Vault Compensation Plan Proposal

This wasn’t intended to be a dig against vault holders, or to prejudice the governance process towards providing less compensation. The main purpose of stating this is to try to avoid legal problems with the current situation and set expectations that compensation will not be provided for any events that might occur in the future.

Vault owners have rights and responsibilities which are written into Maker’s source code and described in the docs (e.g. vault owners can withdraw collateral over their required liquidation ratio at any time, but they are also responsible for maintaining sufficient collateral). However, if vaults are liquidated, there is no guarantee made of receiving any collateral back as this depends on the auction price.

The liquidation process may not have been understood by some users, but MakerDAO and MKR holders only control the core protocol and not any user interfaces. Without control, they can’t take on responsibility for disclosures on websites that offer vault creation.


I can’t say if there is obligation or not from MKR holders to move forward into issuing such a compensation. What there is for sure is a commitment as the on-chain “Vault Compensation poll” 62k yes to 33k no that passed 4/6/2020 clearly states.

(that such a governance mandate is an obbligation or not, is something that would’t worth to tackle IMHO)

BTW, I understand the reasoning of the following:

my understanding is that the outcome wouldn’t be binding at all (as per the just mentioned governance mandate), I see this as a way to signal intentions/perception from MKR holders about their sympathy with the proposal and find things to be improved. correct?

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Yeah if the first on-chain poll didn’t pass this would all be moot.

The second Phase 0: Poll #1 is basically to determine if governance is ok with the plan as it stands or not.

I am hoping we have a forum poll but I am going to leave that up to governance facilitators to decide. I think everyone is just waiting for some discussion phase. Everyone has an opinion regarding whether there is an obligation for compensation. Even vault 2288 who is on the team pretty much agreed there was no obligation but we all on the team felt since governance signalled the intention to compensate we should be clear about what this process means. Our concern is that we start this, everyone thinks they will get something and then it fails or gets stuck for some reason and governance simply refuses to go further (i.e. funding compensation for example).

I think part of the plan was coming together on a general statement regarding the issue and then simply put together the pieces of a plan governance will have to approve/execute in steps so there is a start to end process and reasonably well defined governance and other steps to execute the plan. Governance in the end gets to choose the qualification criterion, compensation method, then the amount. Then vault holders elidgible get to make their choice whether to reject or accept the offer.


Hello all,

Thank you to the working group for putting this together. I am in favor of the compensation proposal process described above, and I’m looking forward to being able to vote on the governance polls that you outlined.

If you need a developer to create the compensation smart contract, I am at the disposal of the working group to help out.



One consideration, with regards to the Surplus Buffer, is that if the compensation amount exceeds 500k, then MKR governance needs to increase the buffer to even be able to house the Dai that would be allocated to the compensation contract.

This dependency means one additional Executive Vote to expand the buffer, and then giving the protocol time to collect the needed Dai.


Are you assuming that we need to avoid triggering FLOP auctions? At least in the current draft, we do not try to avoid FLOP auctions. If the total compensation amount exceeds the surplus then we transfer the total amount anyway and allow the surplus to go negative.

Yea, my comment assumes a plan that tries to avoid flop auctions being triggered.

I guess it depends on the preference of MKR voters. If chosen to wait until the amount is present in the surplus buffer, it would take longer to get compensation out there and ETH/BAT price risk would continue to be borne by MKR holders.

Without Flops

  • Longer wait for compensation disbursement.
  • Price risk is carried and may cost MKR voters more in the long run if prices appreciate, less if prices drop.
  • No MKR minting

With Flops

  • No extra delay in disbursing compensation.
  • End exposure to price risk sooner.
  • MKR gets minted.

I have no particular opinion now, just trying to outline the facts for consideration.

Interesting relevant piece of convo from the gov call here:


Whether the price risk is carried will be determined by poll #2, which determines how compensation is calculated,

  1. Collateral using nominal collateral return percentage and price on 3/13 – No price risk
  2. Collateral using nominal collateral return percentage and price on day before compensation is awarded (approximating paying claims in ETH/BAT) – Price risk
  3. Collateral using nominal collateral return percentage and average price of a+b – Some price risk, a compromise
  4. Tab change in relation to collateral change (using same collateral return percentage and collateral deficit percentage but applied to the DAI TAB.) – No price risk

Hope this makes sense!


The Vault Compensation Plan Approval Poll has failed, by a vote of 17,897 (40.95%) “yes” to 25,803 (59.05%) “no”. Notably, turnout was lower than the previous poll about vault compensation in April (43,700 MKR vs. 95,924 MKR).

