Allocation of Recoverable hUSDC Collateral Following the 31 August 2026 Exploit

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Summary

On 31 August 2026, an attacker exploited a Radix Engine vulnerability to withdraw Hyperlane-wrapped assets (hETH, hWBTC, hUSDT, hUSDC, hBNB, hSOL) from third-party vaults and bridge them out of the network. The full incident is documented in the Radix Foundation Public Incident Report.

Of the assets moved by the attacker, one bridge transaction did not complete before the Hyperlane routes were halted: the outbound hUSDC transfer to Ethereum. As a result, approximately 442,985 USDC of collateral remains trapped and potentially recoverable on the source chains, while the corresponding hUSDC supply on Radix was burned during the exploit.

The trapped ~443k USDC is not the Foundation's to allocate unilaterally. This proposal brings the allocation decision to the community.

Voters are asked to choose one of three allocation options:

1. Reimburse original hUSDC holders only.
2. Pro-rata distribution in hUSDC to all Hyperlane-wrapped-asset victims.
3. Contribute to the Radix DAO treasury for the community to decide use at a later date.

Each option is described in detail below.

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Background

For the full technical account, refer to the Radix Foundation Public Incident Report. In brief:

• On 31 August 2026, between 16:02 and 16:57 UTC, an attacker executed 26 exploit transactions on Radix, withdrawing Hyperlane-wrapped assets from third-party vaults without the owners' authorisation. The vulnerability was in the Radix Engine's vault-ownership enforcement — not in the Hyperlane bridge, validator infrastructure, or any user's private keys.
• Within approximately three hours, the Foundation, Hyperlane, and Radix validators coordinated to halt the Hyperlane routes and break network liveness, stopping any further exploitation.
• Assets that had already reached destination chains (Ethereum, BNB Chain, Solana) were sold by the attacker shortly afterwards. The collateral behind those assets was redistributed and is not recoverable through this proposal.
• The attacker's outbound hUSDC transfer to Ethereum was still in flight when Hyperlane routes were shut down. That transfer is now permanently stuck. The USDC collateral backing it — spread across Ethereum, Base, Solana, and BNB Chain — remains under the control of the Hyperlane deployment and is potentially recoverable.
• The Radix Engine has since been patched, independently reviewed, and the network restored to normal operation.

The total value of all Hyperlane-wrapped assets held on Radix at the time of the exploit was approximately 1.3 million USD (to be confirmed). The ~443k USDC potentially recoverable through this proposal therefore represents roughly a third of the aggregate loss across all wrapped assets. The attacker was, in effect, stopped after removing about one-third of the exposed value — which is the arithmetic behind the pro-rata option below.

What Is Recoverable

The theft of hUSDC on Radix totals 442,985 (~443k USDC). Because the outbound bridge transfer was halted, the corresponding USDC collateral on the source chains was not redistributed to the attacker and is potentially available for allocation.

Reconciliation of the burned hUSDC supply to its Radix-side holders at the exploit snapshot (state version 557756613; theft transaction 557756614) is complete. Every unit is accounted for, and no unclassified balance remains.

Contingency

This proposal is put forward on the basis that the trapped USDC collateral on the source chains (Ethereum, Base, Solana, BNB Chain) can be recovered to a Foundation-controlled wallet. The Foundation believes recovery is possible but cannot guarantee it. If recovery is not achieved, no distribution under any option is possible and the vote is moot. All wording below assumes successful recovery.

Why This Is a Community Decision

This is not a decision for the Radix Foundation to make on the community's behalf. The potentially recoverable collateral originates from community-held assets and its allocation touches on values — restitution, prevention, long-term stewardship — that the community is better placed to weigh than any single organisation.

The Foundation's role in this proposal is limited to:

• Providing the technical facts and reconciliation.
• Putting the vote to the community in a clear form.
• Executing the winning option as directed.

The Foundation will not vote and will follow the community's decision.

Distribution Mechanism

Under Options 1 and 2, the recovered USDC on the source chains would be bridged back onto Radix and re-issued as hUSDC before being airdropped directly to the eligible recipient accounts at the exploit-snapshot state. Recipients receive hUSDC in their existing accounts without needing to take any action.

Under Option 3, the ~443k USDC would be transferred (bridged and re-issued on Radix, or held on the source chains, as appropriate) to the Radix DAO treasury address to be administered from there.

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The Three Options

Option 1 — Reimburse original hUSDC holders only

The full ~443k USDC is bridged back onto Radix as hUSDC and distributed directly to the accounts that held hUSDC at the exploit-snapshot state (state version 557756613), whether held as hUSDC directly or via protocol liquidity tokens representing an hUSDC position, pro-rata to their attributable hUSDC balance at that moment. Every such account has been identified. Distribution is to the end-user accounts, not to the protocols themselves. Because hUSDC was fully collateralised 1:1 and the collateral survived, this option makes those specific holders whole.

Option 2 — Pro-rata distribution in hUSDC to all Hyperlane-wrapped-asset victims

The ~443k USDC is bridged back onto Radix as hUSDC and distributed pro-rata to the accounts that held any Hyperlane-wrapped asset (hETH, hWBTC, hUSDT, hUSDC, hBNB, hSOL) at the exploit-snapshot state, whether held directly or via protocol liquidity tokens representing such a position, weighted by the USD-equivalent value of their loss at that moment. Distribution is to the end-user accounts, not to the protocols themselves. Because containment happened after approximately one-third of the exposed value had been extracted, each victim receives roughly one-third of their loss in hUSDC.

Option 3 — Contribute to the Radix DAO treasury

The ~443k USDC is transferred to the Radix DAO treasury and becomes part of its general operating funds, to be allocated by ordinary DAO governance at a later date.

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Decision Requested

Select one of the three allocation options for the potentially recoverable ~443k USDC of Hyperlane-wrapped collateral, on the understanding that execution is contingent on successful recovery of the trapped funds to a Foundation-controlled wallet.