Harmony ONE Bridge Hack Inflation

For those who aren’t aware, the Harmony Bridge to the Harmony blockchain was hacked about a month ago. Prior to the hack when people bridged tokens to the Harmony chain, the Bridge would hold thier tokens and they would be issued “1” assets (1USDC, 1USDT, 1BSC, etc.).

The Harmony team had promised a 5 signature wallet held the custodial tokens, however after the hack it came out that it was actually a 2/5 sig wallet.

After the hack, the mostly US based team went mostly silent. While they committed to “100% of staff moved from development to communication”, they barely said a word to the community.

Today the team announced a plan, supported only by Stephen Tse (and at the objection of the rest of the Harmony dev team) which would reimburse people affected by the Bridge hack over the next 3 years through minting of more Harmony ONE tokens. Below is an analysis of the effect of that mint on the tokenomics of Harmony.

First we look at how many Harmony tokens are in existence, and how many are staked by validators (locked until the next Epoch).

Current circulation 13,550,000,000
Currently Staked.     5,375,000,000
Liquid supply            8,150,000,000

Note that several validators have objected to the proposal by Stephen Tse and are likely to pull staked tokens, so the above numbers are likely to change.

Now let’s look at the tokenomics. Validators are paid (minted) tokens as an incentive to stake. In a perfect world gas fees on the chain would burn more tokens than validators are paid, and ONE would be deflationary. In the current world, despite the team recently increasing gas fees by 25 times what it was pre hack, far fewer tokens are burned then are minted.

On top of that, Defikingdoms, a defli protocol responsible for 80% of gas fees on Harmony and 85% of defi liquidity has announced it is leaving the chain as soon as possible. As it stands now weekly inflation pressure is below:

Daily mint to validators 1,474,000

Daily burn from gas fees 120,000
Less DFK gas burned*      (96,000)
Daily gas burn w/out DFK  24 000

Net Daily ONE minted    1,450,000

*Defikingdoms represents roughly 80% of Harmony chain activity and has stated they are seeking an alternate chain to migrate Serendale to.

As it stands now, roughly 1.5M ONE tokens are minted EVERY DAY.

The proposal to compensate those impacted by the Bridge hack is to mint 3,000,000,000 tokens over the next 3 years (1B/yr) and provide those to impacted wallets weekly.

The daily impact of that plan is an additional mint of 2,800,000 ONE per day.

After the proposal the total Daily mint of ONE will be 3,800,000 tokens per day.

Stephen plans that if crypto recovers, the roughly .3% per day inflation rate would be made up by growth in the ecosystem.

The problem with that view, is because the Bridge was never replenished, bridging tokens to Harmony is done at a 95% premium. For example if you try to use synapse to Bridge USDC from Avalanche you will see $1,000 USDC turn into $20,000 1USDC on Harmony. This isn’t because you get, 19,000 free USDC, it’s because there’s so little faith in the recovery of Harmony, no one wants to take thier chances bridging money in, and the Bridge exit only has 5% liquidity left.

Happy to hear other’s thoughts, but it seems the internal Harmony team, as well as investors, and protocols on the chain have lost faith in Harmony ONEs viability as a chain.

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11 thoughts on “Harmony ONE Bridge Hack Inflation”

  1. I wanted to believe in this project, but the response to the hack has been disappointing at best. I’m close to locking in my losses and moving on.

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  2. Just seeing this now. Been away from crypto for a while. By the time my coins unstake, they’d be worth shit.

    Honestly this is all so disappointing

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  3. It’s very unfortunate for a wonderful group of investors and fans of the ONE. I did enjoy the April fool’s gag though. It was refreshing to see folks clearly not give a shit.

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  4. The team has made a U-turn already.

    Stephen Tse: “Hello, everyone. Thank you for your comments and suggestions. I have read all of your messages, top to bottom, and met with the team to discuss. Your concerns are understood and we are returning to the drawing board. From your suggestions and feedback above, we will create additional proposals and opportunities for everyone to engage in the process.

    I’d ask you to stand by as I work with the team over the coming days. We will return with new information for everyone here to review. Thank you once more. I sincerely feel your frustration over the current proposal. Our next steps will hopefully bring more options and clarity for the community to discuss.”

    But still, absolute shambles.

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