Compensation Proposal: Distribute COMP to Affected Users in the DAI Liquidations

Really well thought out responses from those voting AGAINST here.

While it makes sense this specific proposal is not going to lead to any compensation (and for good reason) I would be curious to explore ways to reward @kybx86 and all those involved in putting this proposal together.

61% of compensation going to one farming operation and using COMP as payment seems to be the nail in the coffin and makes perfect sense to amend these points.

I’d like to emphasize that with this vote failing, those involved in stewarding this convo are going to feel very defeated and these types of discussions are ones that we should always look to encourage and reward, even if the proposal itself ends up failing.

I would be interested in exploring opt-in grants on a case by case basis to proposal authors that are settled onchain (meaning at least 1M in COMP was required) as to encourage amendments of this proposal and future participation from other politicians.

Thanks everyone for their input and excited to report on this proposal this week.

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@kybx86 has done a very good job by starting a process that brings long-term value to the protocol - trust in the protocol.
I hope that the proposal will be upgraded in certain elements and put to the vote again in cooperation with the big players because otherwise, we are spinning in a circle (proposal - reject).
We should be more concerned about the statements of certain VC funds that see the “Dai liquidation event” as risk management and in fact it is a complex manipulation of the protocol.

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@coopahtroopa I appreciate your thoughtful engagement. Your feedback has been helpful throughout this discussion.

As a liquidated Compound user and COMP holder, I have skin in the game. My hope is that the community doesn’t move on from the objectives of this proposal should I stop driving it. The community should look inward to improve Compound’s risk framework and step up for the 121 users who were liquidated in the events of 11/26, regardless of who steers the boat.

If any member(s) in the community wants to work with me to craft a better compensation proposal, please reach out. (I’ve heard privately from a handful already, and look forward to more).

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Great point. Not enough people speaking about Coinbase’s role here, despite their explicit language to reject prices that deviate from the expected volatility of said asset.

Luke Youngblood, who voted for prop32, is one of the main architects of the Coinbase price feed.

Luke, if you read these forums, we’d be interested in hearing your opinion.

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I’d like to put on the record that the number of users affected was a non-negligible percentage of the userbase.

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Would love to hear input from Coinbase’s trade surveillance head apart from their “short” comment here.

Would also appreciate it if Coinbase can shed more details on the said event.

@Elkins I was wondering if Coinbase can atleast provide anonymized data on said price event. Also, if possible, could Coinbase also divulge the volume of orders needed to move the CB’s Dai market by 30% . Thank you!

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Potentatial risk when somebody need cheap Ethereum, manipulate the market with front-running and false-reporting, get my Ethereum for 1ETH:377$ (because global price of DAI in moment is 1$) with nice premium of 100-150$ per Ethereum.
And Pantera Capital said that I need to know risks in that “fairytale risk story”.
I didn’t know the risk of being robbed by protocol aggressive liquidation system powered by bots.
I didn’t know that the “borrowing function” should not be used.
I was used Compound before COMP token issuance because protocol had use case for my business and I didnt know that criminal activities are allowed.

I just used lending/borrowing service(product) when protocol was manipulated - i didnt farm COMP, I was used stablecoin for business liquidity - what is the point?
That Alex Mashinsky (Celsius) REPUTATION worth more than Compound protocol? I know that worth more than Pantera Capital for sure.
Your statement really raises the question: “Do we really need DeFi?”

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Not sure, why you want to dig deeper into the events which happened at Coinbase. No matter which the exact reason for this market dislocation was, the root cause for the “liquidation event” is, that the open oracle uses Coinbase as a single price source. If you want to dig deeper, I think you should ask, why the open oracle ever is gone live with only one price source.

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Because it was voted to go live with one oracle. here:

Because I want to see the volume/cost used to move the coinbase dai market, and why no arbitrages on that price spike happened. In short I want to get to the bottom of how that spike happened as reference on ideas on how to better harden the oracle system

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Sure, that’s obvious. But why was this proposal ever created? A good source for this answer could be the author of the proposal.

Hardening the oracle is very simple: just use more price sources. Check here for a possible solution.

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Im also in that discussion, I actually am for it but waiting for someone to submit code and start a CAP. Would also gladly delegate my measly vote to it.

