Nexus Protocol Liquidation After Action Report

Nexus Protocol
3 min readMay 11, 2022

Introduction:
It’s to our deep regret to inform you that our last communication was incorrect, and the bLuna, bAvax, and bAtom vaults were liquidated sometime in the past 12 hours. The liquidations happened well before our last comms were sent out stating that no liquidations had happened. No liquidations have happened since those comms went out, and our node now appears to be working properly — but as you’ll read in the following text, we are advising people to withdraw from the bAsset vaults at this time.

The Events:
Based on our current assessment the vault has been liquidated an approximate total amount of 395k bLUNA’s, 70 amount of bATOM, and 1.9k amount of bAVAX as a result. We have noticed some odd behavior with the asset totals left in our vaults, so these numbers are only preliminary findings. In terms of why this has happened — Current analysis is that there were severe spamming activities on Terra Blockchain, which restrained several transactions to be sent for any protocols. Such spamming led to our node to be unsynced, leading to disablement of Nexus bots that ensure rebalancing of the vaults to prevent liquidation. Such issue, coupled with unprecedented price action on bLuna, led to liquidation of the asset within Nexus vaults.

The bEth vaults have not been liquidated yet. However, it is possible that these assets will also be at risk for liquidation in the event that the bEth price begins to fluctuate greatly or there is continued spamming of the Terra blockchain.

For that reason we are now blocking new deposits from entering into all bAsset vaults via our frontend, and recommend the users to withdraw their asset from our anchor vaults for now.

Next Steps:
We are deeply sorry for the damage you may have endured over the past 12 hours. We are going to take some time to reflect on next steps, find a method to rectify the situation and make sure the vaults are working properly around the clock until the funds have been unwound.

As of now we have ~$200k worth of (UST, nETH, and nLUNA) the total damage from the event was ~$600k. This assumes the current Luna price relative to UST. If Luna price falls relative to UST we can back back more of the damage, if Luna price rises relative to UST we can pay less of the damage. This means currently we will be able to pay back ~30% of the damages from this event, but again these numbers may change.

We have already raised a governance proposal to utilize the funds in the protocol treasury to make users as whole as possible (link). As soon as this is voted through we will process these remaining funds back to affected users.

To reduce potential risk at this point we will be lowering the borrow parameters to reduce risk in the vaults as much as possible. Once you withdraw from the liquidated Nexus vaults, you would have received less bAssets than you deposited due to liquidation. Once the remedy proposal is passed, we will track and compare burnt nAssets and redeemed bAssets, and provide as much of the difference as possible to each user via airdrop to recoup as much of the damage as we can.

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