Stack Recovery Plan

As many are aware, a significant depeg of MORE has crippled the Stack protocol. The following article outlines our plan of action to resolve the current situation and save the protocol. Included in the plan is an outline of changes to be made to Stack, at the code level, to ensure this type of incident cannot happen again.

Stack is not the first CDP to experience a debt-related crisis. Many other protocols have experienced similar situations and worked through them to a productive end, as we’ll share below.

What Happened

To support the growth of Pearl, Stack borrowed an increasingly large amount of MORE against the protocol’s csCVR position. These funds were disbursed onchain as various growth incentives for Pearl. As the percentage of CVR backing MORE continued to grow, outpacing the available liquidity to liquidate the csCVR borrow position in the event of a forced liquidation, the perceived risks triggered a depeg of MORE.

The MORE depeg caused a series of cascading sell-offs across the entire re.al ecosystem. Because the MORE value borrowed by the protocol was used for incentives (and thus not immediately available) the protocol was unable to stop the crisis. Despite the CVR loss of value and other asset depeggings, there was no need to force liquidate any of the collaterals. However the protocol is left with 4.48MM in MORE debt, a result from the combination of both limited capital availability and there not being enough MORE liquidity to buyback and repay the outstanding debts owed. The protocol withdrew $342,311 from the csCVR vault in USDC, which can be used to remedy the outstanding MORE owed.

We’re currently at an impasse. Without repayment of this debt, Stack will not recover and MORE will eventually go to zero. However sellers are not willing to sell at the current price, leaving the protocol with few options within the standard construct of CDP operations.

Recovery Plan

First and foremost, Tangible will repay the value borrowed against UKRE. This is not bad debt and will be repaid.

As noted above, Stack cannot repay its MORE as a result of a combination of available capital and available liquidity/willing sellers. The following plan provides a new incentive to sellers of MORE and a solution to end the stand-off.

$STACK

Stack does not currently have a governance token nor an onchain governance system. Instead, Stack protocol value was distributed back to veRWA holders as a means to support the ecosystem. However, many CDPs use a native token to accrue value for holders, manage critical protocol decisions and backstop bad debt.

Stack will launch a governance token ($STACK) and will use this token to incentivize the desired behaviours required to solve the current depeg situation and allow for a protocol relaunch. $STACK will be used as incremental compensation to reward MORE sellers, providing them with both remuneration (token value and future fee accrual) and protocol control via governance in the future of Stack.

Stack will buy back the outstanding MORE debt on the csCVR vault (4.48MM noted above) at the price of $0.076 USDC per MORE. In addition to that value, 40% of the future $STACK supply will be distributed to sellers as points, with the highest point value going to sellers on Day 1 of the sell-back period and reducing across the seven day sell-back window.

• Day 1: 50 points per MORE
• Day 2: 40 points per MORE
• Day 3: 30 points per MORE
• Day 4: 20 points per MORE
• Day 5: 10 points per MORE
• Day 6 and onward: 1 point per MORE

At the time of the TGE, we will look at the $STACK value and calculate the difference between the total redemption value for the Day 1 redeemers and $1.00. From there, we’ll attempt to close the gap as much as possible with additional vePEARL. vePEARL amount will be the same for Day 1 or Day 6 redeemers, meaning Day 1 redeemers will end up closer to $1.00.

Through the launch of Stack v2 (details below) MORE will be redeployed and remaining MORE will be deprecated.

MORE farmers who sold at a loss (those without positions to payback during the depeg) will also be compensated with 10% of $STACK supply. Allocation details are under discussion and will be shared soon.

The redemption contract will deploy Friday November 22, midnight UTC, accessible from the “Redeem” page of the website.

$STACK Details

$STACK holders enjoy both the financial benefit of fee accrual as well as governance rights in the future of the protocol.

50% of interest charged on the CDP will accrue to $STACK stakers instead of veRWA. The other 50% will continue to accrue to CDP stakers as currently designed.

Based on competitive analysis, a fair market cap for $STACK would be approximately 25% of TVL. Using this rough framework, MORE debt would be eliminated for $STACK holders at ~$40MM TVL, not inclusive of an approximate 20% APR staking yield.

$STACK will also govern new collateral additions (new borrow vaults) as well as other critical decisions in the future of the protocol.

The $STACK TGE is tentatively set for early February, aligned with the launch of Stack v2. Users will be able to redeem their points for $STACK tokens at that time.

Stack v2

Stack v2 seeks to combine what worked from the growth initiatives on re.al with the lessons learned from this depeg. Stack v2 will use code to strictly enforce limits on the issuance of the new CDP, mUSD.

1. Code will be used to cap the debt ceiling based on liquidity, requiring that the entire position can be fully liquidated for USDC, accounting for fees and slippage.
2. Borrow vaults will be capped for endemic assets at a fixed percentage of total mUSD supply.

For example, vaults for sCVR and UKRE would each be capped at 20% of mUSD supply. Further, it will be impossible for the debt ceiling to be raised unless critical onchain liquidity thresholds are met.

We believe that Stack should allow reasonable borrowing against ecosystem assets, especially RWAs, as long as those assets do not represent an outsized percentage of the backing and there is always ample onchain liquidity to liquidate positions, reducing the risk of bad debt. One of Stack’s key USPs is the ability to leverage RWAs, a necessary component to growing RWA utilisation amongst DeFi users. Stack’s competitive differentiator in a crowded CDP market is the option to borrow and leverage these unique assets, deprecating this feature removes what makes Stack unique.

That being said, Stack will aim for greater transparency and community governance as part of the v2 roadmap. Users can expect the following as part of Stack v2 operations:

• Greater transparency on what protocol is borrowing and with which assets
• Additional signers on the multisig wallet for borrowing against the protocol assets
• Monthly audit of the protocol’s health, including data from the Stats page, but also PoL (vePEARL or csCVR or any other asset), insurance fund, etc.

When governance deploys, the governance framework for Stack should include:

• Adding / removing collaterals
• Set initial interest rates / fee tier and minimal LTV
• Increasing / decreasing % of the asset compared to all other assets
• Minimum debt position
• Allocation % of MORE interest from veRWA to $STACK

While Stack has suffered a damaging blow over the past week, we do not believe this strike is fatal. We understand we’ve lost the faith of the community and we’ll need to work hard to rebuild a new cohort of users. We’re prepared for the challenge, we’ve invested a tremendous amount in this protocol and are determined to see it succeed. We can build our way through this, iterating and integrating learnings, to create a better product in Stack v2.

Keep stacking.