Key Highlights
- A single redemption transaction burned 776,000 bOSMO and initiated the unbonding of roughly 1.3 million OSMO to prevent continuous, overpaid contract drains.
- Affected token holders captured in the block 72,237,940 snapshot will receive automatic compensation at a rate of 1.1174 OSMO per bOSMO once unbonding concludes around late October.
- Liquidity providers face ongoing exposure due to pricing mismatches, prompting direct warnings to withdraw liquidity from pools holding bOSMO immediately.
Following a major intervention to protect underlying token backing, a decisive redemption transaction was carried out on October 9 at 9:59 p.m. ET. The transaction burned 776,000 bOSMO and initiated the unbonding process for approximately 1.3 million OSMO. According to Wyles, the move withdrew almost the entirety of the contract’s OSMO. The action was structured as an all-in-one redemption designed to prevent a cycle of repeated, overpaid withdrawals that would have systematically depleted the collateral backing other token holders, establishing a clear path toward direct compensation instead.
Snapshot Rules and Compensation Criteria
To establish fair restitution, user balances were captured at block 72,237,940, the precise block when the overarching redemption was executed. Wyles explained that eligible balances from this snapshot will be compensated at a rate of 1.1174 OSMO per bOSMO, reflecting the contract’s stated exchange rate immediately prior to the transaction. Actions taken by users following this snapshot—such as selling, transferring, or redeeming tokens—will not impact the snapshot balance used for the payout calculations. Conversely, any tokens acquired after the snapshot block are not covered by the restitution framework.
The compensation blueprint extends coverage to underlying holders whose bOSMO was deployed inside decentralized liquidity pools and external smart contracts. However, the disclosure outlines several specific exclusions: balances resulting in payouts worth less than 1 OSMO will be omitted, alongside holdings belonging directly to Backbone Labs and the community pool. Furthermore, any accounts that actively exploited the protocol defect following the initial redemption transaction are fully excluded from the payout distribution.
For eligible token holders, the process requires no active claims or manual transactions. Payouts are slated for automatic distribution once the standard unbonding period concludes. Network transaction records indicate that the unbonding process is set to complete on October 23 at 9:59 p.m. ET (October 24 UTC), with the official disclosure confirming that compensation transfers will be dispatched shortly thereafter.
Liquidity Pools and Remaining Vulnerabilities
Despite the defensive redemption, ongoing risks remain present across decentralized markets due to severe pricing disparities. Wyles noted that at the time of the disclosure, any remaining bOSMO could only be redeemed for approximately 0.06 OSMO each, even as newly minted tokens could still be generated for around 0.039 OSMO. Because select decentralized liquidity pools continued to trade bOSMO at levels higher than its underlying redemption value, an arbitrage window opened that traders could exploit to drain pool reserves.
Addressing these pool-level risks, Wyles urged immediate defensive measures for market participants. If you provide liquidity in a pool that contains bOSMO, we recommend withdrawing it,
Wyles wrote. Alongside this warning, he cautioned users against purchasing any additional bOSMO on the open market.
Why This Matters
The incident highlights the critical structural vulnerabilities that liquid staking tokens and automated market maker pools face when underlying redemption logic diverges from open-market valuations. Wyles reported that an updated iteration of the contract code resolves the underlying defect; however, deployment remained pending while Backbone Labs was alerted to the situation. Looking ahead to the final resolution of the event, any recovered OSMO that remains after eligible compensation distributions have been completed is scheduled to be burned in accordance with Proposal 1049.
Frequently Asked Questions
Do bOSMO holders need to submit a claim for compensation?
No. Affected users whose balances were captured at block 72,237,940 do not need to take any action. Payments are configured to be distributed automatically following the completion of the unbonding period, which matures around October 23 at 9:59 p.m. ET (October 24 UTC).
Who is excluded from the bOSMO compensation plan?
The restitution framework excludes claims totaling less than 1 OSMO, holdings belonging to Backbone Labs, tokens held by the community pool, and any wallets that attempted to exploit the contract defect after the initial redemption took place.
What should current liquidity providers in bOSMO pools do?
Wyles explicitly recommended that liquidity providers withdraw their assets from any pool containing bOSMO to prevent value extraction from arbitrage traders, while also advising investors against buying additional bOSMO tokens.
