Nemo Protocol to Issue Debt Tokens for $2.6 Million Hack Compensation

Nemo Protocol, a decentralized finance (DeFi) platform based on Sui, recently fell victim to a hack that resulted in a loss of $2.6 million. In response, the team has launched a compensation program aimed at reimbursing the affected users.

Key Takeaways

Nemo Protocol plans to issue NEOM tokens to compensate victims of the $2.6 million hack.
Compensation will be based on a one-to-one value of each user’s loss at the time the protocol was paused.
Affected users can migrate their assets into updated smart contracts and receive NEOM tokens.
Users have options to sell their tokens or hold them as the protocol works to recover stolen assets.
The hack was traced to vulnerabilities in unaudited code, prompting revisions in Nemo's security protocols.

Nemo Protocol to issue debt token to compensate $2.6m hack victims - 1

Nemo Protocol is responding to a significant hack by issuing a new debt token, NEOM, to compensate users for their losses. The program consists of a structured recovery plan designed to ensure fairness and transparency.

The NEOM Token Initiative

In its statement dated September 14, Nemo Protocol explained that while immediate reimbursement in stablecoins would have been ideal, they currently lack the necessary funds to achieve this. Instead, they are creating NEOM tokens, which will be distributed on a one-to-one basis according to the dollar value of losses recorded when the protocol was paused. This approach is aimed at ensuring fairness and transparency, allowing affected users to decide how to recover their funds.

The recovery process begins with an asset claim and migration phase. Users impacted by the hack will be able to transition their remaining assets into new, multi-audited smart contracts. Alongside this, they will receive NEOM tokens equivalent to their total losses. Users will then have the choice to sell these tokens immediately through a liquidity pool on Sui or hold onto them as the team works to enhance the value of the redemption pool over time.

Any funds successfully recovered from the attacker will contribute to this pool, along with additional capital raised or loans acquired by the team. To maintain transparency, Nemo will issue bi-weekly updates and create a public dashboard to monitor redemption progress and token burns in real time.

To facilitate immediate liquidity for users, Nemo plans to establish a NEOM/USDC trading pair on a decentralized exchange based on Sui. This provides users who prefer not to wait for long-term recovery the option to sell their tokens on the open market, while those who opt to hold can potentially benefit from future asset recoveries.

The Hack: An Overview

On September 8, Nemo Protocol suffered a significant hack that drained $2.6 million from its liquidity pools. An investigation into the incident revealed that the breach was linked to unaudited code deployed by a developer, which introduced serious vulnerabilities. The combination of a public flash loan feature and a flawed pricing mechanism enabled the attacker to exploit pool balances and steal funds.

The stolen assets, primarily stablecoins, were later transferred to Ethereum. This breach was particularly impactful, as it was the second exploit to affect the Sui network this year, following the Cetus hack in May. Following the attack, Nemo's total value locked (TVL) plummeted from over $6 million to approximately $1.5 million within a short timeframe.

In light of the incident, Nemo has acknowledged shortcomings in its audit procedures and internal controls. The team is committed to enhancing security measures by implementing stricter oversight for code updates, conducting multiple external audits, and strengthening bug bounty programs.

The introduction of the NEOM token is now a pivotal element in Nemo's recovery strategy. Its effectiveness in restoring trust among impacted users will depend largely on the team's ability to recover the stolen assets and maintain demand for the new debt token.