I’m mildly against the idea of reimbursement and strongly against this specific proposal. It’s very important we separate these two things because this proposal is terrible. However, I don’t think voting against this proposal should be interpreted as voting against some form of compensation. These are separate issues and there are more ways to do this!
Considering this proposal in theory
Protocol insurance funds are a great idea! If the Compound protocol had one, it should be used in this case. However, the Compound protocol does not have an insurance fund. So now we are in a situation where we have not promised insurance but we may want to reimburse some losses anyway because we see it as being in the greater good of the protocol long term.
The protocol does have “reserves” for each market which have slowly been growing over the last couple of years. There are have been people in the community that have considered these to act like an insurance fund for the protocol. They have never actually been used in that way but it is a reasonable use case. Currently the total reserve for the Dai market is $1.3 million Dai, this is the largest reserve of any market and makes up a large portion of total protocol reserves.
If there is going to be any compensation, the amount of reserves in the Dai market should be the ceiling for it. This would be incredibly generous as it amounts to giving away a large portion of all reserves that have been earned in the last couple of years.
Considering this proposal in practice
Practically this proposal amounts to a massive bailout for two yield farmers who have been vampiring value from the protocol.
- Per @wario’s comment 54% of this payment goes to one single yield farming operation and 61% goes to the top two yield farmers. The top yield farm was simply selling all accrued COMP (generating $2.15 million in profit for themselves).
- These yield farmers are NOT long term aligned with the protocol. If they were they would not be selling their COMP.
- These yield farmers were intentionally and knowingly engaging in risky behavior in order to earn millions of dollars by dumping COMP. With that reward comes risk that anything at that scale should clearly understand.
The idea of giving 0.55% of the total governance token supply to people who’s proven on-chain behavior is detrimental to the protocol is INSANE! We are literally giving extra power to the most short sighted actors in the system.
COMP is not money, it’s a governance token. We should not be giving away governance tokens to somehow try to act as financial compensation and the particulars of this situation only make it a worse idea.
For these reasons I encourage everyone to vote against this proposal. I also encourage @kybx86 to put forth a new proposal using the Dai reserves for a pro-rata compensation plan.