Recovery Plan: cbETH Incident and Moonwell Apollo Onboarding

Ideation & Discussion
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Recovery Plan: cbETH Incident and Moonwell Apollo Onboarding

Summary

Between February 14–18, 2026, a subset of Moonwell users supplying cbETH collateral on Base were unfairly liquidated. This wasn’t the result of normal market risk or poor decision-making on their part. It was caused by protocol behavior tied to MIP-X43. These users trusted Moonwell with their assets and were harmed through no fault of their own. That matters, and this proposal exists because of it. A full onchain review of all liquidation activity during that window has been completed. The findings: ~$2.68M in total net losses across ~181 borrowers.

This proposal outlines a data-backed recovery plan that addresses those losses responsibly, combining treasury funds with future protocol revenue. It includes a revenue commitment to affected users, a partial immediate repayment from the Moonwell Apollo Treasury (MFAM), and stkWELL compensation for MFAM wind-down participants at a 1:1.5 ratio. For both the cbETH incident and MFAM wind-down compensation, rewards will be claimable through Sablier for 12 months. After that, unclaimed rewards expire.

Background

On January 29, 2026, Moonwell on Moonriver was fully deprecated, including the MOVR, xcKSM, and FRAX markets. This followed Chainlink’s decision to sunset oracle feeds on Moonriver, which necessitated a gradual reduction of collateral factors across all markets. With the passage of MIP-R38, all Moonriver markets reached a 0% collateral factor, completing the wind-down of the deployment.

Moonwell on Moonriver operates under the Moonwell Apollo DAO, governed by MFAM, with a treasury that is separate from the Moonwell DAO on Base, governed by WELL. With Moonriver now fully deprecated, this proposal establishes a clear and final path to consolidate the Apollo deployment into the primary Moonwell DAO, simplifying governance, aligning incentives, and closing out legacy infrastructure.

As part of this consolidation, MFAM holders would convert their MFAM holdings into stkWELL at a 1:1.5 ratio, based on a snapshot taken at proposal submission. This transition brings MFAM holders into the WELL ecosystem, providing direct exposure to Moonwell’s ongoing development on Base and future deployments, while eliminating fragmentation across governance tokens and treasuries.

This consolidation also enables the resolution of outstanding protocol issues tied to the Moonriver deployment, including liquidation activity involving cbETH collateral during the defined incident window. During this period, certain liquidations occurred under conditions driven by oracle and protocol mechanics rather than typical market dynamics. Given the deprecation of Moonriver and the absence of a future operating mandate for the Apollo DAO, addressing these outcomes as part of the wind-down process is appropriate.

To that end, approximately $310,000 will be allocated from the MFAM Apollo Treasury to fund immediate remediation for affected borrowers. All cbETH-related liquidation activity during the incident window has been reconstructed and analyzed at the borrower level to ensure a consistent and transparent remediation methodology.

By resolving both the MFAM governance transition and the cbETH liquidation outcomes in a single proposal, Moonwell can close out the Moonriver chapter in a clean, accountable manner while consolidating focus and resources on the protocol’s active deployments.

Methodology

Losses were calculated on a per-borrower, net basis, ensuring no borrower is overcompensated and that only realized economic harm is remediated.

For each affected borrower:

  1. cbETH collateral

    • Users are entitled to the full amount of cbETH seized

    • Minus the USD value of debt repaid at the time of seizure

    • cbETH was repriced using an actual price of $2,200 per cbETH, correcting erroneous oracle values

  2. Net remediation amount

    • Final repayment per borrower equals:
      Total collateral seized (USD) − Total debt repaid (USD)

This methodology ensures repayments correspond strictly to realized loss, not gross collateral value.

Impact

Based on the finalized dataset:

  • Total net remediation required: ~$2.68M

  • Affected borrowers: ~181

  • Scope: All cbETH liquidations from Feb 14–18, 2026, plus any concurrent liquidations affecting the same borrowers

Proposed Recovery Plan

1. Immediate Partial Repayment (Treasury)

  • Allocate ~$310K from the Moonwell Apollo Treasury

  • Funds distributed pro-rata to affected borrowers based on calculated net losses

  • Serves as an immediate good-faith remediation without jeopardizing protocol stability

2. Ongoing Repayment via Protocol Revenue

  • Remaining balances repaid over time using future protocol revenue, including:

    • Net protocol fees

    • OEV revenue under the current fee split

3. Addressing MFAM Holders from wind-down

  • Following deprecation of the Moonwell Apollo Treasury, MFAM holders will receive stkWELL at a 1:1.5 ratio from their remaining balance of MFAM, offering them the opportunity to join the Moonwell ecosystem. Additionally, this stkWELL will be claimable for up to 12 months.

  1. MFAM Vote (Yes/No)

    • MFAM holders receive their MFAM value in stkWELL at a ratio of 1:1.5

    • Snapshot taken at the time of proposal submission

    • Purpose: formally align MFAM holders with the Moonwell DAO

  2. Moonwell DAO Vote

    • DAO votes to approve:

      • Treasury allocation

      • Long-term repayment commitment

      • Execution authority

Voting Options (MFAM)

  • Yes: Approve the recovery framework and proceed to DAO ratification

  • No: Reject the recovery framework

  • Abstain: Conflict of Interest, not well-informed, etc.

7 Likes
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Thank you for this proposal. I do believe it’s important to repay the cbETH suppliers that were liquidated for their losses, and this looks like a very solid plan for the DAO to do so.

5 Likes
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If ETH in the incoming months pumps to $4000, essentially this plan would equal to make affected borrowers sell their ETH at ATL. The repayment will take months and in those months ETH may appreciate in value making borrowers be at loss.

