The 1inch Foundation has formally introduced Proposal 1IP-80 to its decentralized autonomous organization (DAO).
The proposal seeks to reimburse users who suffered losses in a major security breach that occurred in October 2024.Â
The proposal outlines a compensation pool of $768,026 in USDC, reflecting the estimated value of funds stolen during the incident.
The exploit stemmed from a supply chain vulnerability in the Lottie Player library, a commonly used animation plugin, which allowed attackers to compromise the front-end of the 1inch decentralized application (dApp).
By infiltrating the user interface, the attackers redirected user transactions and drained funds from unsuspecting wallets. If approved, the reimbursement would be paid out from the DAO’s treasury.
Reimbursement Process Introduces KYC and Legal Hurdles
To receive compensation, affected users must undergo a strict verification process managed by the 1inch Foundation.
The process includes completing Know Your Customer (KYC) identity verification, providing evidence of their losses, filing an official report with law enforcement, and signing a formal compensation agreement.
The multi-step protocol represents a significant departure from 1inch’s usual privacy-centric operations, as the platform traditionally does not require user identification for trades.
The inclusion of KYC suggests a broader push toward regulatory compliance and may mark the beginning of a new trend in decentralized finance (DeFi).
The aim is to ensure that user protection and transparency increasingly intersect with privacy concerns.
Users Must Waive Rights to Potentially Recovered Assets
A notable clause in Proposal 1IP-80 stipulates that any user receiving reimbursement must relinquish future claims to assets recovered through legal channels.
The ongoing investigation, led by authorities in the Canary Islands, is still active, and if stolen funds are retrieved, they would be returned to the DAO treasury, not to individual users.
The provision is intended to avoid double compensation and simplify fund recovery logistics.
However, it may deter some victims from participating, especially those holding out hope for full restitution through law enforcement.
Critics argue that this waiver could put victims in a difficult position: choose between immediate partial relief or wait for uncertain recovery prospects.
Also Read: Cetus Protocol Relaunches on Sui Network With New Roadmap After $223M Exploit
DAO Voting Reveals Tensions Between Risk Management and Precedent
As the June 22 voting deadline approaches, the DAO remains sharply divided on whether the treasury should be used to reimburse hack victims.
Current results show a narrow lead for approval, with 53.47% (3.8 million votes) in favor and 46.53% (3.3 million votes) opposed.
Interestingly, the voting landscape is heavily influenced by a few major wallets, one wallet alone cast all 3.3 million opposing votes, while another contributed 2.2 million votes in support.
Opponents argue that the DAO was never meant to act as an insurance fund and that doing so could create an unsustainable expectation of compensation for future incidents.
Supporters, on the other hand, contend that reimbursing victims preserves user trust and showcases the protocol’s commitment to accountability.
The outcome of this proposal may set a lasting precedent for how DAOs handle responsibility in the face of security failures.
Other Crypto Protocols Also Move Toward Reimbursement Plans
The 1inch Foundation’s proposal joins a growing list of reimbursement efforts across the crypto ecosystem in response to rising DeFi exploits.
Alex Protocol recently launched a compensation plan after an $8.3 million liquidity pool hack, distributing tokens and USDC to verified victims.
Cetus Protocol pledged full reimbursement using internal reserves and a loan from the Sui Foundation, following a smart contract bug that led to significant losses.
Meanwhile, WazirX received approval from the Singapore High Court to reimburse up to 80% of stolen funds as part of a reorganization strategy, though many users expressed dissatisfaction with the process.
These developments point to an industry-wide pivot toward accountability and structured redress in response to mounting pressure from both regulators and users.
Also Read: ALEX Protocol Exploit Shakes DeFi Community, Platform Suffers From Over $8.3M Crypto Hack