[Feature] Dispute Between Iron Bank & Alpha Homora Sparked Widespread Discussion

Compiled By: Coinlive
Author: odaily

Iron Bank, formerly known as Cream v2, is a lending market that supports partially collateralized (and even uncollateralized) loans jointly launched by Cream Finance and Yearn Finance. Alpha Homora, on the other hand, is a leveraged protocol aimed at providing yield farming efficiency. In early 2021, Alpha Homora launched version 2 and began using the liquidity of Cream v2 to provide users with leverage services.

In short, the relationship between the two is that Cream v2 provides the liquidity required for Alpha Homora v2 users to engage in leverage operations as the underlying lending market, and Alpha Homora v2 provides users with a window to access Cream v2 through its own front-end application, while increasing the interest rate income of Cream v2 deposit users by magnifying borrowing demand.

The conflict between the two can be traced back to a hacking incident in early 2021. At that time, hackers used a code vulnerability in Alpha Homora to borrow funds from Cream v2 for a flash loan attack, resulting in a loss of 37.5 million US dollars.

Subsequently, the two parties agreed to consider a portion of the unrecovered losses as Alpha Homora's debt to Cream v2, and Alpha Homora was required to pay 20% of its protocol revenue each month for repayment, while providing sufficient collateral to ensure repayment. The specific approach was to lock 50 million ALPHA (approximately 60 million US dollars at the time) in a custody contract controlled by Cream v2.

According to recent disclosures from Iron Bank, which has since been renamed, the debt owed by Alpha Homora to Iron Bank at the time of the theft was 11,245 ETH + 4,263,139 DAI + 4,032,014 USDC + 5,647,242 USDT, totaling 32.429 million US dollars. As of March 2, 2023, the debt details were 11,422 ETH + 3,106,549 DAI + 3,851,025 USDC + 6,212,087 USDT, totaling 31.947 million US dollars.

If everything goes smoothly, Alpha Homora may gradually repay its debt to the Iron Bank. However, due to the bearish market, Alpha Homora's business data has experienced a serious decline, and the ALPHA token itself has also plummeted significantly. Currently, Alpha Homora can only repay $5,000 per month through the protocol, and the original $60 million worth of ALPHA collateral has also fallen to nearly $6 million.

The slowdown in the repayment progress and the shortfall in collateral have raised concerns for the Iron Bank as to whether the debt can be successfully recovered. On March 2nd, the Iron Bank issued an open letter to Alpha Homora, stating that the protocol had requested Alpha Homora to supplement its collateral assets on February 14th, and Alpha Homora also proposed a solution within three days, but there had been no action taken in the past two weeks. In order to ensure the safety of its own and other related protocols, the Iron Bank suspended the lending function of Alpha Homora's related accounts on March 1st. As mentioned earlier, Alpha Homora used its frontend to provide users with a window to access Cream v2, which has caused these users to temporarily unable to withdraw their funds deposited in the Iron Bank.

Iron Bank emphasized in a tweet that if Alpha Homora does not replenish its collateral funds by March 5th, it reserves the right to offset its debt using the funds in the account. After Iron Bank deployed its "nuclear option," Alpha Homora, which was facing a funding crisis, finally took action. Since March 2nd, the Alpha Homora team has issued three open letters in response to the situation.

1：https://blog.alphaventuredao.io/an-open-letter-to-iron-bank/

2：https://blog.alphaventuredao.io/second-open-letter-to-iron-bank/

3：https://blog.alphaventuredao.io/third-open-letter-to-iron-bank/

In the first open letter, Alpha Homora explained that it was not ignoring the situation but needed more time to propose a solution. The team had requested a meeting with Iron Bank to discuss the matter, but their request was ignored. Alpha Homora also emphasized that Iron Bank had no right to freeze user funds regardless of their concerns and called on Iron Bank to release user funds immediately and return to normal discussions.

In the second open letter, Alpha Homora again demanded that Iron Bank release user funds and stated that if they did not, it would not fulfill its repayment obligations agreed upon in 2021 and would not replenish its collateral funds. Additionally, Alpha Homora "threatened" legal action until the true identity of someone within Iron Bank's anonymous team was revealed. Alpha Homora also mentioned that if an extreme situation occurred, it would bear the loss of user funds.

In the third open letter, Alpha Homora again demanded that Iron Bank release user funds and accused Iron Bank of being a centralized platform that arbitrarily changes its agreement rules. This time, Alpha Homora finally proposed a preliminary solution, as follows:

Iron Bank should return customer funds on other chains besides Ethereum;

Iron Bank should return $11 million of the approximately $41 million on the Ethereum chain;

As for the remaining $30 million, Alpha Homora will share detailed information on how to handle it with the community within a week of Iron Bank agreeing to the proposed solution.

In short, the preliminary proposal is "you return the excess first, and we'll talk about what to do with the rest."

As of writing, Iron Bank has not responded to Alpha Homora's proposal on its official channels, but the prolonged stalemate has had adverse effects on both sides.

On social media, Iron Bank's freezing of user funds has been heavily criticized, with many Twitter users accusing the move of being criminal. On Alpha Homora's side, some Twitter users have noticed that perhaps the balance of funds has been affected, and some positions that should have been liquidated within the platform have not been effectively liquidated, posing a threat to the protocol's security.

This morning, Alpha Homora tweeted: "We have been negotiating with Iron Bank to release user funds. The discussions are approaching a solution and details are being worked out. Please be patient and rest assured that Alpha Homora will not allow Iron Bank to take user funds."

That's the latest update on this story. As for how it will develop in the future, please stay tuned.