KuCoin Announcement to the Acala Community Regarding the aUSD Incident 

Dear Acala Community,

You may have noticed the recent aUSD incident, and KuCoin is working closely with the Acala Foundation to investigate it, as well as find solutions to bring the blockchain back online.

The Acala Foundation has recently published the Full Trace Report, and the Acala community has initiated a proposal for aUSD recovery based on the report. However, it has been found that much of the important information related to the CEX in the proposal is inaccurate, such as the number of aUSD error mints sent to KuCoin and the number of aUSD error mints traded on KuCoin. 

Considering that the current proposal based on inaccurate information may not lead to the best solution for the Acala community, KuCoin is publishing this announcement to the Acala Community. It is strongly suggested that the community reconsider the current proposal based on the information we shared. 

What Happen?

At 22:41:48 on August 14, 2022 (UTC), when the block height of the Acala chain reached 1638215, a misconfiguration of the iBTC/aUSD liquidity pool on Acala Swap resulted in error mints of a significant amount of aUSD.

After the incident, a large number of users deposited aUSD error mints into KuCoin, resulting in aUSD’s depeg from $1. Soon after that, the AcalaSwap and the Acala chain were paused.

The Acala Foundation contacted us and asked for our help to temporarily freeze accounts that are associated with the aUSD incident, preventing any further transactions of the aUSD error mints. To protect the Acala community, aUSD holders, as well as KuCoin users, KuCoin temporarily froze 2 batches of suspicious accounts on August 14 and August 18.

During the investigation, KuCoin tried its best to provide assistance. Meanwhile, we have requested multiple times that the Acala Foundation should provide a plan to dispose of the aUSD error mints and solve the aUSD depeg issue as soon as possible.

On August 24, 2022, KuCoin tagged aUSD as ST (Special Treatment) on the platform to inform all investors about the potential risk of the token.

On August 26, 2022, KuCoin was informed by the Acala Foundation that they will soon publish the Full Trace Report of the aUSD incident, and the Acala community may initiate a proposal for aUSD recovery based on the report.

The Report & Proposal

On September 6, 2022, KuCoin has noticed the release of the Full Trace Report as well as a proposal launched by an Acala community member. The proposal entails:

For aUSD error mints that have been frozen by CEX, it is suggested to freeze them on-chain

For aUSD error mints that have been traded on CEX, it is suggested to have the Acala Foundation to loan collaterals such as USDC + ACA to the network to re-collateralize them

As a neutral platform, KuCoin has no intention to intervene in the governance of the Acala community, but it has been found that much of the important information related to the CEX in the report and the proposal is inaccurate, so KuCoin would like to make some clarification here: 

1. The total number of aUSD error mints sent to KuCoin is 8.03 M, rather than 4.937 M as mentioned in the community proposal. (Here is the full list of KuCoin Addresses related to aUSD error mints)

(Screenshot from the Acala community proposal)

2. The total number of aUSD error mints trading on KuCoin is 5.33 M, rather than 1 M as mentioned in the community proposal

(Screenshot from the Acala community proposal)

Conclusion & Suggestion

Based on the above-mentioned information, if the Acala community is going to proceed the same solution in the proposal, then it is required to re-collateralize 10.267 M aUSD error mints (4.937 from other parachains and 5.33 M from CEX) that are transferrable, rather than 5.937 M.

(Screenshot from the Acala community proposal)

If the current proposal based on inaccurate information has been executed, it means that over 4.33 M aUSD tokens (5.33 M minus 1 M) that were held by innocent aUSD holders will be frozen, and even burnt, which may result in tremendous damage to the Acala community and the price of the aUSD token. 

Given the significant difference in the amount of aUSD error mints deemed necessary to re-collateralize, it is suggested that the Acala community reconsider the current proposal together with the Acala Foundation. 

In the interests of protecting users, KuCoin is willing to continue to provide support to the Acala community and the Acala Foundation. And with our joint efforts, we hope the incident can be resolved soon, while ensuring that no innocent user suffers any loss. 

Currently, the deposit and withdrawal service of aUSD remains closed, and the trading service of aUSD is still available on KuCoin. We will keep you informed of any changes. Please do your own risk assessment when investing into any cryptocurrencies. 

The KuCoin Team