The Details of Ankr’s BNB Exploit Relief Efforts and Our Stance on Compensation for Stader & pStake Users
February 17, 2023
6 min read
After the aBNBc exploit that occurred on December 2 of last year, affected users of Ankr Staking as well as LPs who were affected on various DeFi protocols widely praised Ankr for the swift and comprehensive reimbursement of value lost. Out of 19 DeFi protocols affected, Ankr provided 100% compensation for 17 of them to compensate users for damages via airdrop. Ankr began paying these amounts out from our treasury as soon as possible without waiting to see if any of the stolen funds could be recovered, as it is part of our deep dedication to our community. Additionally, Ankr will commit $3m more in good faith to contribute to the stability of the BNB Chain and liquid staking ecosystem.
There have been complaints recently raised from users of the remaining two protocols not fully reimbursed. Ankr chose to provide relief for 50% of the value lost for users holding tokens from two affected protocols – Stader and pStake.
This article provides more clarification behind this decision and our stance on relief efforts.
How Were Stader & pStake Users Affected By the BNB Exploit?
Like Ankr Staking, Stader and pStake are both multichain liquid staking providers with their own version of a BNB liquid staking token (BNBx and stkBNB, respectively). Some holders of these tokens had contributed liquidity to a four-way liquidity pool on the Wombat Exchange holding BNB, aBNBc, stkBNB, and BNBx. The exploiter was able to inundate the pool with a large amount of aBNBc while draining it of the other asset types.
The nature of having a mixed liquidity pool on the decentralized exchange posed a challenge in estimating the losses of affected users. Ankr had never incentivized the BNBx and stkBNB LP side of the pool, unlike the other LPs that Ankr chose to compensate at 100%. However, Ankr consulted with both Stader and pStake on the most suitable recovery mechanism that could provide the fairest reimbursement for users.
What Actions Did Ankr Take to Provide Relief for pStake Users?
In Ankr’s talks with pStake, the pStake team was very collaborative and we found a common understanding very quickly to provide relief for users. The bilateral agreement with pStake had Ankr airdrop 2,654.352 ankrBNB and 681.051 stkBNB, to cover 50% of the losses of stkBNB liquidity providers on Wombat.
What Actions Did Ankr Take to Provide Relief for Stader Users?
Discussions with Stader proved more difficult, but the Ankr team worked with them patiently until reaching a point where Stader suggested that Ankr cover 50% of damages with compensation conditional on the creation and use of a new BNBx-BNB LP. We found this condition unreasonable and unfair for affected users. Therefore, Ankr made the 50% reimbursement to users following Stader’s suggestion, but with a more appropriate payment mechanism in the form of a simple airdrop to affected users.
Ankr approached Stader early on and urged them to consider blocking their BNBx unstaking mechanism to prevent hostile arbitrageurs from imminently taking advantage of the aBNBx price discount. Ankr also suggested they consider a relaunch of their BNBx token because of the very high concentration of BNBx in the Wombat pool. The high concentration (half of all circulating BNBx) in Wombat was due to aggressive SD token reward incentives provided by Stader, as well as the Stader vault advertising the Wombat LP strategies as "low risk.” Stader refused to launch a new token or halt BNBx unstaking, allowing arbitrageurs to cash out freely with BNBx purchased at a deep discount on other DEXes outside of Wombat soon after the exploit (Ellipsis Finance, ApeSwap).
Given those circumstances, we strongly believe that finding the identity of the malicious arbitrageurs and seeking to recover funds from those parties would be a wiser approach for Stader to ensure its community is compensated at 100%.
What Were the Total Compensation Amounts From the Exploit vs. The Amounts Recovered?
An article from Cointelegraph recently cited that “Ankr has the ability to compensate them (stkBNB and BNBx users) fully because it recovered 1,559 ETH (approximately $2.4 million worth at the time of writing) from Huobi Global after the attacker tried to use it to cash out.” However, this doesn’t note that Ankr has already compensated affected users across staking solutions and protocols an amount of approx. $30m.
Ankr’s Rationale for Our Compensation Efforts
For Wombat LP compensation, our calculations showed that about 24% of that pool held Ankr liquid staking tokens funded via our liquid staking proportion on the Wombat common LP. Nevertheless, Ankr made the decision to cover 100% of the Wombat BNB LP to mitigate the adverse effects on liquid staking liquidity pools in general as a result of the exploit.
Despite the stkBNB LP and BNBx LPs never having been incentivized by Ankr, we acknowledged the aBNBc exploit affected both stkBNB and BNBx. We covered 50% of those pools with an airdrop regardless as a sign of our goodwill. After careful consideration, we believe this strategy to be fair given the circumstances of the exploit and the fact that Ankr has never provided any incentives to enter stkBNB LP and BNBx LPs.
Our BNBx and stkBNB LP compensation is more than fair given:
Half of all BNBx and stkBNB liquid staking tokens were on Wombat due to Stader and pStake incentives. This represents an obvious concentration risk. In comparison, Ankr had only 5% of its liquid staking tokens in DEX LPs. This is because there was no need to stabilize the price of our BNB liquid staking tokens in the secondary market as the tokens are redeemable (unstakeable), presenting organic opportunities to buy them at a discount, unstake them on Ankr Staking, and receive the spread after the unbonding period has finished. Ankr cannot be held responsible for the lack of risk management of other pools. To put things in context, Ankr paid Wombat pools in all four times more than the aBNBc TVL we had on Wombat, which is more than generous.
When following the flow of money, we can paint a better picture of what happened. The exploiter sold aBNBc on Wombat against BNB and then against BNBx and stkBNB. He then sold BNBx and stkBNB on other DEXes where there was more BNB liquidity. Surprisingly, the price of BNBx and stkBNB returned to their "fair" price within one hour. This indicates a story where some parties made money at the expense of others. Approximately 350 wallets bought BNBx on DEXes at an average cost discounted 70% during that time period with near identical trading patterns.
We want to thank the community for your ongoing support, patience, and feedback during this time. Our compensation strategy was designed to provide fair and generous reimbursement for all affected users. We hope this article answers some remaining questions about our rationale for doing so.
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