Counter-Proposal: Fund cbETH Remediation From the Foundation Treasury, Not a Reserve Residual
Submitted by affected cbETH borrowers (co-signers below)
Summary
The current remediation mechanism pays affected borrowers from whatever protocol reserves are left over after bad-debt cleanup. By Anthias’s own 5/28 figures, that residual is tiny, it is being spent mostly on bad debt rather than on us, and on the protocol’s own pace full repayment is roughly five years away. We ask the DAO and the Moonwell Foundation to (1) decouple victim remediation from the reserve residual, (2) fund the outstanding remediation from the Foundation treasury that is publicly earmarked for ecosystem development, (3) pay on a fixed schedule with a hard completion date, and (4) denominate in-kind to match the assets that were seized.
1. The pace is measured in years, not months
The 5/28 proposal distributes 63.33 WETH this round (~$133K): about 53.33 WETH from swapping the cbBTC reserve surplus, plus 9.99984 ETH recovered from law enforcement. Roughly a sixth of the round is therefore a one-time outside recovery, not protocol capital.
By the proposal’s own accounting:
- Total distributed so far: 169.27 WETH — 12.29% of the obligation.
- This round lifts progress to approximately 16.9%.
- Still outstanding: 1,208.01 WETH (~$2.5M).
Now the structural limit. Across all 20 Base markets, total reserves in excess of bad debt — the entire pool this mechanism is permitted to draw on — is approximately $175K. Distributing every last dollar of it would cover under 7% of what remains. At the protocol’s own March accrual rate (~$39k/month, which commenters on the original thread noted was abnormally high), the remaining balance takes roughly five years.
2. Reserves are being spent — mostly on bad debt, not on us
This proposal directs $550K of the $738K in current reserves to repay bad debt for zero-collateral addresses, and only ~$112K (the cbBTC surplus) toward cbETH remediation. After it executes, reserves fall to roughly $76K against about $4.6M of remaining bad debt.
The remediation engine is then left on fumes; the next round depends on slow new accrual or another outside recovery. Under this design, affected users are paid from whatever is left after bad-debt cleanup — a residual, not a commitment. Servicing protocol bad debt and remediating defrauded users are two distinct obligations, and forcing them to compete for the same $738K means bad debt wins every month.
(For reference, from the 5/28 report: total core-market bad debt is ~$5.17M across all markets and incidents; the cbETH market specifically carries ~$1.48M in bad debt against ~$2,600 in reserves. Total reserves protocol-wide: ~$738K.)
3. The funding source is the problem, not the timeline
The Moonwell Foundation has publicly stated it “safeguards a substantial treasury, including 9.47m USDC and 415.9 wstETH” — roughly $10.8M — “for the continued growth and development of the Moonwell Ecosystem.” The outstanding remediation (~1,208 WETH, ~$2.5M) is approximately 24% of that treasury.
Restoring trust after a self-inflicted, protocol-authored incident (MIP-X43, executed by Moonwell’s own governance) is the single most important ecosystem investment the Foundation could make. The money to make us whole exists. The mechanism simply points at the wrong pool — a near-empty reserve account instead of the treasury that was set aside for exactly this kind of ecosystem need.
4. What we propose
- Decouple remediation from the reserve residual. Victim remediation should not be funded from what is left after bad-debt servicing.
- Fund the outstanding remediation (~1,208 WETH, ~$2.5M) from the Moonwell Foundation treasury (and/or DAO-directed capital), not from protocol reserves that are being consumed by bad-debt cleanup.
- Commit to a fixed schedule with a hard completion date — for example, equal monthly tranches completing within 6–9 months — replacing the open-ended, accrual-dependent timeline.
- Denominate in-kind / ETH-equivalent (cbETH / weETH / ETH) to match the assets that were seized.
- No claim expiry. Claims should not lapse.
This consolidates the alternatives already raised in the original thread — horikorg’s proposal to have the DAO treasury supplement the gap to a ~12%/month repair rate, and hungvoooo’s tranche schedule — into one concrete ask. It is the documented good-faith alternative we have repeatedly been asked to provide.
5. This is the consolidated position of affected borrowers
The original remediation thread contains sustained, specific objections from multiple affected users (horikorg, HijackJetten, hungvoooo, tater1945, Meadiac, c_r909, and others), to which no member of the Moonwell team has responded. Two of those users have separately documented being muted in Discord for raising these concerns. We are asking, again, on the record, for direct engagement and a remediation plan that can actually conclude.
There is an opportunity here to set a precedent — to show that a decentralized protocol can take responsibility for its own error and make its users whole. We are asking the DAO and the Foundation to take it.
Co-signers (affected cbETH borrowers):
- Vital / 0x3e2178CF851A0e5cbF84c0ff53f820ad7EAD703b
- Horik / 0x893d6c896940fa58190013f4c97be56c2a7fb152