sILV-2 Has Arrived!

By Deraji | ILVFi | 4 Mar 2022


Almost two months to the day that the sILV hack was exposed, we have the replacement token, the obviously named Escrowed Illuvium 2 or sILV-2 for short.  Below is a quick review of how to claim, details on the tokens, my perspective on how to treat the two tokens from a tax transaction point of view (Not financial advice, just how I’m handling it), and what’s next!

Recap of what happened

As a quick recap - Escrowed Illuvium or sILV-2 is a “gift card” for transactions with the Illuvium DAO, with the in-game value pegged to the current price of the ILV governance token.  This token was created by the DAO to give those staking ILV a reward that could be used in-game rather than receiving the ILV token.  An unofficial, unsanctioned liquidity pool was set up, and people used this pool to cash out Illuvium staking rewards early, as sILV is immediately rewarded into the staker’s wallet, as opposed to ILV, which requires a 12 month vesting period.  In early January, a vulnerability in the staking contract was uncovered where a malicious actor minted a large sum of counterfeit sILV, and used the unofficial pool to siphon off over 300 ETH in value.  The team took action, minting a large number of sILV and flooding the pool to rescue the remaining ETH and crash the value of the sILV.  Today, we have the next stage of the process, the issuance of the replacement token.

The New Communication Process

Before we get into the new sILV-2 token, this was also the first use of the new communication process by the team.  To avoid scams and confusion, Aaron Warwick issued an announcement that included NO LINKS to either the updated Illuvium blog post nor the core website.  Links will not be used in Discord going forward, and the community has been directed to bookmark the official blog here, and the official site here.  The team will utilize the main site, illuvium.io as the primary interaction with the community.  I included the links, but encourage you to bookmark as directed for future use and safety.

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An example of why is this necessary is obvious on Google right now.  Searching for “illuvium” results in the below results.  The top link is a paid ad which is a SCAM, with the correct site listed second on the search.  Be careful out there!

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Who is eligible to claim sILV-2

From the official blog post, here is the criteria for claiming the new token.

  1. All sILV token holders receive sILV2 equal to their volume of sILV held at the time of the Recovery snapshot (block 13940833).
  2. Liquidity providers in the sILV Uniswap V3 pool receive sILV2 equal to the sILV portion of their liquidity position* at the time of the hack snapshot (block 13940652).
  3. Users who swapped ETH for sILV between the Recovery snapshot and the Grace snapshot (block 13941127) receive sILV2 equal to the value of sILV purchased, while those that swapped sILV for ETH will have the equivalent value of sILV2 removed from their reimbursement balance.

All users receive an extra 0.1 sILV2 to compensate for gas fees.  I’ll check in a few days and over time to see the implications of this added 0.1 sILV on the total pool.

Directions to claim

The official Illuvium blog posted an excellent step-by-step instruction on how to claim your sILV-2 if you previously had sILV in your wallet at the time of the snapshots.  Vetemor also posted a step-by-step video already, so please follow those directions if you are eligible to claim the new sILV-2 token.  

In my experience, claiming was extremely easy, with the transaction fees less than $10 at around 40 Gwei. 

Token addresses

Below are the relevant token addresses for convenience of this article.  Again, please confirm the addresses for yourself and never trust anyone.

The official sILV2 mint contract address is: 0xa904f27b1de7e82ba587677ee1f5af0ad0a8c79a

The official sILV2 token contract address is: 0x7E77dCb127F99ECe88230a64Db8d595F31F1b068

The defunct sILV token contract address is: 0x398AeA1c9ceb7dE800284bb399A15e0Efe5A9EC2 - DO NOT TRADE - NO VALUE IN ILLUVIUM

As of this time, there has not yet been an informal liquidity pool created on either Sushi or Uniswap, though I do expect one to be created “soon.”  Note, search for the correct token address (0x7E77dCb127F99ECe88230a64Db8d595F31F1b068) if you do wish to leverage such liquidity pools, and that the Illuvium team will not create one nor will any such pools be endorsed by the team.  If this experience teaches us anything, its to be careful and understand the risks of such pools.  

Tax Implications - NOT FINANCIAL ADVICE!

Personally, I had purchased sILV from one of the unofficial liquidity pools.  For financial purposes, here’s my plan on how to treat those tokens, along with those I received today as a replacement.  

  1. Sell my original sILV at current market value ($0.03), recording the loss.  Now that I have received the replacement tokens, I plan to sell the original tokens on Uniswap.  The pool still exists today for the original token, though you must search by the original address listed above.  When I last checked, tokens were selling at about $0.03.  This will complete my involvement with the original token, recording a loss from my original cost basis to today’s value of essentially zero.
  2. Record receiving the new tokens at today’s sILV market value, also accounting for my transaction fees.  While sILV-2 is worth the value of ILV, it is not immediately redeemable for that value.  The best proxy value in my perspective is the current market value of sILV, the token it is replacing.
  3. When I eventually redeem my sILV-2, I will value its trade/sale at the market value.  This will result in a significant gain (hopefully), but it will effectively cancel out the original sILV.

Here’s a quick example of what this looks like if I had purchased 10 sILV at $400 (including transaction fees).  Claiming my 10.1 sILV-2 incurred a $10 transaction fee.

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Overall, I would have a loss today of $3999.70, and establish a new cost basis for my sILV-2 of $10.303, or $1.02 per sILV-2.  In the future, I will use this to calculate my gain when I redeem or sell these tokens.  As person in the US, an additional downside of this event is that my date receiving the tokens reset to March 3, 2022, so in order to qualify for long term gains, I need to wait for a year from today, rather than a year from when I initially purchased the original sILV.  Oh well.  Wen land sale????

None of this is financial advice, just an example of how I plan to treat these tokens.

What’s next?

This was a big step in the recovery of Illuvium, and from Aaron’s most recent developer’s notes, hopefully this was the first step of many events in rapid succession, with Staking V2 likely up next.  sILV-2 was a critical first step to restore staking.  Check out my article here for more information on the current status of staking.  

Thanks for reading!

 

 

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Deraji
Deraji

Crypto curious thinker, amateur economist, geriatric millennial gamer passionate about Illuvium. Happy to share my economic and financial assessment of this unique blockchain NFT Play-to-Earn project. patreon.com/ilvfi


ILVFi
ILVFi

ILVFI focuses on the upcoming P2E game, Illuvium, the first proposed AAA-quality video game based on blockchain technology and NFT ownership. We'll focus on both the game play, as well as the in-game and ILV governance token economics.

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