Drift Protocol is facing criticism from users after proposing to convert all remaining assets tied to its April exploit into USDT as part of a broader recovery framework for affected lenders and borrowers.
The proposal, titled DIP-10, would authorize the Drift Foundation to liquidate all residual spot assets remaining in the protocol’s borrow/lend pool and consolidate the proceeds into a stablecoin-denominated recovery reserve.
According to the proposal, the resulting USDT reserve would serve as the initial backing pool for future settlement and recovery distributions.
The Foundation said the move would eliminate exposure to ongoing market volatility while creating a clearer accounting framework for impacted users.
Drift says pooled accounting requires unified settlement
Drift argued that directly returning deposited assets to lenders would create accounting and solvency problems because the borrow/lend system operated as a shared liquidity pool before the 1 April exploit.
The proposal stated:
“Returning deposits to lenders before those borrows are settled would remove liquidity that other accounts depend on, permanently breaking the pool’s accounting integrity.”
To execute the conversion, Drift said it may use:
- spot markets,
- OTC desks,
- or onchain aggregators,
depending on liquidity and operational conditions at the time of sale.
The Foundation also proposed cutting off interest accrual at the protocol pause timestamp and confirmed users would not owe additional interest while the system remains frozen.
Users criticize forced asset conversion
The proposal quickly drew criticism from some community members, many of whom objected to the forced conversion of volatile assets into stablecoins.
Critics argued that the framework removes users’ exposure to potential upside in assets such as SOL, ETH, or BTC and effectively locks in recovery values based on the Foundation’s chosen liquidation timing.
Others raised concerns over the broad discretion granted to Drift regarding:
- execution timing,
- sale methods,
- liquidity venues,
- and pricing strategy.
The proposal states the Foundation will determine conversion methods “at its sole discretion” based on market conditions and operational feasibility.
Some users also questioned whether large-scale asset sales could create additional market impact or reduce eventual recovery values.
Proposal reflects broader shift in DeFi crisis management
The debate highlights how exploit recoveries across DeFi increasingly resemble restructuring processes rather than purely automated smart contract outcomes.
Drift framed the proposal as a narrowly scoped step focused on conversion mechanics and settlement methodology rather than a final recovery resolution.
The protocol experienced the exploit on 1 April, then paused operations later that day. A separate incident report previously outlined the affected assets and recovery efforts.
Final Summary
- Drift proposed converting remaining exploit-linked borrow/lend assets into USDT to create a unified recovery reserve.
- Users criticized the plan over forced liquidations, loss of asset exposure, and broad execution discretion granted to the Foundation.