Reimbursement options for victims of the May 1 exploit

[HenrikJannsen]

We are currently evaluating several reimbursement options.

Our goal is to provide fast, full reimbursement with as little friction as possible for affected users.

There are, however, a few practical constraints:

• Protocol constraints: victims must open arbitration cases. Arbitration becomes available only after the trade time lock expires — 10 days for altcoin trades and 20 days for fiat trades.
• DAO constraints: the DAO limits how much BSQ can be issued within a single DAO cycle.
• DAO governance: any reimbursement proposal must be approved through DAO voting. The current DAO cycle is expected to end around May 25.

At the moment, the intention is to allow affected users to choose reimbursement in either Bitcoin or BSQ.

We cannot make a final commitment on the exact mechanism yet, but we wanted to share the current direction as early as possible.

We welcome feedback from the Bisq community, especially from affected users, on expectations, concerns, and preferred options.

[triskovac-zasmat-0g]

Hi all,

first of all, thanks to everyone involved for reacting quickly and working on a resolution. I understand this is a complex situation with both protocol and DAO constraints, and I appreciate the effort being put into it.

I’m one of the affected users (SELL BTC side). I won’t go into exact numbers, but the loss represents active trading capital allocated to open offers, not passive holdings.

From my perspective, the key point is restoring the original functional state rather than just compensating nominal value.

BTC in this context is working capital — it’s what allows me to continue placing offers and providing liquidity on Bisq. Reimbursement primarily in BSQ would make that difficult in practice, due to limited market depth and the likely sell pressure from multiple affected users converting back to BTC. That would introduce additional loss through slippage and price impact.

Because of that, my strong preference is reimbursement mainly in BTC.

That said, I do understand the constraints on the DAO side. I’m open to a partial reimbursement in BSQ (for example a small percentage) as a compromise to reduce the burden on the system. But I believe the majority should be in BTC to ensure fair and practical recovery for affected traders.

Also worth mentioning: I intend to continue using Bisq and providing liquidity going forward. A BTC-based recovery would make that realistically possible without forcing a significant reduction in activity.

Thanks again to everyone working on this — I know this isn’t trivial to solve, and I appreciate the transparency and ongoing communication.

Regards

[tobmath]

hello, one affected user here too, this will take at least one year to fully reimburst users, we wont know the price of btc by then, however we know that usd is more likely to keep his value over the incoming months, so calculating in USD could be a safe option (i think in 2020 exploit USD was the choise) but BTC is also a good option, taking the risk of high fluctuation but lets hope the price keeps stable or even goes up.
In my case BSQ isnt a real option. the price pressure of 11 btc in bsq selling for btc will drop anything you lost to half or even less. so is like losing money. if the ones in charge can make a more detail example on how this will be reimbursed so we can estimate how much time this will take, then we can make better inputs about what to decide.

[HenrikJannsen]

Our goal is to reimburse users in Bitcoin (optional they can choose BSQ) and to do that as fast as possible to avoid those volatility issues.

[tobmath]

ok sounds good

[HenrikJannsen]

Btw, from currently reported cases it seems 10 traders have been affected. Some of those traders had multiple offers and about 80%-90% of the stolen funds are from 3 traders.

[tobmath]

xmr/btc only or also another pairs?

[triskovac-zasmat-0g]

XMR, ETH and USDC are my affected trades.

[pazza83]

XMR, ETH and USDC are the only trades affected

[pazza83]

Just to update. We now have all the affected trades in mediation.

11.62604 BTC was stolen from 10 individual Bisq users.

All affected users should open arbitration on 11th May or as soon as possible after this date. Even if a mediation proposal has not been made you can open arbitration by selecting the trade in your open trade and pressing 'Ctrl' and 'O'. This will then open an arbitration ticket. Opening arbitration will be a requirement for reimbursement as it allows the trade losses to be verified by the arbitrator.

[puchis0323]

Hi everyone. First of all, as just another user on the network, I want to tell those affected that I am very sorry for what you are going through; it's a very frustrating situation and I completely understand that you want a quick solution.

I've been trying to understand the DAO's numbers, and looking at it from the outside, I'm a bit concerned about the idea of issuing ~625,000 new BSQ to cover the 11.59 BTC shortfall. I feel like in the long run, this could be very costly for all of us.