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Agree, Coinbase can provide some data and stats about the event, but problem is that Coinbase Price Feed Data is a centralized part of the “decentralized” Compound protocol.

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I am looking into getting something submitted. Will report back soon.

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Can you explain to me please what you want to say with this statement?
This statement means that I use a platform with low returns but on the other side I want to be part of Compound community (because I additionally farm COMP)?
That makes me a high-quality COMP holder,
and not a farmer whose main goal is profit (sell / dump COMP).

The point is that in the case of “DAI liquidation” every user who used the “borrowing service” was in danger.

I was liquidated two times in the last 16 months in Compound protocol but that was my fault, this time users are manipulated with planned attack.
I don’t need charity from protocol, I just want to be refunded the part of the funds that were taken away from me by that attack and be a more active member of the healthy community.
I understand, your perspective on this situation is different but please can you tell me what is long-term impact on the protocol if real affected users will not be compensated?

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Not sure if everybody saw this tweet from Synthetix Founder Kain Warwick regarding proposal 032, But I thought it was worth sharing here:

I voted yes on Compound proposal 032. This proposal would distribute COMP to offset losses incurred by liquidated DAI positions. I thought about this a lot over the weekend, and while I expect the proposal to fail here is my reasoning regardless. Factoring in all risk is probably the defi platform I trust most. Excluding SNX there have been times when 50% of my crypoassets have been on deposit there. I think it is one of the safest places in DeFi you can put your funds. However, there are risks, and liquidations due to anomalous prices are foremost among these. The reason I voted yes is that I want to ensure there is skin in the game for all COMP holders, so they are hyper aware that the funds on deposit are at risk, and they are responsible. Right now there is indirect alignment between COMP holders and depositors, while this proposal sets an aggressive precedent I think it is one which is unlikely to be repeated in the future if all Compound stakeholders are aligned. This is also a good initiative to restore trust. The final point I will make is that I would highly suggest the Compound community at least discuss with Chainlink, the possibility of using their oracles as a backstop. And I say this as someone who holds no LINK, but as an SNX I am holder extremely aligned with CL security.

I again want to applaud @kybx86 on the valiant effort on prop 032. While the proposal did not pass in current form, it helped to propel the conversation forward by giving us a reference point on which to base our discussions, offer alternative routes to compensation, discuss issue prioritization etc.

That said, that several notable entities who publicly shared their reasoning (i.e. Polychain, Pantera, Kain from Sythetix) all pointed at Compound’s oracle design as a key area that needs improvement, regardless of how they voted on this proposal. Obviously I am in agreement with the sentiment, and as stated before, I am looking into submitting a CAP along these lines. If anybody wants to work with me on this feel free to shoot me a message. Would love the support!

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A valuable next step may be to summarize all the compensation proposals we have so far to make it easier to examine their merits.

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Thank you for your input, @ekrenzke . It is great to have your involvement and I appreciate you keeping an open mind.

This I agree with completely.

The protocol worked as designed, but the design was clearly flawed. The Coinbase oracle printed an off-market price and Compound accepted it. Legitimate users were unnecessarily liquidated.

I am not sure why you make this statement. I was liquidated and all I had done was supplied ETH/WBTC and borrowed DAI to the 80% limit which was described as a “safe max”. I was not doing anything particularly unusual other than using the protocol to borrow DAI. How is that behavior not long term aligned? Is the protocol not meant to be used?

If your statement does not apply to the entire set of users that were liquidated, but rather only the subset of liquidated users that were doing loop-farming, then I do agree with you.

All that said, I personally do believe that we can come up with a better proposal. 8% across the board makes DAI-DAI famers completely whole, while leaving “legitimate” users with as little as ~25% reimbursement on their losses. Effort should be made to understand the losses in more detail.

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It seems like if we modify the proposal, there is actually a chance that it would pass. and I do think if it passes it will be a very positive message overall and show that the community do have the power to protect users in events like this. If anyone is working on a revised proposal and need help, please let me know.

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We can simply add okex to the list of the reporters. They post prices but aren’t included. We could also add more reporters, chainlink to me just isn’t the best option because it’s very prone to human error, and had a problem with aave not too long ago.

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Your comments about chainlink sound interesting. Would be great, if you could write some more details over in the chainlink thread.

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