Signal Thread: Do we compensate vault holders that were completely liquidated?

Hey @bit could you explain in a little more detail what you mean when you say “for people who lost more eth than they should have”
Do you mean (1) people who had to spend money to protect themselves from liquidation once the auction issue was discovered but weren’t actually themselves liquidated?
Or do you mean (2) people who were liquidated, but due to the auction issues didn’t get as much collateral back as they otherwise would, but didn’t lose absolutely everything?

Uhh I am pretty sure most vault holders were operating that assumption. The official interface only highlights the 13% penalty… If we made it absolutely clear that vault holders could easily lose everything, then this whole debate would be completely different.

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Based on @MakerMan’s post/analysis in the other thread : Compensating vault holders that liquidated at 0 bid?! I think 21% compensation would be fair. Not sure where that lies on the voting so I voted for Low/Medium compensation.

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I mean they shouldn’t have lost more than the liquidation penalty (13%). In the worst case their ETH should’ve been valued at $90.

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I think compensating for all involved unexpected behavior (including the lack of a functional keeper base) is the right thing.

Also, vault owners lost ETH, not Dai. It’s worth considering when thinking about refunds. It is definitely more complicated to carry out and places a heavier weight on a market, but would do great for the integrity of the community.

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I certainly hope high compensation means full(!) compensation and not like 80 % or 90 % compensation. This loss is absolutely on MKR holders (they are responsible for ensuring that the protocol works s intended) and they need to take the fall here to the full extent.

Also why should Maker not commit to compensate in ETH? that is how the protocol was supposed to work. If your collateral ratio falls below 150% some of your ETH collateral is sold to cover the borrowed amount and you receive the remaining ETH back. If people get compensated in DAI how could you possibly set a price on the ETH people lost. Everyone got liquidated at a different price level and there is high probability ETH price will go up a lot by the time we get compensated. Why would we add more to the losses of people who already lost their life savings?

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in that case you shouldnt be voting medium/low, the 21 % you mention is the maximum compensation vault owners can expect (that would be also fair compensation). If you want to receive 21 % of your collateral back, vote high compensation instead.

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we should not take into consideration how low ETH went in price. I dont care if at some point it was sold at 90 $, I got liquidated at 135 $s per ETH, I want to get my money back based on that price. This is how the vaults are supposed to work, and it was the MKR holders job to keep it working properly. They failed they need to compensate us!

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Vault owners lost less than 2 m $… yes we can compensate them but what if it was 20m?

everybody knows the risks of smart contracts

Maker was designed to be diluted to protect DAI from turning undercollatarized not to protect vault owners.

This is crucial for vault owners to understand. I think we should first analyze efficiency of vault liquidations prior to Black Thursday. Data set is small, but there probably were some significant price drops.

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Okay, assuming there is support for compensation, should the compensation be in ETH or DAI?

  • ETH (estimate of refunded ETH if the auctions, etc were working optimally)
  • DAI (the value of refunded ETH at the time of liquidation)

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This probably should be inserted at the top of this thread or in a new thread. Anyway, this will need to be asked in an on-chain poll, so I just append it here.

Wow, @LongForWisdom put together a great list of why we shouldn’t compensate vault holders. I don’t agree with these points personally, but I’m copying it here so I don’t forget to include these points in the on-chain poll.

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To be clear, I don’t hold this position either. Just doing some devils advocacy.

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I think the plan would be pay this time because we didn’t explain the risks adequately. Next time we wont if we change our messaging. After this I think all of our messaging has to be upfront about the degree of uncertainly in this experimental and highly complex system and total losses could occur for all parties, especially this early on in the game. Not enticing users.

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What do you mean by “optimistic” theory? In a falling market like on Black Thursday, there is no way that the auctions would have closed at the CDP liquidation price. Probably would have been 10-15% below on average. We should look at what it was for auctions that did receive bids.

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Thank you guys for bringing this topic up.
If there is compensation this will be for all vaults, right? including for this one?

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Exactly! Thank you for making this important point.

I know many others who haven’t weighed in here that feel exactly the same way!

If the above points are accepted, how could MakerDAO appeal to a larger number of people who don’t have the technical know how to dig through the source code? As someone who doesn’t have this knowledge base, I can only go off of what I read on Maker’s website and adjust my strategies accordingly. If we want to build trust for this community long term, we need to inform users that the liquidation fee could in some cases be more than 13% or fix that error. This was not the case and it’s only right to find a way to bring this back into balance and build trust with the many people who lost everything.
Cheers,

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Just a random thought but very much related to this topic:
You know why the DAI peg is still not restored? It’s because people don’t trust the protocol anymore. They are afraid to open CDPs and vaults because now they know they might lose ALL of their money. They are afraid to borrow DAI and sell it on the market.
Until you restore trust in the DAI peg will be off.

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