TL;DR: community have proposed a very legit plan for compensation Black-Thursday Vault Victims, it has been passed but, we did not prepare ourselves against not supportive MKR whales. There’s a way to counteract this power, we just need to do an extra effort. Let’s create the incentives to make a new poll pass by the creation of a Vault Compensation Support DAO.
- 12th march --> 8 million were lost in Vaults due to 0-bid actions attacks during network congestion
- 6-13th April --> MakerDAO Governances agrees on Compensating the victims’s loss
62,483.37 MKR (65.14%) against 33,441.10 MKR (34.86%) that voted no.
- 13-16th July --> First Compensation Plan was rejected by 25,803.43 MKR (59.05%) of token holders against 17,897.49 MKR (40.95%) who where in favor. A new Plan is needed.
- 8-22nd September --> Second Compensation Plan which pivoted to proposed to compensate victims by minting new MKR was rejected by 57,589.05 MKR (65.52% of que poll quorum of 87,899.67 MKR).
A Governance Issue
Having diverse stakeholders (MKR holders, engaged community, vault victims) with different interests and incentives brings natural entropy, confusion, and conflicts in the collective entity.
No one said Decentralization would be easy, but it’s necessary for the wealth of not only MakerDAO but the entire crypto space. Executing governance polls that don’t overcome the 10% forum is a classic form of centralization due to disengagement of the token holder communities, the many reasons for this lack of engagement within MakerDAO token holders have been explored here. I, as a vault victim, and as an MKR holder, particularly identify with reason #4. Whales outweigh most other voters, making voting feel like a waste of gas. As a matter of fact, I have voted in neither of the 3 above polls, even if I’d obtain particular benefits out of a particular outcome. I’m glad I didn’t vote as I didn’t spend that gas and my short MKR balance wouldn’t have made any difference at all in the outcome. At the same time, I’m super sad we (referring to the >90% of MKR holders) did not vote. I do believe the aggregated of the Crypto community (including MAkerDAO of) prioritize ethics and fairness before the selfishness and personal profit. It becomes clear the cost of voting (in terms of transactions cost as well as cognitive costs) becomes an entry barrier for the vast majority of voters allowing individuals (mostly MKR whales) to decide on behalf on their own interest despite what the rest of the community care about but was not able to manifest.
There’s still some hope in the numbers though, so far, among the 3 related polls, the most supported one was that one in which MKR decided to compensate Vault victims, just that we had no plans back then.
A Skin in the Game Issue
I’m not complaining about whales looking to care about their own interest, it’s natural the way, they would be the most impacted out of an MKR inflation action, even if we are talking about <2% of its supply (minting ~18k MKR against ~1M of supply) this would mean significant costs for them assuming the demand of the MKR does not suffer any variation.
My thoughts are on the regular MKR holders (including myself of course), especially the vault victims, that besides supporting and defining two different, complex, and hard-working compensation plans, did nothing to assure enough incentives to attract more voting weight to come into the poll and/or assuring a counterparty incentive that would overshadow an assumed lost due to MKR inflation.
Realigning the incentives by Community Coordination
In the realm of the Open Source, community cohesion shall be a priority, otherwise, you will be forked and the community will migrate towards the tribe that better aligns with their values.
We got the best example one week ago after Uniswap distributed their tokens just after suffering from a Liquidity Vampire attack. If you want your protocol to be sufficiently adopted to stay in a leadership position, you want your users to be happy and wealthy. It’s my personal opinion that the outcome we had the last 22nd of september, and the fact that there’s an ongoing lawsuit against the Foundation, is making and will make the community felt apart, which is not good to the Maker mid-long term. Community and user engagement is the competitive advantage of web3, we can’t just despise it when we make decisions.
Yes, individuals will take care of their own self-interest, but guys, this is a DAO (or at least it’s what the name tells me, otherwise MakerDAO would be a lie… don’t you think?), there are collective interests we need to care for as well, and if they are not in line, we have now the tools and the ways to re-align them… Let’s see…
Vault Victims and compensation supporters have coordinated to present not one but two refund proposals to the Governance body (special thanks to @Joshua_Pritikin @LongForWisdom @MakerMan @monet-supply @Vault2288 @befitsandpiper and others I might be missing), but unfortunately it was not enough. Assuming that Vault Victims do not currently represent a significant governance weight in MKR decision-taking, the next thing to do is to place a mechanism in which we do ensure this to happen. Yes, I’m talking about buying MKR decentralized coordination while assuring that voting power will go in favor of compensation. And we need to do it together.
A Vault Compensation Support DAO to counteract MKR whales within MakerDAO
We need to define and strength the collaboration of compensation supporters in a more tangible way, to propose a structure and place the proper mechanism of incentivizing this group to work together and fulfill the purpose on getting together enough voting power that will assure us increase voting participation to influence in a better way the outcome of the poll.
