Initia Foundation Approves Full Compensation for iUSD Peg Stability

Author: Shenchao TechFlow

DeepChain Summary: After suffering a zero-day vulnerability in MoveVM and undergoing an emergency shutdown for several days, Initia, the modular blockchain ecosystem, has made significant progress in its recovery efforts. On October 28, the Initia Foundation officially announced approval of a critical funding allocation plan to fully mitigate the risk of underlying asset depegging.

The core objective of this fund's use of dedicated reserve funds is to fully replenish the affected collateral assets, including Noble USDC, WETH, and AUSD 0, ensuring the reserve ratio of the ecosystem's core synthetic asset, iUSD, is unconditionally restored to a healthy 1:1 level.

Funds will be disbursed to directly cover verified actual loss gaps, up to a maximum of 1.08 million USDC, 105 ETH, and 1.4 million AUSD. This self-funded safety net not only removes the biggest obstacle to the upcoming L1 and interwoven Rollup restart but also delivers a powerful boost to fragile market confidence.

During the unexpected hacker attack on October 23, while the native token INIT was not affected by any unauthorized minting, the collateral vaults for the ecosystem’s native decentralized stablecoin, iUSD, were drained externally. According to the Initia Foundation’s official fund compensation announcement, the foundation has officially approved a special disbursement to fully cover the damaged collateral.

The announcement clearly defines that the target assets for this special compensation initiative are strictly limited to the Noble USDC, WETH, and AUSD 0 previously held as collateral for iUSD. The foundation commits to utilizing its strategic asset reserves to fully restore the book asset backing ratio of each of these key tokens to the theoretical 1:1 standard.

To ensure the compensation plan balances efficiency with financial rigor, the foundation has established clear coverage limits: up to 1.08 million USDC, up to 105 ETH, and up to 1.4 million AUSD 0. This amount precisely covers the maximum theoretical exposure caused by the hacker’s prior withdrawal of funds via the cross-chain bridge.

The official emphasizes that the distribution of compensation funds will be based on the actual net shortfall determined by third-party on-chain auditing and final reconciliation with each verification node. Once the reconciliation and audit process is formally completed and final transfer approval is granted, the relevant tokens will be immediately and directly injected into the compromised vault contracts.

To understand why the foundation had to urgently step in just before the restart, it’s essential to recognize iUSD’s critical role as the settlement lifeline of the entire interconnected Rollup system. In the previous security incident, attackers exploited a logical blind spot in the script cache validation of a customized MoveVM, fabricating state and artificially inflating the supply by 2 million unbacked AUSD.

Subsequently, the hacker extensively sold and exchanged the newly minted tokens via cross-chain bridges and decentralized liquidity pools, depleting external bridge liquidity and causing a severe asset vacuum in the high-quality collateral stored in the underlying vaults, which was meant to support iUSD’s pegged exchange rate.

Once the collateral reserve ratio falls below the 1:1 safety threshold, panic could trigger a deleveraging spiral akin to a traditional bank run the moment the network reawakens. A large number of ordinary token holders participating in lending and liquidity provision will face severe risks of bad debts and asset depreciation.

To decisively cut off the transmission chain of systemic de-pegging and panic-driven runs at the source, the Initia Foundation will proactively absorb all sunk losses prior to mainnet restart. By using real capital to close balance sheet exposures, this approach completely eliminates any lingering concerns for application chains as they resume operations.

Unlike previous projects that suffered from chaotic aftermaths due to hasty forks and sloppy accounting, Initia’s repayment mechanism demonstrates a high level of professionalism and transparency. The foundation has clearly established “strict reconciliation” as the essential prerequisite for the formal disbursement of funds.

Currently, the Initia Technical Security Team is collaborating with multiple leading external forensic firms to conduct a granular, transaction-by-transaction audit of all state transitions in the last anomalous block prior to the outage, precisely isolating the hacker’s illicit fund flows and the holdings of innocent victims.

Meanwhile, ecosystem strategic partners, including stablecoin issuer Agora, are closely collaborating. Since Agora previously successfully froze certain涉案收款 addresses on the Ethereum mainnet, the funds expected to be recovered or canceled will be dynamically hedged against the foundation’s disbursements after reconciliation.

This refined claims assessment mechanism ensures that ordinary affected users receive full 1:1 compensation while effectively preventing hackers' leftover addresses or malicious arbitrageurs from exploiting the system, setting a reusable risk management benchmark for decentralized infrastructure in handling complex black swan claims.

In the lifecycle of a Web3 protocol, encountering a zero-day vulnerability is a litmus test for engineering rigor, while the response to asset losses serves as a watershed moment for evaluating the team’s underlying trustworthiness and moral risk. Initia Foundation’s swift, self-funded reimbursement has significantly reversed the previously unfavorable public sentiment.

Not long ago, Initia officially announced that it has developed a complete security patch for the MoveVM vulnerability and has submitted it to external security audit partners for peer review. The release of this asset compensation plan now signifies that both core prerequisites—technical code remediation and economic account settlement—have been fully addressed. (For more details, we recommend reading “Initia’s Proposed Fix: Restarting L1 and Rollup”)

With the establishment of expectations for 1:1 collateral backing, major centralized exchanges previously stalled due to downtime will soon enter a risk control window to resume deposits and withdrawals, and the validator nodes of the interconnected application chain network will steadily awaken according to the predefined sequence.

For the rapidly evolving modular blockchain narrative, this crisis response demonstrates a resilience paradigm for a mature ecosystem facing systemic shocks. When code security and capital backstop form a dual moat, the Initia ecosystem, having undergone this trial, is poised to return to the forefront of the赛道 with a healthier posture.