On-chain vault compensation poll, draft

See https://github.com/makerdao/community/pull/493

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  • I suggest a Monte Carlo simulation to thoroughly explore possible outcomes. Do we really need this? Or is there a simple way to make a persuasive case to vault holders? If we need a simulation, can we spec out the requirements in enough detail without putting in too much effort and time?
  • Raw data shall be extracted from the blockchain. https://www.dropbox.com/s/ovasjaf8gx03ko2/maker.csv?dl=0 shall be validated.
  • The simulation shall consist of an easy to understand Python script that replays events under various assumptions about ETH and DAI liquidity. The OSM shall not be hindered by high gas prices. More than one keeper shall bid on auctions. Various assumptions will be made about keeper profit per auction. At the end of the events simulation, remaining collateral per vault will be output in terms of ETH and also the DAI value of residual ETH at the time of liquidation.
  • The Python script shall be easy for anybody to run to verify the results.
  • Yes, in the DAI value of estimated remaining collateral at the time of liquidation
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This is not a place to express your opinion. The poll will be conducted on-chain. What is happening here is developing the presentation for the poll.

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I was surprised to hear lots of discussion on the governance call to suggest that the risks of opening a vault were not adequately disclosed. This seems ludicrous to me. We have others reasons to compensate vault holders, but this reason just seems completely ridiculous. If some vault holders really didn’t understand the risks of leverage then they got what they deserve. I think it is dangerous for Maker to set a precedent that we accept liability for educating prospective vault holders. I’m in favor of education, but it’s not our fault if people are dumb.

“Risks of leverage were not adequately disclosed” is a reasonable argument in favor of compensation,

  • Yes
  • No

0 voters

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There was pretty significant support for lower compensation on the original polls. Something like 56% of people showed some support for the < “high compensation” options. Should there be an option that captures compensation should be < “estimated remaining collateral at the time of liquidation”

Current options seem pretty binary. No compensation or 100% compensation. There is no say 50% option.

Might not even need to specify 50%. You could probably word it something like: “Compensate less than 100% of the estimated remaining collateral value at time of liquidation”. If that option were to win you could do further polls to figure out what the correct percentage should be.

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My impression is that most people just wanted an accurate estimate of compensation. However, I might have misjudged sentiment. In any case, I don’t think we can ask both questions in the same poll. I’ll adjust the wording and

I think it would have to be a separate poll since we don’t have rank-choice voting yet. We can’t present too many options per poll.

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I think it would be wrong to compensate vaults liquidated at 0 unless we also compensate vaults liquidated at less than 70-80% market price, as the impact on vault holders is the same.

And we shouldn’t compensate any of the above vaults without also compensating vault holders that paid back debt or deposited additional collateral on Black Friday to avoid liquidation.

If we’re going to do this, we should be consistent, and not have tunnel vision about only looking at 0 DAI liquidations.

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Agreed. I have added language to the draft in response to your comment. Does it look okay?

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No it is not. MKR token is here to heal system debt, vaults that got liquidated above the liquidation threshold did not cause system debt and should not be covered by MKR token holders. At least that was my understanding when coming on board (read: purchased MKR). Where would it stop then? Will MKR holders then become insurance providers for all sorts of Maker related incidents?

Why is no one, I repeat, not one person, arguing that, if the community decides for some kind of compensation scenario, that the Maker Foundation pays that? Multiple projects have set precedents for similar incidents and the Maker Foundation is sitting on a treasure chest of money - why is this such a taboo to talk about?

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Absolutely. I can vouch for this as somebody who was forced to close my vault in a panic to avoid 0 liquidation and salvage what I was able to.

I believe if compensation is offered to those who were liquidated to 0 - those like me should be compensated in equal proportion so that the difference for all effected is made up fairly and evenly. See below for details:

Again I say this because if say Vault#XXXX gets back what they should have under a set of liquidation parameters -

Example:

Work out the ETH-USD price that is used to compensate vaults in a certain time period.
eg)

  1. 100 USD for 1 ETH + 13 % penalty
  2. 90 USD for 1 ETH + 13% penalty
  3. 80 … etc

Then those same liquidation parameters should be in fairness applied to those also effected so that everyone gets the same level of outcome.

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Non of these points are valid.

Maker is not an “experimental crypto project” targeting programmers, its trying to get mainstream adoption.

Maker was not expecting users to run keeper bots, no where on any page is it explained when taking out a cdp. If you were expecting why its it mentioned on Oasis when taking out a cdp?

My ratio was always in green or orange. I did agree to keep it collateralised and maker agreed to take my eth plus 13% to pay back my loan not all my eth.

No one is complaining about the 13%.

No one is complaining about this.

Yes, it will force Maker not to make such mistakes in the future and take some responsibility in the way you market your products going forward.

Again, as i said before the question should be how to compensate not if. Non of these points are valid or fair.

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This is straying a little bit from the point of the thread. I’d love to hear people’s thoughts on proposed verbiage for on chain poll.

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Personally I want to see at least 0, 50, 100% payment for exposure (maybe 0, 25, 50, 75, 100 are better valid options. As I have made clear it has always been my own personal policy to ‘split the difference’ between what people thought they should get and what I thought they should get when there was an argument/discrepancy.

One other point I am not sure if relevant. Acceptance of the offer meant they simultaneously signed off on any litigation and negative PR. The negative PR we can’t control but the litigation we can. Simply because any litigation would have to involve the wallet ID and proof of ownership. IF they accepted the payout - they accepted the terms that went along with it. If they return the payout they don’t accept the payout nor the terms and can do whatever they want.

The whole problem with this vote is that until we have real numbers to work off of we don’t know what the percents means other than 0 (no compensation).

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Others have already asked for this, but it would need to be a second poll.

I like your idea, but I’m not sure how to it could be made legally binding.

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Please take a look at the paragraph I added at the end of the poll draft.

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This is the most important point, no one in Maker is able to reasonably make a decision on this issue without the numbers being completely worked out… which is complex for the reason everyone have pointed to,people paying back debt, non quite zero bids, the market volatility itself, the state of ethereum (if this was a mempool attack what will that mean, should EF compensate…?), ect…

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Its not about the risk of leverage being disclosed or not. Its that Maker markets the product, its a completely novel system that we don’t know the behavior of and hasn’t even been stress tested like SCD. Acting like we were ready to reinvent finance as soon as MCD launched is an absurd perspective in context of the systems immaturity. We need to make it clear that EVERYONE could lose EVERYTHING at anytime (including mkr holders) (this is possible in multiple ways, successful governance, oracle attack, mixture of other complicating events, failed ES ect ect). Telling people anything else is a straight up lie. That reality isn’t restricted just to Maker, but crypto in general (and the whole universe for that matter… nothing is guaranteed).

The point of scientific governance is to understand the complexities, design things to mitigate the risks involved with those complexities, and to be able to properly explain how we came to those designs, so other knowledgeable people can judge, and critique them.

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Detailed P&L analysis, https://ournetwork.substack.com/p/our-network-issue-14

How much is potentially owed to vault holders? My impression was that it was 1-3 million DAI, but these numbers seem much higher. Do I understand correctly?