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

Well so I am telling you I am in this discussion because my address is classified by you as having a recursive factor of > 0.5 so obviously I am a recursive yield farmer, but I am not. I only supplied USDC and borrowed Dai, and all the capital I supplied was not leveraged again, so your method has some flaws. Sure there are people that may be “exploiting the program” whatever the definition that is, but just trying to tell you there are also possibly usecases outside your limited imagination, and it is not appropriate to classify people using a flawed blanket policy.
I am also not sure why I need to be here defending myself or others. It almost feel like people being raped and then having to argue with people whether they are supposed to be raped because they exposed too much skin or are out drunk late at night etc. It is a distraction of this particular Dai incident as well. If you are not happy with recursive yield farmers, you should propose to change the incentive of the program and yield farmers will naturally move away. Investigating the effected users in this incident and not compensating their losses based on a random rule is not the solution here.

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You are right that the proposed method is making an assumption that would classify as recursive farmers people in the position you describe, and agree it would be wrong if that is the case. Perhaps there is indeed organic demand for that type of stablecoin - different stablecoin loan beyond farming COMP. One possible alternative would be to not bundle stablecoins together and only count recursive farming with each specific asset, I assume then you personally would have no problems with that given your explained situation? In either case, it seems that there are more voices against the idea of identifying recursive farmers that there are supporting it. I hope perhaps some other proposal might find some form of consensus that results in compensating users who were unfairly liquidated, and were also not exploiting the COMP distribution program given that was one of the reasons cited by different community members for voting against this proposal was not wanting to bail out those types of operations.

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Is there any other source for compensate users beside DAI reserves?
Are the reserves of other assets also considered? For example ETH - because in my case I was liquidated in ratio 1:377 (ETH:DAI). It will probably never be possible to buy ETH at that price again
I understand that users cant be compensated in COMP and it is fair, users didn’t lost COMP tokens(mostly) in “DAI event”. But do you think that 8% isn’t too low?
Do we have any other options as affected users?
I also understand that full compensation is not possible, but covering only the liquidation premium is not acceptable. I perceive this as a poorly improvised insurance policy and the costs of liquidation are much higher.
I am personally only down $ 70 because of front-running (my attempts to defend the position).

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This totally makes sense

Agree, this should be the next step. What is the fairest way to calculate a real loss due to liquidation?

Great conclusion, we were really spinning in a circle over whose fault it was.
I was expected more clear and direct arguments from people who are against compensation in this case. Not because of the compensation itself but because of the general security of the protocol.
I have been using Compound for more than a year and have not considered other options solely because of the protocol’s reputation for security.
After all words here on the forum about “bug”, lately whitepaper of Compound Chain presented the same price discovery solution?

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That’s what I’m seeing too. It appears as though the validators will act as the “oracles," publishing data to each block (as an extension of the Open Price Feed). While I see how this results in fresher data as it no longer requires active posting, our market coverage appears to remain unchanged, so I assume we are still open to the same price manipulation. Also, I’m unclear if Uniswap TWAP will still be in place as a backstop, and how would that work in this environment if so.

I know I sound like a broken record, but offloading this oracle concern to a 3rd party sounds like the prudent move, especially now given how big of an undertaking building a new chain alone is.

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I am guessing this has been abandoned.

This particular compensation proposal (#032) was voted down on December 14th. However, users like @wario have been looking at alternative methods for determining compensation that have been gaining traction. Perhaps they could fill you in on progress there?

I personally think the oracle is the primary issue of concern and should be addressed first, but I have nothing against those affected being compensated given that this was an oracle failure.

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I will be writing up an idea for a proposal soon and then possibly a formal proposal if it looks good.

False liquidation compensation can happen in parallel while those with more technical knowledge address the faulty oracle issue.

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Are we giving up on fixing this issue and making things right for affected users?

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Posted an informal proposal that addresses the feedback from the previous proposal DAI Liquidation Event - #53 by 4D_compound

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Agree, also we have problem with protocol governance decentralization. Early investors use token like a stock share and they don’t care for small users (small from their perspective).
Uniswap airdrop model is maybe solution (with few modifications) because in the existing model the average users are left at the mercy of VC funds.
I think @wario is doing its best to establish an equilibrium between users and large holders but the problem is that there are currently not enough DAI reserves to compensate. I think the proposal by @4D_compound and @kybx86 is a very good solution. In case the available funds are not sufficient from the DAI reserves @michjun stated a possible solution:

Distribution over time is a quality solution for the long-term interest of the protocol as it will provide security and keep users and their resources on the protocol.

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Can’t Compound notify Chainlink of it’s incorrect price feeds? Chainlink is supposed to slash rewards of malicious oracles or oracles who give incorrect data. Where do those slashed rewards go? Shouldn’t they go to the projects/people who were affected by the mistake?

If not, then:

Is it possible to use the interest generated from the DAI reserve to partially compensate the addresses in which were liquidated? Maybe could compensate them upon acceptance of the proposal from the interest held in reserve, then allow the interest to build up for 6 months - 1 year and have another distribution of DAI (or cDAI).

Could even distribute the amount of COMP those users would have received from supplying/borrowing DAI since the ‘liquidation event’. Just giving those accounts COMP for compensation just doesn’t make sense to me. Especially since whoever was the bad actor on Chainlink could be one of the accounts that was liquidated, giving them more governance ability on Compound could be just what they want.

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Depending on how often the Compound protocol gets price information from oracles, we could do an average or exponential average over the last ‘n’ prices. I would say that at least 10 of the last prices from the oracle(s) would be needed to minimize liquidations during extreme flash crashes/pumps/market manipulation. The side effect would be that Compound’s asset prices could be estimated.

Another solution that may help is to check prices on multiple markets, DAI/ETH, DAI/USDC, DAI/USD and weigh them equally.

Or, to keep things simple. Stablecoins tied to USD are usually within a percent and are designed to be as close to the dollar price as possible. So make their value be $1. If Compound is getting prices from Coinbase, then $1 USDC is already equal to $1 USD. This would probably lower gas fees as well since there is a lot of code within the Comptroller’s smart contract making sure the market price has not changed.

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I will also post info from @kybx86 here. I ask the community delegate votes.

"The CAP has been deployed here .

This CAP needs 65k COMP delegate votes until it becomes a formal proposal.

If you support this proposal, please consider delegating to it.

VIEW CAP & DELEGATE "

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@Dmitry Thank you.

The CAP is live and it needs votes to get to 65K so it can be made into a formal proposal. The CAP already has 3 votes and ~12K COMP, please delegate to it to get it across the line:

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