They should be compensated the quantity of ETH they lost not the monetary value lost of ETH at the incident time. Or at least give them the option to choose if they want to be compensated the monetary amount of ETH they lost or the quantity of ETH they lost.

This is not a solution, since it is forcing ETH borrowers to be compensated the equivalent of a ATL sell.

Compensating them by giving them back the amount of ETH they lost would be fairer.

4 Likes
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It’s not clear what is meant by “ Users are entitled to the full amount of cbETH seized”. Hopefully it means the number of cbETH seized not the value of cbETH at the time of seizure.
Also what if the immediate partial compensation isn’t enough to meet the collateral requirements for the loans we still have active? We would need to pay down the loan or add collateral to prevent another liquidation event.

I’m not familiar enough with the MFAM situation to comment on that part of the proposal.

Glad to see this proposal put forward, I think with some clarification/tweaks it can work.

2 Likes
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English is not my native language, so I’m not sure if I can convey my opinion correctly, but I’d like to express it anyway.
I borrowed USDC using cbETH, Aero, cbXRP, etc. as collateral.
Due to this incident, all of the collateral I deposited has been liquidated.
What I want is for all of the cryptocurrencies I deposited as collateral to be returned.
I want things to return to the way they were before this incident occurred.
I strongly hope that my losses will be returned in cbETH, Aero, and cbXRP, rather than USDC.

3 Likes
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I agree with you.
I deposited 13 ETH each of cbETH, rETH, weETH, and wstETH (52 ETH total) as collateral and borrowed 37 ETH. All collateral was liquidated. Net loss is about 16 ETH.
I would strongly prefer a refund in cbETH, rETH, weETH, and wstETH, not USDC.

1 Like
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While this wasn’t explicitly discussed, I think the plan is to compensate borrowers in cbETH.

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I think we should rethink the plan for MFAM people. The coin was dead and people should’ve long realized that.. they don’t deserve anything..

tbh the ratio for that is kinda dumb.. I think we should solely focus on only the Cbeth situation and not bring up MFAM. That’s a whole different front

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Hello, I don’t know if you understand this, but you are taking money from the Moonriver network, where profits from the markets were used to create a reserve that was approved by Mfam holders. You want to transfer profits from the Moonriver network to cover losses on Base, which is fine, but compensating Mfam holders is only fair. This is also because you are taking our money from a completely different network to another network. Mfam holders also did not receive the Mamo airdrop because it was on a different network. It seems to me that your interest is purely selfish and does not take the facts into account. The only thing I have to say about this proposal is that the snapshot should be taken today so that speculators do not jump on it and start buying up Mfam.

Translated with DeepL.com (free version)

1 Like
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Just consider the paradox of MOONRIVER resources and their use. How will you vote on this with your token? This clearly shows that it would not be fair. I believe that Mfam holders will vote for the reallocation of these resources without any problems if they are guaranteed compensation within 12 months. And the Moonriver markets will be closed in a decent and fair manner. I would like to praise the proposal very much! The ratio of 1:1.5 is still up for discussion - 1:1 would be enough, it’s up for discussion.

Translated with DeepL.com (free version)

1 Like
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You say we should have left Mfam long ago, but at the same time, the money you saw there is worth losing in another market. That’s very funny because I could say the same thing to you. It’s your problem, not Moonriver

1 Like
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Luke, for clarity you mean for the people who use cbeth as collateral, and who lost their Cbbtc, Morpho, aero, and Virtuals from the oracle error, will all be paid back in only cbeth?

Is that market value of assets at time of failure paid in cbeth, or am I getting back my assets. Obviously the market is volatile. If we get usd value of assets back in a year of cbeth, eth could be $5000 a coin and we will drastically lose. My 5 eth that I had, may only be paid back to me as 2 ETH

On the flip, if ETH goes to $1000, BTC goes to $40,000 I would capture more assets.

I think debt and assets need to be restored to be fair. I lost all of my cbeth and Cbbtc in this failure with good health.

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Regardless of the price and future of things. If your here we all lost something together, the users, and people of moonwell.

I think the only way forward is getting everyone their assets back. No just for us, but the company too. I love moonwell, have used it as my bank and travel card overseas. It’s a beautiful site and platform. Just heavily mistrusted at this point.

(Moonwell)

Users are not going to trust or reuse the platform if we are not getting back exactly what we lost. If it’s a partial reimbursement or we get paid in usd value of lost assets, then ultimately we can’t trust you to have our backs

3 Likes
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I agree.
To help Moonwell regain trust and credibility within the community, I believe it’s essential to fully restore the supplied assets and borrowing positions that were affected by the cbETH incident.

Accurate restoration of users’ original supply and borrow amounts (where possible) would demonstrate strong commitment to fairness and user protection.

1 Like
21

agree!

i think we should speed up the process, aera funds already in control of moonwell Aera Pilot Conclusion

There is no reason to wait any longer, the entire voting process also takes time, Hopefully the proposals will be live before the weekend…This would be a strong sign that the cbETH incident will be resolved within a week and user trust will be restored.

1 Like
23

When I look at the MFAM price, as I wrote yesterday, it was clear to everyone that some entities would speculate on it, but in my opinion, these people should not be entitled to compensation from yesterday. The entitlement should be until February 19. Anything compensated after February 19 is not eligible.

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Let’s get the ball rolling. End of the month is near. Every day delayed is more potential yield loss.

1 Like
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Only people posting here to get the proposal going are ones who just bought MFAM and staked :joy:

We should focus on Cbeth now and focus on those MFAM holders at a way later date in the future. Even though they deserve 13.5/1 ratio

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Only whole for the total sum of 310k usd lol

The math ain’t mathing

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If it’s only 300,000, why is it so important that you get it from us? This amount should be for Mfam, so leave it with us if it’s almost nothing.

1 Like