bOSMO Bug Left Tokens Underbacked, Backs Compensation Plan for Osmosis Holders

A bug drained bOSMO's backing, now compensation is planned

Backbone Labs' bOSMO liquid staking token on the Osmosis blockchain has very little backing left after a large redemption from the Osmosis community pool, and a compensation plan is being set up for affected holders.

The bug, identified by forum user Johnny Wyles, caused the contract to overpay every redemption since at least April 2026. About 40,508 OSMO is now earmarked to compensate 1,037 accounts.

Key numbers behind the bug

• The contract paid out roughly 1.676 OSMO per bOSMO instead of the stated rate of about 1.117 OSMO


• Approximately 40,508 OSMO is set aside for 1,037 compensated accounts


• The redemption on Oct. 9 burned 776,000 bOSMO and started unbonding about 1.3 million OSMO


• At the time of the disclosure, remaining bOSMO could be redeemed for only about 0.06 OSMO each


• New bOSMO tokens could still be minted for about 0.039 OSMO each

What the forum disclosure says

The bug double-counts OSMO that is staked with Backbone's own validator, according to Wyles' Oct. 15 disclosure on the Osmosis forum. This error paid redeemers about 50% too much, draining the backing that supports remaining token holders.

The problem was discovered while preparing to unwind the Osmosis community pool's position. Governance Proposal 1049, which already passed, authorized withdrawing Margined-managed vault positions and burning recovered OSMO as Margined wound down its managed liquidity offering. The pool's bOSMO vault held roughly 1.137 million bOSMO, representing about 97% of the total token supply.

Wyles chose to redeem the entire community pool position in a single transaction rather than make repeated overpaid withdrawals that would further deplete other holders' backing. The plan calls for compensating affected holders directly.

How compensation works

Eligible balances are determined at block 72,237,940, the block when the redemption transaction ran. Compensation will be paid at 1.1174 OSMO per bOSMO, which was the contract's stated rate immediately before the community pool redemption.

Purchases, sales, or transfers of bOSMO after the snapshot do not change the balance used for compensation. Only holders who owned bOSMO at the snapshot moment qualify.

The compensation plan covers underlying holders whose bOSMO was sitting in liquidity pools and other contracts. However, payouts worth less than 1 OSMO are excluded, as are the community pool's holdings and Backbone Labs' own holdings. Accounts that took advantage of the bug after the redemption are also excluded from compensation.

Recipients do not need to take any action. Payments will be sent automatically after unbonding completes. The transaction records a completion time of Oct. 23 at 9:59 p.m. ET (Oct. 24 UTC), with payments expected shortly afterward.

Liquidity pools remain at risk

Wyles warned that the gap between bOSMO's market price and its extremely low redemption value creates a risk for liquidity pools. Some pools continued to price bOSMO above what it is actually worth in backing, which traders could exploit to drain pool liquidity.

He recommended that liquidity providers withdraw their bOSMO from pools and advised against buying the token.

A newer version of the contract code fixes the defect, but the update has not yet been deployed. Backbone Labs has been notified, according to the disclosure.

What is confirmed

• The bOSMO contract has contained a bug since at least April 2026 that caused overpayments on redemptions


• The overpayment was approximately 50% above the correct redemption rate


• The Osmosis community pool redemption on Oct. 9 withdrew nearly all the contract's OSMO backing


• About 40,508 OSMO is earmarked for compensating 1,037 affected accounts


• Governance Proposal 1049 passed and authorized the redemption and burn process


• A fixed version of the contract exists but has not yet been deployed

What is still unclear

• When Backbone Labs will deploy the updated contract code


• How many additional holders beyond the 1,037 identified may have been affected by the bug


• Whether any funds were lost due to the reduced backing remaining in the contract

What happens next

After unbonding completes around Oct. 23-24, automatic compensation payments will be sent to eligible holders. The remaining recovered OSMO will be burned under Governance Proposal 1049.

Sources

• The Defiant