DIP-10: Treatment of Remaining Asset in Borrow Lend

DIP - Discussion Forum
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Abstract

DIP-10 establishes the framework for assisting with recovering user balances affected by the April 1, 2026 incident. The proposal authorises Drift Foundation to convert all remaining spot assets in the borrow/lend pool to stablecoins, which will form the reserve for the recovery pool at launch. It also defines the methodology for how user positions and balances are calculated for settlement purposes.

Context

On April 1, 2026, Drift Protocol experienced a security incident that resulted in the program being paused at 18:31:47 UTC. A full incident summary and list of affected spot assets can be found in the Incident Recovery Update.

Following the incident, the protocol holds a set of residual spot assets across the borrow/lend pool. This proposal defines the process for converting those assets and the principles governing how user balances will be determined for recovery purposes.

Reasoning

Why convert spot assets to stablecoins?

Converting residual spot assets to USDT provides a clean, denominated basis for a recovery pool. A USDT reserve eliminates price volatility exposure between now and recovery launch, ensuring users receive a settlement backed by a predictable notional value rather than a basket of assets subject to market fluctuation.

The Foundation will explore all available conversion avenues such as spot trading, OTC desks, and on-chain aggregators, the avenue chosen will be at the Foundation’s sole discretion, in each case will be based on the best available liquidity and operational feasibility at the time of execution.

Why are spot assets not returned directly to depositors?

All borrow/lend markets share a single liquidity pool. Any given subaccount may have had an outstanding borrow position against their deposited assets. Returning deposits to lenders before those borrows are settled would remove liquidity that other accounts depend on, permanently breaking the pool’s accounting integrity. A unified conversion and settlement process is the only approach that preserves fairness across all affected parties.

Proposal

1. Spot Asset Conversion

All remaining spot assets listed in the Incident Recovery Update held within the borrow/lend pool will be converted to USDT by the Foundation. Conversion avenues may include but are not limited to spot trading, OTC desks, and on-chain aggregators. The avenue selected for each asset will be based on the best combination of liquidity depth and operational efficiency available at the time. The final converted notional value will constitute the initial backing reserve for the recovery pool at launch.

2. Interest Accrual

Interest accrual is cut off at the program pause timestamp, consistent with the spot balance snapshot. All interest accrued within the impacted window has been incorporated into the snapshot calculation. Users will not be required to pay any outstanding interest upon protocol restart.

Considerations

If passed, the Foundation and Security Council should retain discretion to implement this proposal, including in relation to the timing and sequencing of asset conversions to maximise notional recovery and avoid unnecessary market impact. If material adjustments are required for conversion methodology or settlement parameters, a transparency statement will be issued on Discourse. This proposal is narrowly scoped to the conversion and settlement mechanics of the remaining assets in the borrow/lend pool.

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For Drift to have any hope of continuing in the future the insurance fund must be returned to the original owners.

The whole concept of a DAO vote on taking the funds for the recovery fund is effectively an attempt at money laundering.

Anything other that a full return of funds would constitute wire fraud.

3

Proposal can be better by adding one more choice, e.g. launch a trading intranet version, any original digital is kept inside the protocol that can be utilized internally, while enabling original amount to access drift trading system, swing trading profit can be withdraw anytime.

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I understand the rationale behind converting the remaining spot assets into USDT and establishing a recovery reserve pool.

However, I believe the current discussion is focused mainly on how to redistribute the remaining assets, rather than further addressing how the protocol itself intends to meaningfully support users’ long-term recovery.

For many affected users, the current remaining asset value represents only a small fraction of their original balances. Converting existing assets into stablecoins may help stabilize accounting and settlement mechanisms, but by itself, it does not materially improve recovery outcomes for users.

I believe the discussion should also urgently include clearer recovery mechanisms, such as:

  • Whether a portion of the protocol’s past accumulated revenue should also be allocated into the recovery pool

  • What percentage of future protocol revenue will continue to be directed toward the recovery pool

  • The scale of support from ecosystem partners — currently, including Tether and strategic partners, there has not yet been a clear indication of how much capital or what percentage will be contributed to the recovery pool

  • Whether recovery incentives tied to the protocol’s long-term growth can be introduced, allowing affected users to participate in future value creation

From a user perspective, recovery is not only about immediate settlement mechanics, but more importantly whether the protocol is willing to share responsibility with affected users in rebuilding the lost value.

I believe that a clearer and longer-term recovery commitment would also help strengthen community trust, user retention, and overall confidence in the protocol relaunch.

1 Like
5

The “everything was pooled” point is valid, but it doesn’t justify pretending there is no structure inside that pool. We already did per‑address, per‑product accounting to compute verified losses; the same data shows that some users ended with net, un‑borrowed spot exposure and some didn’t. Choosing to convert 100% of the residual assets to USDT and drop them into a common reserve is therefore not an accounting necessity, it’s a policy decision to favour simplicity over distributional fairness. If we’re serious about “doing it right this time”, we should at least consider a carve‑out for clearly identifiable spot‑only exposure.

I think it helps to put this in personal terms: if any of us after an incident and saw that our account still had a residual coin balance that was never actually lent out or stolen, we’d expect that fact to matter in how losses are allocated. The current DIP‑10 approach effectively says those balances are irrelevant and should be treated exactly the same as assets that were drained, purely for simplicity. That may be neat from an accounting perspective, but it’s hard to square with a basic sense of fairness.

I encourage governance to vote NO to this proposal in its current form, after all we haven’t even seen the absolutely critical proposed contributions to the Recovery Fund from Drift or Tether. There is no need to act in haste here; most users already accept, and in many cases actively seek, market exposure.