Alpha Homora Offers $32M In ‘Seized’ User Assets To Iron Bank To Pay Down Debt

Leveraged Yield Farming Protocol Was Exploited In 2021

Alpha Homora appears to have conceded $32M in customer funds to Iron Bank to service bad debts it incurred in February 2021.

On March 2, Iron Bank, a spin-off from the embattled C.R.E.A.M lending protocol, abruptly paused leveraged yield farming protocol Alpha Homora’s v2 contracts, after talks between the two protocols deteriorated.

On Wednesday, Iron Bank suddenly unpaused Alpha Homora v2 on the Optimism, Avalanche, and Fantom blockchains, allowing Alpha’s users to withdraw their assets for the first time in nearly a week. However, $41M worth of Alpha’s users’ assets remains stuck on Iron Bank’s Ethereum deployment.

On Thursday, Alpha Homora proposed that Iron Bank keep nearly $32M of Alpha users’ funds to satisfy the debt, and return some $8.7M exceeding the debt to its users. Alpha has also asked Iron Bank to return the 63M ALPHA tokens it provided as collateral.

“We will work with Alpha depositors to settle the bad debt amount and make depositors whole as much as possible,” Alpha Homora said. “This means the bad debt will be transferred from between the two protocols to one between Alpha Homora and its depositors.” 

Alpha also urged its users to withdraw their assets to minimize risk. Alpha Homora’s total value locked (TVL) dropped to $59M from $68.3M on Wednesday, according to DeFi Llama. Iron Bank’s TVL stands at $21.2M.

Alpha Homora and Iron Bank operate in partnership through a “protocol-to-protocol lending mechanism.” 

Exploit Debt

After Alpha incurred $32M worth of bad debt in February 2021 from a malicious exploit, the two protocols agreed the debt would be paid down over time with 20% of Alpha Homora’s protocol fees. Alpha Homora also provided Iron Bank with 50M ALPHA tokens as collateral.

On Feb. 14, Iron Bank requested that Alpha offer a solution to resolving the debt’s under-collateralization due to the drop in value of the ALPHA tokens pledged. Alpha said they reached out to Iron Bank on Mar. 1 with a proposed solution and sought to arrange a meeting to discuss its details, but did not receive a response. 

But tensions between the two protocols reached a fever pitch last week after Iron Bank paused Alpha Homora’s lending accounts on March 2. 

“Iron Bank] ignored the message and [made] a code change that appears to have been unilateral, without notice, and now prevents lenders from withdrawing their liquidity,” Alpha Homora said in an open letter on March 2. “Whatever concerns Iron Bank has does not entitle it to take user deposits.”

On Discord, Iron bank said Alpha’s monthly repayments fell to just $5,000 over the past three months. It also said the loan is now undercollateralized due to the value of ALPHA falling amid the bear market, despite the collateral previously being topped up to 63M ALPHA. 

Iron Bank replied with its own open letter on Twitter, asserting that Alpha Homora ignored its requests for the protocol to provide additional collateral. It also noted that Alpha had repaid just $481,746 of the $32.4M debt in 25 months. 

Iron bank said liquidity for ALPHA is also declining on exchanges, creating additional risks for its use as collateral. Iron Bank demanded Alpha repay its debt in full by March 6, pledging to unpause the accounts in the event of repayment. “Otherwise, Iron Bank will offset Alpha Homora’s exploit debt,” it warned at the time.