"Socializing losses" refers to a mechanism by which the adverse effects of an unfortunate event, like a protocol exploit, are distributed across all users rather than being borne by a few. Instead of a minority bearing the brunt of the loss, the consequences are spread more evenly, minimizing individual impact. The combined loss is then divided among all users, often in proportion to their holdings or involvement, ensuring that no single user or group faces an outsized impact.
In response to the recent cypher protocol exploit, we are implementing the socialized losses mechanism. A "redemption package" will be prepared using assets that still reside within the protocol. This means, despite the exploit, there are assets intact and available for users.
Spot assets value will be booked at the price when protocol was frozen. Open positions in perp markets will be closed at the price of underlying asset at time of protocol freezing.
Each user's redemption package will be determined on a pro rata basis. In simpler terms, users will receive a portion of the remaining assets corresponding to their share or involvement in the protocol. This ensures an equitable distribution of the available assets to all affected users.
In the face of adversity, our commitment to fairness and user protection remains unwavering. We understand the concerns and challenges faced by our community, and we're dedicated to navigating this situation with transparency and integrity. Your trust is invaluable to us, and we're working around the clock to ensure the best possible outcome for all.
The assets in the redemption package are as follows:
USDC
USDT
SOL
jitoSOL
mSOL
wETH
UXD
RLB
RAY
ORCA
BONK
Users of cypher and depositors to LIP will be able to come to the redemption program and connect their wallet and claim their redemption package.
Each margin account on cypher is associated (owned) by a wallet, the wallet tied to your margin account will be what is used for the redemption program. The on-chain account created by the redemption program will be tied to the wallet that is used on cypher. A user would just need to connect their wallet and claim the redemption package.
A script will be used to generate accounts and populate each account with their specific redemption package. The calculations to determine each redemption package will be done off-chain, but open sourced, the rest of the redemption program will take place on-chain. This methodology is similar to both Drift and Mango.
The value used for redemption in relation to a margin account will be based on a snapshot of the account’s assets at the time cypher protocol was frozen.
The redemption package will total ~$.31 (31 cents) on the dollar.
Recognizing the anticipation surrounding the redemption program. To ensure its integrity and security, the program will undergo a thorough audit and will be open-sourced. While committed to launching it as swiftly as possible, the primary focus remains on ensuring the safety of the entire process. Appreciate your understanding and patience during the redemption phase.