[bisq-network/proposals] Distribute trade fees paid in BTC to victims of the recent security issue (#205)

Chris Beams notifications at github.com
Mon Apr 13 09:21:47 UTC 2020

_I've given this proposal, proposal #206 and other ideas a lot of thought over the last days, and I've also spoken to all but one of the victims directly. After careful consideration, I'd like to weigh in here with my support for this filter-based approach, as I believe it to be the simplest and lowest-risk approach as well as being the least burdensome on victims._

_Most concerns already voiced about this proposal have been addressed in the comments above, but there are certain key aspects of the implementation that have not been discussed at all. Below, I've re-articulated the proposal in such a way that I believe all key aspects are addressed. If desired, we can make what follows its own proposal to make things as clear as possible at voting time._

## The DAO will repay victims for their losses
The DAO should and will repay victims for their losses because they were ultimately caused by an avoidable flaw in code written by DAO contributors.

## The DAO will not repay victims immediately
An ideal plan would immediately repay victims the full amount of BTC they lost in a one-time lump sum payment. This is not possible because the DAO does not have a reserve from which to draw these funds.

An alternative plan would be to immediately repay victims by issuing an amount of BSQ equivalent to the amount of BTC lost. This approach cannot work, however, because current BSQ market liquidity is insufficient to handle such a large increase in supply. Victims would be unable to liquidate their BSQ for BTC in the near term without severely depressing the BSQ price, resulting in a losing situation for victims, contributors and all other BSQ stakeholders alike.

## The DAO will repay victims over time
Because there is no way to repay victims immediately, repayment must occur over time as a function of actual trading fee revenues.

## The DAO will repay victims using trading fees paid in BTC
The simplest and most direct way to repay victims over time is in BTC using Bisq trading fees paid in BTC (as opposed to trading fees paid in BSQ). @chimp1984 has laid out above how this can be implemented technically using Bisq's Filter mechanism.

Each victim will provide a bitcoin address to which repayments will be sent. In the filter implementation described above, one of these addresses will be randomly selected for each trade whose fees are paid in BTC, such that the victim directly and immediately receives that BTC.

A mechanism will be developed to track how much BTC has been received by each address over time, and when a given address has been fully repaid it will be removed from the filter such that no further payments are sent to it.

_Note that #206 is an alternative proposal to repay victims in BSQ instead of BTC. While this proposal could work, it is more complex, exposes victims to both BTC/USD and BSQ/BTC volatility and requires involvement of the already problematic refund agent and burning man roles. On balance, I believe this approach to pay directly in BTC from trading fees is superior, and the benefits outweigh the downsides (of 'abusing' the filter mechanism and of putting control over these addresses in maintainers' hands)._

## The DAO will repay victims the USD value of funds lost at time of theft
Because the value of BTC can fluctuate significantly over time, it is not possible for the DAO to promise to repay victims the exact amount of BTC they lost. Given a significant increase in the value of BTC, it could become effectively impossible for the DAO to complete repayment. Likewise, should the price of BTC significantly decrease, victims would be repaid much less than the original value of their BTC at time of theft.

Rather, the DAO will repay (in BTC, as described above) the USD value of the BTC lost at the time of theft, i.e. at the time the trade was taken. All affected trades were taken on either March 28th or April 7th 2020, when the average daily price was $6,223.50 and 7,309.78 respectively.

The repayment tracking mechanism mentioned above will be developed such that the USD value of each payment made to each address is calculated according to the average daily price on the day the payment was made. This means that the total amount of BTC paid to each address will differ from the original amount of BTC lost based on the BTC/USD value at the time of each payment.

## The DAO will repay victims as quickly as possible
The fastest way to repay victims according to the plan laid out above is to route them 100% of trading fees paid in BTC. More exact numbers need to be calculated, but current monthly revenues total between 20,000 and 30,000 USD worth of BTC and BSQ combined. BTC represents perhaps 40% of that figure, meaning that between 8,000 and 12,000 USD worth of BTC could be paid out to victims on a monthly basis. With a total of 235,831 USD worth of BTC having been lost, it would take between 20 and 30 months to repay victims at this rate. In any case, the amount of time repayment will take will be a function of both total trading volumes and the percentage of those trades that are paid for in BTC. Both numbers may change significantly over time.

As a protection to ensure that the DAO is able to continue operating, it will pay victims 100% of BTC trading fee revenues so long as that figure does not exceed 40% of total revenues.

## The DAO will adjust its budgets accordingly
With victim repayments coming directly from BTC trading fees, realized revenue will be that much lower and the DAO's internal budgeting will be adjusted to reflect this new reality. That is, we will "tighten our belt" accordingly so that we do not issue too much BSQ.

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