Vault Compensation Plan v3 - A Vault Compensation Support DAO to assure a better MakerDAO Governance

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.

@monet-supply has made a very compelling post-mortem analysis twitter threat that might worth to read in case you are not familiar with what happened.

Background

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.

Follow-up

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.

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Thanks to all of you that have shown some love about the proposal above.

I realize that if we just have a voting delegation system a lot of the complexity above could be abstracted and we would only need to fine a trustworthy pro-compensation delegated. But I have no visibility about the evolution of this conversations within MakerDAO. Maybe @LongForWisdom can share some guidance here (?).

Hi!

It would be nice to see a DAO emerge to represent the interests of some people within the MakerDAO… just like a political party! I hope you can push this forward!

Disclaimer: just to be clear, even if I am not a whale, I am kind of against the vault compensation. But still I hope you can make this happen!

One question: have you thought about the opportunity of borrowing the required MKR, rather than buying? Like on Aave or something?

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Vote delegation will most likely be delivered with the upcoming governance contract upgrade. Not sure about the current timeline though.

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Is there any activity besides the post mortem thread by @monet-supply (which was much appreciated and also very sad) Again huge thanks to all of you who tried to make this work.

Where can I find information about the lawsuit? https://www.coindesk.com/28m-makerdao-class-action-lawsuit-arbitration
How can we join and what does arbitration mean? Who from the Maker foundation is involved in that?

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Will there ever be compensation made after it was voted on?

Hellooo anybody ? so what is happening after all ? come on MakerDAO it/s been almost 8 months since black Thursday, are you going to pay us back or not?

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Maker Governance already voted down the most recent Vault Compensation plan (v2) poll, opting for no vault compensation. At that point the working group disbanded, as this was a clear signal that MKR Holders were unlikely to approve compensation.

@Sepu85’s plan here was a proposal of how the affected parties might wish to proceed.

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Hi, so what are the next steps for the compensation of the 8 millions$ lost by MakerDao’s early adopters in March?

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What do you feel is owed @fullname? As much as I sympathize with those that faced losses, the price decline in March was due to an overall sell off across financial assets, not just crypto. While there does seem to have been some malicious actors on the auction side of the bad collateral, a guaranteed excess of collateral was never guaranteed by the system. IMO nothing was owed to vault owners, but the community made a good faith effort to restore some losses due to the auction exploit. The holders of MKR however could not be convinced to devalue their holdings as as such no compensation measure was passed.

hi I am the owner of mcd 5077 that got cleaned out by the ‘drawdown’ bug I lost 6500 Eth because Maker did not work how it should of, up til now I have been to ‘Ill’ to deal with this but now L feel strong enough to fight it, can anyone else help with this, thank you.

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hey @ID.MCD5077 I think the only way to move this forward is to find someone (rather if just one individual or a group of people gathered together on the same cause) with a voting power of > 50k MKR to signal that they want to challenge the outcome of the previous vote and make a new proposal, but this time with an stronger proposal from the community.

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Vault 3834 here, lost 100 ETH. Still want it back, i’m with you

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Honestly it would be okay if the 0 bid a**hole just donates the money he made now. This despicable being will have an easier life then.

Even thought I lost money that night calling them “despicable” is a bit much. Not sure about the exact technical details about running an auction-keeper but it is very possible that they won the bids without being malicious. If they set their automatic bidding to drop until zero they may not have known until hours later what their bots did.

Them not returning the money is not surprising in an anonymous decentralized environment. There are no rewards for being honest. Doing something noble in real life pays you with reputation, you may even get laid but on the internet your only reward is internet points and after a while no one cares or remembers and you go back to become that broke person.

That person had/has the chance to be decent and make this right by returning the money. His ETH address was initially funded via Kraken which does mandatory KYC, so it’s not that anonymous.

My bet is that this was an insider job, that’s why all the tabu around this topic. At that time, there was probably a handful of people that knew how to bid on those auctions without proper documentation.

Maybe there was a bot malfunction, maybe it was an intentional exploit, maybe it was by design - it doesn’t matter, the best course is to return the money.

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I don’t care about the ppl that took the money, they are unknown and there isn’t much we can do about them. What we do know is that 36% of all makerdao vaults were affected that night and suffered losses and we also know that now a mere 5.8% of the maker community voted on this issue and therefore it took only 3.7% of the maker community to kill the existing plan to compensate them. Lets not forget that the original vote with 10% participation had already agreed for compensation 6 months earlier.

This was not a decision by consensus but the exact opposite. This issue needs to be brought up again with proper leadership.

Vitalik didn’t sit on the sidelines when the DAO got hacked in 2016, it wasn’t his contract that failed yet he indicated his support for compensation as a leader and therefore it retained attention and 14% of Ether users eventually were able to get their money back.

MakerDao also lost 4 million dollars on black Thursday, it is beyond clear that the contract had a flaw and different parties were affected. If the community found it necessary to repay the bad debt and losses of MakerDao then it is also logical to pay the losses of all the remaining parties affected by the same event.

The clock is ticking, as Ether prices rise there are more incentives to find a resolution. A mere 10K loss on Black Thursday wasn’t worth getting a lawyer for but today that would be 90K + damages. Right now you only have one court case in arbitration here in SF, keep waiting sitting on the sidelines and that will soon change very quickly. It would be best for all to reach a resolution here not to mention the right thing to do.

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I lost my life savings on Black Thursday and I’m willing to contribute what I can to get something successfully passed to return to those the portion of collateral that has been unfairly lost.

But to be honest, I’m losing faith in the governance system. We passed compensation, but then there’s a second vote? And just because the turn out is so low on the second vote, all Black Thursday victims lives are determined by a few wales who aren’t thinking of fairness, only their own financials?

Let me know what I can do to help get progress on this.
Thanks to everyone who has been pushing the needle forward.

hey there!

the first step to do if we really want to move this forward, is to signal that there is someone(s) (individuals and DAOs) with a voting power of +50k MKR is willing to support this cause.

I’m not deeply involved within the MakerDAO community, so I’m not able to lead this myself. My post above was to look to support in terms of MKR voting power, but this haven’t happened in 4 months already.

Today, after reading all this messages I just thought about asking support from WhalerDAO, an external community that has the mission to improve this kind of unfairness in the DeFi space --> https://discord.com/channels/740450057136111667/740450057681240096/795582777583075330

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Yes that is why I asked earlier to get in touch with the guy who started the lawsuit. (Peter Johnson?) But it doesn’t look like he reads this thread?

On a different note I also don’t think a lawsuit is fair in this space, as already noted figures like Vitalik have to speak up to bring solution to this issue, else whales (+foundation) just wont care. Again it is indeed funny that the first vote actually went through and now we are in this mess. Lets hope for the best, looks like more people monitoring this thread already in the last weeks, so that’s a good sign.