To put it into perspective: I was looking at our circulating supply, which is around 3.18 million BSQ. Printing 625k out of thin air means increasing the money supply by almost 20% all at once. And based on how real economics work, it makes sense that the victims won't want to hold onto that BSQ; they'll want to sell it quickly to get their Bitcoin back. With that panic and so much new supply suddenly hitting the market, the order books will dry up and the price will almost certainly drop much more than that 20%.

I'm afraid this will end up punishing those who trust the network and dilute the value of the more than 284,000 BSQ currently locked up in Bonds (both the Contributors' role bonds and the users' reputation bonds). We've been making a huge effort since 2019, burning tokens to make BSQ a scarce asset. If we print now, the message we send to the market is a bit concerning: "BSQ is deflationary only until the DAO needs to cover a shortfall."

Thinking about how to solve this while protecting everyone, I came up with this idea using the network's real cash flows, to see what those with more experience think:

1. Use what we already produce (Zero Net Emission)
   I saw that Bisq generates solid revenue (approx. 1.62 BTC/month, plus the BSQ that gets burned). What if instead of printing, we temporarily redirect 30% of the total trading fees to a fund for the victims?

30% of the BTC fees would go directly to the fund.

30% of the BSQ fees, instead of being burned, are rescued and also distributed.

The remaining 70% would continue its normal course so that Contributors and Burningmen can keep operating and developing without any issues.

2. The OTC Window (For those who want out now)
   I understand that there are users who need their Bitcoin today. For them, could we issue the BSQ equivalent to their affected balance (at a fixed price of $1.50) but isolate it in an OTC window, completely off the open market so it doesn't crash the price?

3. "Burn-to-Earn" Contract (The investor's role)
   The idea is that any investor (from inside or outside the community) who believes in Bisq can go to that OTC window and put up their own Bitcoin to provide instant liquidity to the victims.

The contract would automatically burn the BSQ purchased by the investor. That way we maintain zero inflation.

In exchange for providing the upfront capital and assuming the risk, this investor would get the rights to that 30% of the network's cash flows (from point 1) through a closed 2-year contract.

Why 2 years?
Crunching the numbers, 30% of the BTC fees is about 0.48 BTC per month. At that rate, it would take us about 24 months to cover the 11.59 BTC, but since we'd also be adding the rescued BSQ, it would be paid off a bit faster. Two years would give the investor enough room to earn a good yield for helping us out today, and it sets a clear limit for the DAO. If Bisq's volume goes up, the investor wins; if it goes down, they assume the risk, not the community network.

To summarize:
I believe that hard money and real revenues are a better solution than the money printer. I feel that if we resolve this this way, we prove to everyone that Bisq is truly decentralized and antifragile, taking responsibility without destroying the value of the token or the contributors' bonds.

[pazza83]

Thanks for the input.

What if instead of printing, we temporarily redirect 30% of the total trading fees to a fund for the victims?

Yes this is a possibility. In 2020 when something similar happened 50% of the bitcoin trading fees where diverted to the victims. Currently about 1 BTC per month in generated in Bisq in bitcoin trading fees.

With regards 2 and 3. I guess essentially you are saying that an investor/s would provide the bitcoin upfront in return for a percentage of the fees for 2 years. I suppose the risks are:

• Revenue will likely decrease due to the exploit.
• Trading sizes will also likely be decreased from 0.5 BTC max to 0.125 BTC max.
• Historically as bitcoin increases in price left trading fees (bitcoin demonimated) are paid.

All this results in less bitcoin revenue paid in trading fees.

I think it would be good if such investors were found to take the risk but I think the risks outweigh the upside to make it something that would generate enough interest to achieve the required amount of bitcoin to reimburse the victims fully. I suppose increasing the revenue fee share could help (eg 75%), but this might also have downsides on contributors and itself cause BSQ inflation due to less BSQ being burned by burning men.

[flix1]

We are going to have to reinvent insurance for this type of event.

A prediction market on when the next major exploit will happen could also be useful... both to set the price of insurance and to incentivize bug hunting.

[pazza83]

A proposal has been made to refund the victims.

bisq-network/proposals#481