Curve Crisis Averted, NFT Loans Protocol Now Votes on Next Steps

JPEG'd DAO participants are presently engaged in a critical decision-making process concerning the allocation of a substantial $1 million bounty. This decision centers around resolving the financial predicament faced by the NFT-backed lending protocol that encountered a significant loss of nearly $12 million due to a recent exploit on the Curve protocol. To recuperate a considerable portion of these losses, the protocol paid a $1 million bounty to the attacker. Now, the DAO must determine how to address the remaining gap.

JPEG'd operates as a crypto lending platform collateralized by NFTs, providing customers with a derivative of Ethereum named pETH, intrinsically linked to their loans. Seeking additional returns, many users staked their pETH within a liquidity pool endorsed by the protocol on the Ethereum-based trading platform, Curve.

However, their aspirations for higher yields were thwarted when an exploiter drained the Curve pool and others in early August. To salvage the situation, JPEG'd opted to remunerate the attacker with a 611 ETH bounty in exchange for the recovery of 5,495 ETH (equivalent to 90%). This strategic move successfully averted financial turmoil for the protocol and shielded its customers from facing complete loss on their holdings.

Nevertheless, the predicament remains on how to account for the missing 611 ETH. The JPEG'd DAO members are presently in the process of voting on six different proposals, each offering a distinct solution for shouldering this burden. Currently leading the poll is option D, which allocates the responsibility between non-paying users of JPEG'd and the DAO itself.

Option D specifically favors pETH price speculators and yield farmers who did not use JPEG'd's in-house service, Citadel, to deposit funds into Curve. While these participants would regain a significant portion of their investments, they would not recover the entirety. In contrast, paying customers—pETH minters who paid a nominal fee to earn interest through Citadel—would be fully compensated.

Should option D prevail, the DAO would incur a net loss of 484 ETH (approximately $802,000) and 861 million JPEG tokens (approximately $450,000). The DAO also intends to introduce a new derivative token to replace pETH, distributing it to all token holders through an airdrop, regardless of the chosen option.

A pseudonymous UX developer for JPEG'd, identified as 0xtutti, characterized option D as a balanced resolution to the complex predicament. Notably, regardless of the outcome, "everyone gets a share of the recovered assets," as per 0xtutti. The developer emphasized the community's concerted effort to safeguard paying customers throughout this decision-making process.