Voting delegation is not there already, but there are ways in coming together and fill a common pool of MKR, sum voting power, while being able to cashback your MKR whenever you want (better if after voting :-). The first coming to my mind is the Dandellion Aragon DAO that allows an onboarding process with a governance token allocation according to the tokens (MKR) you add to the common pool (while allowing you to redeem accordingly to cash out) and program the interaction with the MakerDAO voting contract via the Aragon Agent.
But why don’t we just commit to buy MKR and vote independently of a new DAO
Again, it’s about the skin in the game and making it visible to us all and assure people we are getting our shit together and taking care of our money. If we want our money back, we need to fight for it, and at this point is very clear we can only do this together.
The collective effort of reaching a proper amount of MKR tokens could also improve the MKR performance in the market and counteract implicit losses in the targeted MKR inflation. Make the community stronger while assuring wealth yo token holders.
There are also other things that this DAO could resolve, for example (and this is ofc up for discussion) in the last couple of plans, the need for some development emerged as it was clear its need for distributing back the funds address by address. With the Vault Compensation Support DAO (VCS DAO from now on) we could make the new claim of the compensation to be addressed to this DAO and then we redistribute it all according to the value we had lost AND the skin each of us is putting on this new game.
VCS DAO Launching Scheme
First of all, we need to assure the VCS DAO members are inline with the purpose of fairly compensating Vault victims. There are many variables to consider here. Now it’s not only about the amount of debt and collateral lost but also about the skin in the game placed in the VCS DAO. This opens the possibility first to Vault victims to opt-in the VCS DAO with a capital capacity corresponding to their capital loss. For Example vault 3789 has a net loss of ~5k USD (~ 9.87 MKR price on Sept 27th). This would allow the individual owner of the address corresponding to that vault to participate in the DAO with a max of 9.87 VCS DAO share token corresponding to a maximum tribute of 9.87 MKR (1 tribute MKR = 1 VCS DAO share).
Once the first onboarding of only Vault Victims is done, this seed community will decide then on who they want to accept (e.g. with members sponsoring candidates) as well as the price in MKRs to set to the VCS DAO new-comers.
Once the amount in MKR is acceptable for going to a new poll, the onboarding process ends and the MakerDAO Governance poll is triggered.
Outcome A: MakerDAO approves the Compensation
MakerDAO will deposit the total amount of compensation into the DAO vault. VCS DAO has fulfilled its purpose and now it’s ready to disappear by the redemption of the funds (unless they want to find a new purpose to this DAO with its funds, which would be perfectly valid). Vault Victims and Sponsored Investors will be able to redeem back their MKRs with their DAO share tokens which will be of course
Outcome B: MakerDAO rejects the Compensation
DAO Members will find themself with a wealthy Organization with no purpose to follow, but with a wealthy fund. People will have the choice of remaining in the DAO and look for usage to give to the money, or just opt-out; in this case, it’s important to realize that MKR supporters that entered in a later phase (no Vault Victims) will receive a lower amount of MKR than what they invested in the first place, this due to the difference in share prices offered to them.
Challenges and Drawbacks
- Economical Challenges: as you can see, I haven’t made the maths around the MKR markets dinamics. We are facing >10k MKR gap that we need to gather in voting power.
I think this is super important, but it’s actually not my thing. Hopefully someone here will help us out in this matter. According to @monet-supply we are talking now about ~2.5 M we might be tackling to recover. So this might not worth the effort (in a profit sense), although if we succeed, we would be sending a right message against MKR whales, and who knows, maybe this create a precedent for the future of Decentralized Organizations.
- Technological Challenge: Aragon is super cool (we could use also MolochDAO), but it might not fulfill entirely our needs and some customization/development might be needed. For example, it would be cool to whitelist the seed DAO membership to addresses belonging to Vault Victims in a first phase, and then allowing new members sponsors. Again, I’m sure we can gather some dev help as well.
- Community Challenge: we need to assure a way to reach all Vault Victims and invite them to participate in this, clarify the benefits but also the risks. We need to prioritize absolute collaboration among us, this is the only way to counteract such a whale power that prevent us to have our compensation one week ago.
- Legal Challenge: well… I’m not the right person to make any comment here, I’d personally like us to resolve our conflicts on-chain without the arbitration of legacy jurisdictional systems. But this seems like an opportunity to dismiss the lawsuit against the Foundation that a group of people legitimately decided to enable.
The above expose the motivations and plan for moving forward with the Black Thursday crash Vault Compensation Governance Proposal, and presents a draft plan to move forward. I’m aware there are still some other considerations to take and flaws to discover, which I expect would be discussed and considered properly in this forum.