I was not a leveraged farmer. I was not even leveraged. I was borrowing DAI to farm on another site against my staked USDC. Totally ridiculous to get liquidated in this instance.
I’m not taking a swing at Getty. Just pointing out that the platform seems to be rewarding him fixing this problem, but not doing anything at all to help those of us who actually were hurt by it
I am in agreement here. If this is not satisfactorily resolved I will join you in pursuing legal action, so feel free to loop me in.
That being said, I believe we should give those that were against the compensation proposal by reason of the fix to the oracle issue out prioritizing victim compensation to be true to their word.
Now that the protocol failure has been resolved on the technical level we may revisit the topic of compensation for users affected in said protocol failure.
I think your proposal is reasonable, however I would suggest using my computation of damages over the original flat 8% as it is more accurate. Other than that it sounds like the bare minimum that one would reasonably expect in a situation like this. Hopefully we can get @kybx86 back on board!
Since the Oracle issue is solved, I would suggest the Compound management would look into the compensation issue. Robert @rleshner please publicly tell your opinions about the situation? If a new proposal would be made would you be for the compensation or against it?
Reintroducing the Compensation Proposal: Nov 26th, 2020 Oracle Issue Affected Users in DAI Liquidations
Hello everyone,
This post is intended to reintroduce and improve on the compensation proposal (“Prop 32”) in December 2020. To recap, on November 26th, 2020 an unexpected increase in the DAI price to $1.30 on Coinbase Pro led to 85.2 million in DAI being liquidated.
The original compensation proposal did not pass an executive vote, with 680k COMP voting against and 212k COMP voting for.
On June 21, 2021, the Compound community passed an update to Compound’s oracle system. This update implemented Chainlink Price Feeds over a custom oracle implementation that relied only on Uniswap and Coinbase Pro. While not the sole purpose, the oracle update was a byproduct of the DAI liquidation event on November 26, 2020, that liquidated DAI borrowers due to an adverse and unexpected increase in the price of DAI on Coinbase Pro.
Additionally, at the time of Prop 32, the DAI market’s reserves lacked the capitalization to properly compensate users. The prior approach of Prop 32 was to use COMP from the Reservoir, valued using a time-weighted average price, to compensate users affected by the liquidations. However, thanks to Prop 31, which increased the DAI market reserve factor from 5% to 15%, today, the 14 million DAI in reserves is sufficient to cover the losses as originally calculated in full. The total expected compensation amount is approximately 6.8 million DAI based on the protocol’s 8% liquidation penalty.
The oracle fix and the increased DAI reserves address three key issues voiced by the community with the previous compensation proposal:
A new proposal would focus on using the DAI market reserves to compensate users (though using COMP to compensate users is still an option). No COMP will need to be distributed under this model. Further, the reserve functionality of money markets was built for situations like these, where those unintentionally liquidated can be compensated.
Compensation is well within the capabilities of Compound governance today and will help give closure to a topic that’s still a point of ongoing discussion in the community and allow the protocol to move forward on stronger footing.
Maybe we can move forward with a proposal that will use DAI from the reserves to compensate those affected by November’s liquidations in full. What does everyone think?
Disclosure: For full transparency, I was one of the Compound users affected in the DAI liquidation event. I worked with the community to pass a reserve factor change to the DAI market and led efforts for Prop 32.
I am fully in agreement with your reasoning and suggested resolution. It seems appropriate, and would go a long way towards rebuilding trust in the platform, and ensuring that Compound is a viable protocol that people can feel safe using going forward
Correct me if I’m wrong, but isn’t the point of building reserves to protect lenders in the case of a bank run? Since the reserves would likely not be withdrawn by governance during a crisis, the reserves help ensure that there is always market liquidity (reserves equal to the borrow amount means that all lenders could remove there liquidity without issue). It also helps borrows by buffering the interest rates in extreme scenarios. With that being said, I would suggest that if we compensate users, we should issue them COMP instead of touching reserves. Building reserves is part of the long term health of the protocol and the reserve factor is the only way to capitalize them at the moment. In the spirit of the name of the protocol, we should lean into the Compound interest and let the reserves grow untouched as long as we can.
Why? What’s the reason that it will pass now rather than before?
@eggbagels
Correct me if I’m wrong, but isn’t the point of building reserves to protect lenders in the case of a bank run?
Well, yes, but also to let borrowers borrow more if there is not enough liquidity
Hello fellow community members. I am happy to see this topic being discussed again. I manage an investment advisory firm in the US and I have been helping family offices and ultra-high net worth clients experiment with DeFi. A handful of these clients were borrowing DAI on compound last November and were caught up in the liquidation. None of them have computer science backgrounds, but all of them individually reached the conclusion that a $1.30 DAI price was the result of manipulation and not natural market forces. Since this event I have been consistently fielding questions as to why I continue to label Compound as a blue chip DeFi protocol and why I continue to recommend its use to clients. I want our firm and our clients to stay involved with Compound because I believe the community leaders at Compound are among the most innovative in the industry and that they have pioneered market designs and governance features that have been widely replicated by other projects in the ecosystem.
I am comfortable with the thoughtful and slow moving approach that the community takes towards managing Compound. However, the optics continue to worsen as we see other DeFi protocols suffer exploits that are very rapidly addressed and reimbursed by governance. A few examples are Yearn (February, 10M DAI), Rari (May, $10M in ETH) and ThorChain (July, 4000 ETH). Of course the list goes on and this sets a precedent of how users and governance tend to treat each other in this new industry.
For all of my affected clients, the money means very little as we were responsible in sizing these experiments. The more important aspect is the tone this sets with those affected regarding Compound’s reputation. On Wall Street, reputation is all you have and once it is gone it may not be recoverable. I wanted to share this story and reiterate my admiration for this protocol and community. I believe the 6.8M DAI expense of putting this event behind us is a good deal in comparison to the protocol’s reserves and the $1.4B in treasury funds controlled by governance. Onwards and upwards!
So it is not in the interest of COMP holders (early investors) for Compound protocol users to be paid in the COMP token?
Some users who were damaged in that event were liquidated positions in Ethereum, which are currently very large losses. Stablecoin compensation covers about 5% of the actual losses for these users. and represents only the good intentions of the community and the fact remains that the affected users were simply unlucky.
Now the question is what can users expect if a similar situation occurs in the future?
To me this looks like a traditional casino and a protocol like Compound does not need such a reputation.
If community members think 8% is fair compensation I will respect that but if the liquidations happened with a DAI price of $ 1.3 do you really think that’s fair compensation?
These are protocol users who are also the owners of part of the protocol (probably according to the ideology used as promotional material) and such decisions will best show what kind of relationship as users we can expect.
Because oracle has fixed now. If everenthing was worked properly, why we need other oracle solution?
Thanks for everyone’s comments. I’m taking into account the feedback and planning to work on a more formal proposal along with the code in the coming weeks. I’ll keep this forum posted.
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.
@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: