The actual funds themselves are distributed and unrecoverable. I don’t want to be overly optimistic, but I want to propose looking at this from a different angle to create a framework that may make returning these funds possible.
I want us to focus on the APY for a moment. I would argue that dissolving the funds and distributing them to the holders caused about a ~0.0027% increase in the APY for USDC. If it’s possible to tap into the 7% reserve kept in the USDC pool and extracted the funds from there, we would see a similar drop in APY while the reserve replenishes back to 7%, then the APY returns to the state it was at before the surprise distribution. The distribution caused a mild benefit to all the holders and a disproportionate loss to one, and since most holders are in it long term, and if they also agree that lost funds should be returned when possible, there may be a chance. Add a 10% penalty or more and a residual benefit to the APY will remain. A 20%, 30%, or 50% penalty may put more people at ease given the nature of this proposal.