DAO Maker Faces Backlash Over Vote to Halt Promised Hack Refunds

The account below was put together from material supplied directly by rekt.news readers, not by the outlet's own staff.

A live governance vote on DAO Maker's platform could permanently cut off refunds still owed to victims of two hacks the protocol suffered last year — losses of $7M and $4M, covered previously by rekt.news.

At stake is roughly $3.5M worth of a redemption token called USDR, spread across some 3500 wallets whose owners have been waiting more than a year to get back what the two exploits cost them. A proposal now up for a vote — its title, "Prevent Major $DAO DUMP from USDR distributions," leaves little doubt where the team stands — would end USDR redemption before those wallets can cash out. Balloting closes October 16th.

USDR itself traces back to the reimbursement scheme DAO Maker rolled out after the twin hacks. That scheme paired a partial USDC airdrop with the USDR token, which was pitched as convertible a year later into DAO, the project's native token, at 110% of face value.

A number of the users hit by the original hacks reached out to rekt.news, alleging that DAO Maker's team is now turning its own governance system against the people that system was supposed to protect.

Their reasoning: whoever votes will be current DAO holders, and those holders stand to watch DAO's price drop the moment redemptions go through — so putting the decision to them, these users argue, is really just a mechanism for backing out of an obligation the team created in the first place.

A year after the plan's publication, the team's position on it looks very different. The Medium post that originally announced the scheme has since come down; what survives of it is a Twitter thread from CEO Chris Zaknun laying out the same terms, reproduced in full later in this piece in case that thread vanishes too. A Wayback Machine copy of the deleted post is still reachable, though not dependably so, and its wording has also been saved separately in this document.

Three choices sit on the current ballot. Option 3, which is ahead as things stand, would deny affected users the payout figure the original scheme guaranteed them, on the grounds that their window has already closed. Option 1 would instead deliver on that original figure, just through a somewhat reworked process.

DAO Maker's case for Option 3 rests on price impact: paying out the redemptions in full, the team says, would send DAO's price sharply lower, and most holders who wanted an immediate 1:1 exit have already taken it — which drained the pool that made those swaps possible to begin with. Worth noting, USDR has been trading below its peg for some time regardless.

Option 3

Stop the remaining USDR redemption, as most people that wanted to sell have already sold using the USDR-USDC liquidity pool, as we can see on-chain. That pool was available to anyone starting the 1st of November 2021 all of USDC in the Liquidity Pool was fully used by swapping USDR for USDC. On top of it, 500 USDC has already been refunded to everyone affected by the hack.

This step would protect all +20,000 DAO community members that are either staking or holding DAO in their wallets

According to the users voicing complaints, none of this matches what they were originally guaranteed — and the people who stayed patient while the protocol rebuilt itself are the ones now paying the price for it.

Framing the ballot around current DAO holders — a group largely made up of people who had no stake in the original hacks — while emphasizing the price risk of paying out, comes across to these users as a deliberate tactic.

Their complaint is that the maneuver lets the team escape accountability for a scheme of its own making, using the appearance of a community mandate as cover.

A few more details, per the whistleblowers:

Six wallets were flagged for having recently received unusually large DAO token deposits, apparently positioned to swing the vote; the whistleblowers believe these belong to insiders on the team: 1, 2, 3, 4, 5, 6.

There's also a claim that team members privately steered people toward buying USDR under its $1.10 redemption price, describing it as a risk-free arbitrage opportunity once redemption arrived — guidance that sits oddly alongside a proposal to cancel that same redemption. On October 6th, the team pulled whatever USDR/USDC liquidity was still left in the pool.

What follows is the complete, unedited text of CEO Chris Zaknun's original thread announcing the compensation plan:

The SHO Must Go On

Full: https://medium.com/daomaker/dao-maker-compensation-plan-b7a76a312c30 [deleted]

In short: 110% refund plus some extra DAO power

Keeping the business and SHOs running is essential. We established a two phase plan ensuring that our users can continue participating.

[Thread]

[1/5] A total of $2.56M USDC will be airdropped to the affected users covering around 35% of the total loss.

The remaining 65% of the refund will be given to users in form of USDR (USD Refund) tokens that will be redeemable for $DAO.

[2/5] We will establish markets so that people can sell in case they wish to exit early.

Every USDR token can be swaped for $1.1 worth of DAO priced on the 25th of aug 2022.

We assume that others will buy USDR sub $1.1 to generate risk free profit.

In a way its our 3rd DYCO.

[3/5] Wallets holding USDR will provide the users with additional 0.2 DAO Power per USDR. USDR does not need to be staked. Its sufficient if held in the wallet.

If users sell their USDR to others they also transfer the DAO Power Bonus to the buyer.

[4/5] I want apologize to our community for what has happened and hope that our compensation plan will be sufficient to retain your trust in us and the $DAO ecosystem.

I want to thank all the people that have supported us in the last 5 days.

[5/5] We have not stopped actively hunting down and investigating for the person responsible for this hack.

We are currently working the case with multiple firms in multiple countries.

Lastly we are providing a full forensics report on the compromised laptop once finalized.

The affected users summed up their objections as follows:

1) No vote should have been necessary at all, in their view — the team had already committed to redeeming USDR at a 1.1x rate, and that should have settled the matter.

2) They question what purpose a DAO vote even serves here, given two things:

a) the ballot let people with no connection to the hack cast votes on its outcome, and

b) it's plausible the largest voting wallets are controlled by the team, which directly benefits from Option 3 by avoiding having to pay victims back.

3) To them, the episode is a case study in how a governance vote can follow every rule correctly and still land on an unjust outcome.

Their closing question: if this proposal is allowed to pass, what reason would anyone have left to trust a DAO vote again?

It's worth restating plainly: a process being technically sound doesn't guarantee the result is fair, and that gap is exactly what this vote risks exposing.

Readers in rekt.news's own Telegram group were the ones who first brought this story to the outlet's attention.

rekt.news exists to serve the DeFi user base — not merely to record how each exploit worked mechanically, but to push for users being treated fairly across the industry.

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