Harmony Plans to Inflate Away Its $100M Hack Loss

Harmony proposed to reimburse victims of its Horizon bridge hack by minting ONE tokens and distributing them to the victims. ONE token holders are generally upset with this proposal.

Harmony money printer
Harmony wants to turn on the ONE printer

Harmony (ONE) proposed to reimburse victims of its Horizon bridge hack by minting ONE tokens and distributing them to the victims. ONE token holders are generally upset with this proposal, as it is likely to dilute the value of the ONE token.

Harmony was a popular DeFi and gaming blockchain that competed with Ethereum. Harmony's ONE token peaked at a $4B market cap in January 2022 before falling to just $275M today. During its heyday, Harmony had $1.5B total value locked (TVL), but today Harmony's TVL is just $42M. Despite the ONE token’s horrible performance this year, Harmony intends to dilute the ONE token by 20-40% to pay back Horizon bridge hack victims.

Harmony's Proposal

The Harmony team intends to reimburse Horizon bridge hack victims in monthly installments over the next three years. The team's plan is to mint new ONE tokens, then distribute them. The team will decide how many ONE tokens to mint by snapshotting the market when the proposal passes, then using the ONE token's snapshot value for the next three years. So if the ONE token's value in US Dollars goes down over time, hacking victims will be "reimbursed" with ONE tokens at the snapshot value.

The Harmony team offered just two options for reimbursement:

Plan 1:

  • 100% reimbursement from 4.97B ONE tokens
  • monthly emissions of 138M ONE tokens ($2.76M at $.02/ONE) for three years

Plan 2:

  • 50% reimbursement from 2.58B ONE tokens
  • monthly emissions of 69M ONE tokens ($1.38M at $.02/ONE)

So that's it. ONE token holders can vote to pay back all of the money or half, in monthly installments, over the next three years. Given how little discussion there was before these proposals went public, it's likely the path forward has already been decided by ONE whales.

Harmony Won’t Tap Its Treasury

Harmony has a treasury, and in late 2021 the treasury contained $200M. But the Harmony team has "decided against using the foundation treasury in the interest of the longevity and wellbeing of the project as reimbursing from the treasury would greatly hinder the foundation’s ability to support the growth of Harmony and its ecosystem."

There’s $1.7M Earmarked for DeFi Loans

When Harmony's Horizon bridge was hacked, many of the Harmony ecosystem's stablecoins de-pegged. In the wake of the hack, DeFi arbitrageurs borrowed ONE against Harmony's de-pegged stablecoins. These loans are in effect uncollectible now, locking up ONE suppliers' tokens. Harmony believes "resolving these uncollectible loans is a crucial component of restoring faith and trust in Harmony with those impacted," and Harmony's proposal will devote $1.7M in newly-minted ONE to resolve these loans.

Token Holders are Upset

Even though the ONE token got killed during this downturn, falling to $.02 cents from a high of $.35, ONE's tokenomics aren't terrible. The ONE token is mildly inflationary, and before the Horizon bridge hack it seemed like the Harmony ecosystem could recover–even if many investors weren't convinced by Harmony's all-in bet on DAOs.

There are 12B ONE tokens in circulation. If these proposals pass–and it's likely they will–Harmony will mint 5B or 2.6B new ONE tokens and give them to hack victims. Horizon bridge hack victims have to be the least likely group to keep their assets on Harmony, right? That's an insane amount of sell pressure on an already battered token.