PROPOSAL: Distribute DAI to Users Affected by DAI Liquidations

What that mean “acting responsibly”? Lower LTV ratio?
Damaged users did not determine CR, so “acting responsibly” is a completely subjective assessment.

Thank you to those that provided feedback. 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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I ask the community delegate votes. Your support is important to us!

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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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65,000 votes delegated! I just want to say a massive thanks to @kybx86 and the community.

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Gauntlet is in agreement that using DAI over COMP sets a good precedent and acts as a strong signal to the broader community. We also intend to model reserve growth to help the community reason better about scenarios such as this.

While a threshold or reduction ratio intuitively make sense the risk of subjectivity is too high.

For those reasons, Gauntlet will be voting FOR CP059.

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Thank you for the support @inkymaze. I look forward to seeing Gauntlet’s future risk modeling work as Compound market reserves continue to grow.

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Pretty much agree with this sentiment. I’d like to reduce payouts to some of the top addresses, but there’s no easy way to decide where the cutoff should be / how much to reduce compensation - this would likely bog down the discussion and compensation process. I’m also planning to vote in favor.

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Thanks again to everyone that has supported this proposal and provided thoughtful commentary.

Voting is now live.
Prop 059:

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I voted against this proposal because 74% of the payments go to two accounts, and 54% goes to a single account who was farming COMP by recursively borrowing and resupplying DAI.

Account 0x909b443761bbD7fbB876Ecde71a37E1433f6af6f

  • supplied $18M in USDC
  • recursively supplied $108M in DAI and borrowed $93M DAI
  • was liquidated with a repayment of $46M in DAI here: Ethereum Transaction Hash (Txhash) Details | Etherscan
  • collected 17,733 COMP from farming, worth about $2.2M at the time of liquidation and worth about $7.1M today

The protocol should not encourage behavior that exploited a flaw in the design of COMP rewards. This was an industrial-scale farmer who realized a profit of between $2M and $7M in COMP value without contributing net liquidity to the protocol. They bypassed two different user protections built into the protocol interface by (a) recursively borrowing DAI and (b) borrowing well beyond the safe limit. Had they not also supplied some USDC to add to their yield they would have been safe in spite of everything. They do not deserve to be rewarded with an additional $3.69M.

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I abstained from voting on Proposal 32, and voted FOR Proposal 59. This proposal isn’t perfect, but I believe that the advantages outweigh the disadvantages.

While there are strong arguments on both sides of the debate as to whether the November DAI price spike warrants compensation, it is the only event in Compound history that comes close to a “reserve worthy event”, and @kybx86 / @arr00 have done a remarkable job in the technical implementation of a solution (following the work by @getty and Chainlink to add preventative measures against the root cause).

This proposal demonstrates how reserves can be utilized by the community to protect users of the protocol, and I firmly believe that its passage sends a message to current and prospective users that the community is capable and willing to tackle adverse events (rare as they should be).

@monet-supply, @pyggie and others have pointed out that the allocation of reserves is inefficient; that it rewards farmers, and that the community should pro-actively select which users deserve compensation; I completely agree, but don’t think we should seek to punish (or not-compensate) users retroactively for activity we wish wasn’t occurring–instead, we should use this as a catalyst to calibrate COMP distribution and incentives going-forward, to disincentivize farming or non-useful activity.

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I’ve been supplying dai cdai cuni cusd ceth what am I to expect from this.

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You are likely not impacted in any way, unless you were liquidated while borrowing DAI, November 2020.

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So don’t I get my compensation for them borrowing from my supply of dai.on compound dai

Thank you @kybx86 for putting together this proposal and thank you to @arr00 for your contribution in the technical implementation of this proposal.

a16z voted yes on this proposal, for the following reasons:

  • The protocol behaved in a manner that significantly diverged from users’ expectations: The price provided by the Compound oracle was significantly divergent from the rest of the global market at the time. While the specific oracle design was publicly known, users generally expected the oracle (and the protocol more generally) to reflect general market prices for Dai, and this expectation was not met. Given that the losses stemmed from the protocol behaving in this manner, it’s reasonable that the community should step in and make users whole.
  • Previous concerns have been addressed: @kybx86 has taken the time to directly address the criticisms and concerns levied against the previous reimbursement proposal.
  • There has been successful testing for the technical implementation: If this proposal were to pass, the mechanism for executing the reimbursements have already been created + successfully tested on the kovan testnet. The code is a fork of the Uniswap merkle code used for their airdrop with a few small modifications, so there is a high degree of confidence that the implementation will work as expected.

Finally, while we supported this proposal, we do not think it should establish a broad precedent for backstopping any manner of user losses going forward. The losses in this case arose from the protocol behaving in a manner that materially defied user expectations (e.g. the oracle mispricing Dai by ~30%). While it’s reasonable for the community to cover losses of this sort, the community should generally oppose attempts to stretch this logic to cover other (less valid) claims for reimbursement going forward (e.g those arising from general market volatility, or minor deviations in oracle pricing, etc).

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The most important thing in this situation is that the community agreed that the users are not guilty for that liquidations (there was talk of poor asset management, which is a ridiculous argument).
I agree with the members who claim that compensation is the minimum possible and that it barely covers the gas fee cost in an attempt to defend the position.
I think that users who were not involved in stablecoin farming should have been compensated more, because for example in my case (as with a large part of the damaged users) Ethereum positions were liquidated (at that time about 350$/ETH). It’s been almost a year and ETH has gone 10x, so the losses are huge.
It is understandable that the protocol simply cannot cover amounts based on market changes, but it must be understood that these losses would not have occurred if users had used another protocol (i.e. Aave). Losses were incurred solely through the use of the Compound protocol and I think all big COMP holders should have been more committed to this case in early stage after that event.
The positive thing is also that their comments about this case are now appearing - 9 months later, but better late than never.

Proposal 059 passed.

Big thanks to everyone that cast their votes and participated in the discourse over the past 9 months.

For those that say Compound Governance is disorganized, yes, it may not be perfect, but this is a clear example of governance and community in action.

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Compound Governance is not disorganized, it just suffers from too many political games. Realistically, this situation would be resolved by the state administration within 9-10 months.
@kybx86 all praise for the engagement in this case

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The proposal has been executed and all Dai has been distributed to the recipients. See the merkle distributor here MerkleDistributor | 0x0634ca1d878a050eb525ed08852cc3bad7f5a1dc.

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