tokens as originally invested.
## The Balancer Exploit
### Nature of the Attack
The exploit, which transpired in early November, capitalized on a critical flaw in the rounding function within Balancer’s Composable Stable Pools (CSPv5). The attackers adeptly leveraged this vulnerability in conjunction with batched swaps to manipulate token price calculations. This manipulation enabled them to siphon funds across multiple platforms, including Ethereum, Polygon, Base, and Arbitrum.
### Auditing Oversight
Despite undergoing eleven separate security audits conducted by four distinct blockchain security firms, this particular vulnerability was unfortunately overlooked. The ramifications of this breach were profound, resulting in a drastic reduction of Balancer’s total value locked (TVL), plummeting from $775 million to approximately $258 million. Concurrently, the native BAL token experienced a substantial devaluation of roughly 30%.
In a bid to mitigate further losses, portions of the protocol were promptly suspended post-exploit while recovery operations commenced.
## Recovery Efforts and Whitehat Contributions
### Fund Recovery Overview
As part of the recovery initiative, approximately $28 million of the compromised assets has been successfully retrieved. The contributions from whitehat hackers were particularly noteworthy:
– An estimated $3.9 million was reclaimed by ethical hackers.
– Internal Balancer teams, in partnership with security firm Certora, recovered an additional $4.1 million from metastable pools that had not yet been compromised.
Among the notable contributors was an anonymous entity referred to as “Anon #1,” who successfully recovered $2.68 million on Polygon across various tokens.
### Community Involvement
Several rescuers operating on Arbitrum chose to remain anonymous and opted to waive their bounty claims, highlighting the community-centric ethos that permeates these recovery efforts. The remaining balance of $19.7 million in osETH and osGNO tokens was salvaged through StakeWise, an Ethereum liquid staking protocol, and is set to be returned via StakeWise’s governance frameworks.
## The $8 Million Reimbursement Plan
### Framework and Distribution Mechanism
The reimbursement initiative encapsulates a strategy focused on disbursing the $8 million directly recovered through whitehat and internal efforts. A critical aspect of this framework is its non-socialized approach; thus, reimbursements are exclusively allocated to liquidity providers within the specific pools that suffered losses.
#### Key Elements of the Reimbursement Plan:
– **Pro-Rata Distribution**: Reimbursements will be proportionately distributed based on each user’s holdings of Balancer Pool Tokens at a pre-exploit snapshot.
– **In-Kind Payments**: Recipients will receive compensation in the exact tokens that were originally lost, thereby mitigating risks associated with market volatility during the claims process.
– **Whitehat Bounties**: Ethical hackers who contributed to fund recovery are entitled to a bounty equating to 10% of the recovered amount, subject to a maximum cap of $1 million per operation. To qualify for these rewards, participants must complete identity verification and adhere to KYC and sanctions screening protocols under Balancer’s SEAL Safe Harbour Agreement.
It is important to note that internal recovery operations involving Certora are excluded from bounty eligibility due to pre-existing contractual obligations.
### Claims Process
Should the proposed distribution framework receive community ratification via governance voting mechanisms, affected liquidity providers will be afforded a 180-day period during which they may claim their funds. Acceptance of Balancer’s revised terms of use will be mandatory for participation in this claims process. These updated terms necessitate users to absolve Balancer Labs, the DAO, and associated entities from any legal liabilities stemming from the exploit.
Unclaimed funds post-180 days will be deemed dormant and may only be reallocated through subsequent governance decisions.