Anyone who voted no or has reservations about the plan, please comment in this thread to share your perspective.


The original poll passed with double to amount of participation and MKR why has this one even been created…

We can’t expect MKR holders to vote 5 or whatever times on the specifics of the compensation plan. Having so many polls makes compensation take WAY to long and allows for failures to happen like we just witnessed because of not enough participation.

This is going to be a huge stain in the MKR’s reputation if it isn’t fixed.


The original poll had no specifics about HOW compensation was going to be measured and provided, so making a plan of action was always going to be necessary. The benefit of getting MKR holder approval for the overall plan up front is that it reduces the likelihood of running into unexpected obstacles or dead ends later in the process.


The original poll indicated an intention for MakerDAO to compensate vault holders whose liquidations occurred in the absence of a “smoothly running auction”.

My expectation was that the next step was to develop a specific compensation proposal which Maker Token Holders could approve or reject. I was surprised that proposal ended up being more of a framework involving additional polls.

I’m not criticizing, as it complex to come up with a fair plan and I didn’t come up with one myself (just contributed one potential approach: Vault (near) zero Dai Bid Liquidation Compensation idea).

Maybe Maker Token Holders would be more receptive to a compensation plan which specifies exactly which vaults get compensation, and exactly how much. One poll, one executive vote.


So to recap:

  1. Three months ago, we had a poll on 2020-04-06 asking MKR token holders if they want to compensate Black Friday “victims”. This passed with a 9.54% participation rate (95,924.47 MKR total votes) and 76 unique voters.

  2. After that poll, individuals on this forum decided that a more formalized compensation plan was necessary and set about creating one.

  3. After much hard work and several months later, another poll was executed this week asking MKR token holders if we want to go ahead with the detailed plan (which specified further polls). This failed with a 4.35% participation rate (43,700.92 MKR total votes) and 33 unique voters.

Assuming at least a certain overlap of voters from the two polls, we need to know what the community wants. Otherwise, we’re back where we started 3 months ago. But I want to point out very clearly that, as things stand now, there is still more evidence of support for compensating rather than not compensating.

However, for some reason, we haven’t been able to pass a poll to determine how this should actually go down. I am also sympathetic to @Spidomo’s suggestion of a “one and done” poll, but this might end up rubbing people the wrong way… even more so than they already are now.


I guess we are here now :point_up: where it’s valid to assume MKR governance still have the intention to compensate vault losses but doesn’t accept the plan presented so far.

Therefore, we just need to improve this, but I wondered how can we gather feedback from the “NO” voters. I know by experience the cognitive cost implicit in voting, and I just can imagine the main reason people voted “no” is because the plan is actually very complex to understand. It took me a while to understand it, because I have special interest as a Black Friday Victim, I can only guess that people with nothing to lose would tend to vote “no” (or not voting) if they have to dedicate some effort to understand the plan.

ATM, I have more questions than answers (as I guess most of the people here):

  • Why do we simplify the plan’s communication so we minimize cognitive cost to MKR voters?
  • How do we gather valuable feedback about why people voted no? What are we missing here?
  • Do we have in mind ant improvements/suggestions to make that would empathize with MKR “no” voters that might encourage them to vote “YES” in a follow up poll?
  • Would it be worth to create more awareness outside Maker community before next voting will happen looking forward to increase MKR voting participation while making also some social pressure around the topic?

I can only agree with this :point_down:

but I’m unsure about how technically feasible it might be.



I think it would help everyone arrive at a common understanding of fair compensation if individual affected vault holders would share the specific compensation they believe they should receive for their affected vault: Vault Liquidation Compensation: How Much Should Have Been Returned To Your Vault?

Would you get things started by adding yours?

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I’m not sure who need to see this:


This seems a simple, elegant and effective resolution by Balancer.

This should have been Maker setting the precedent, not the other way round.

What are the thoughts against something as simple as this? It seems a quick and easy resolution.

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Could we bring a vote on whether or not we should hire a 3rd party to prepare a compensation plan? If that passes, they prepare a plan, then we can vote on their proposal.


Yeah, that is the right way to go. But this is only for general terms possible. The code comes from MakerDAO anyway.

That is a possibility. It does face some of the same problems with the current situation though, in that MKR Holders would need to approve the use of funds to hire a third party.

It might be a good way to resolve this, but bear in mind that if a third party comes up with a plan, and MKR Holders vote it down, they are still out the money spent, and we’re no further towards compensation. I guess what I’m saying is that said third-party would need to try to engage with governance to find out what they are willing to approve.