Moonwell Proposes Bad Debt Fix While USDC Remains Stuck

Lending protocol Moonwell is attempting to address its recent financial issues through a new governance proposal called MIP X66. The plan aims to cut the interest accumulating on bad debt by approximately 85 percent by adjusting market risk settings and interest models. If passed, this move would reduce monthly interest costs on the protocol from over 300,000 dollars to roughly 50,000 dollars.

The proposal also suggests using protocol reserves to recapitalize the USDC market. However, the team clarified that these reserves are protocol owned and that the plan does not involve moving or paying back user funds directly. While the proposal aims to stabilize the protocol, it does not guarantee that suppliers will get their money back or that withdrawals will resume immediately.

This recovery effort follows an incident on August 27 involving oracle price manipulation and inflated collateral. The event left roughly 9 million dollars in outstanding borrower obligations. Users who deposited funds after the incident are now pushing for more transparency regarding available cash, repayment timelines, and clearer policies for future withdrawals.

For now, the protocol remains in a difficult spot. Borrowing on the Base network will not restart automatically even if the proposal passes, as each step requires further risk assessments. Moonwell has hired a security firm to help evaluate future options, but affected depositors continue to wait for a concrete path toward recovering their trapped capital.