Vault Liquidation Compensation: How Much Should Have Been Returned To Your Vault?

Vault Owners whose vaults were liquidated under unfavorable conditions were invited to report here.

Maker Token Holders have expressed an intention to compensate vault holders, but a sufficiently specific and agreeable plan has not yet emerged.

The Vault Compensation Plan Proposal, a community effort which described a multi-stage process to determine compensation and the means to deliver it, was not approved by Maker Token Holders.

Meanwhile, many are dissatisfied with the length of the process and uncertainty of the results.

To help ensure that Maker Token Holders, who can vote to enact a compensation plan, and affected Vault Owners are on the same page, I ask that you reply and share exactly what you consider to be the fair level of compensation for your affected vault, and how you arrive at that amount.

I believe that if we can identify this value for each vault, Maker Token Holders are very likely to return the shortfall to affected Vault Owners.

In an efficient liquidation auction, what would have been the dollar value of your remaining collateral after the auction completed?

curious about no one has make any comment here, anyhow, here’s my super simple view about this:

Each Vault holder considerd for compensation should receive an amount in ETH (or in other vault currency e.g. BAT) equal to their lost collateral minus the current debt (DAIs) associated to it at the moment of the lost.

ETH/DAI exchange rates should be calculated at the time of disbursement. (I realize this is the thing that is actually more open to discussion).

Decentralized coordination is just hard.
It would take forever for everyone to self-report their numbers. There will be always someone who couldn’t comment/vote. Remember how much time we spent to include those few who got liquidated before Black Thursday to be “accurate”?
I believe we have a ballpark number of how much should be compensated.
Shouldn’t we just have a vote like:

Is it fine to make a whole compensation of X ETH/DAI with a potential variation of Y% (Let’s say Y=10)?

In this case, those Maker holders will get a direct sense how tiny this total amount is comparing to MakerDao’s TVL.

Right, my thought was that specifying how to calculate the exact amount in a few examples might lead to a method of calculating all of them automatically.

Then a script can generate the full compensation plan so Maker Token Holders know exactly what is being voted on (including exactly what it will cost).

The most valuable examples will be where the vault owner agrees that the compensation is calculated correctly.

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Vault 5632: 32.10ETH to return is fair.

@makewhole, could you share your methodology for arriving at this figure?

sure - restore 100% the property that was in the vault the moment prior to it being liquidated for 0, well after the time that the ciruit-breaker should have been thrown.


Have you considered the following?

  1. The vault had outstanding debt which got paid back. Returning 100% of the collateral the vault had at time of liquidation would mean 100% debt forgiveness.

  2. The protocol charges a 13% liquidation penalty, which you have not accounted for.

  3. Even in an smoothly running, efficient auction, participants bid to make a profit, so one should expect bids to be less than full value.

It seems to me that in a well running and efficient liquidation auction, your vault could not possibly have been left with all of the collateral it had before the liquidation.

yes, I have considered these items. And I dismiss them as the auction should have never occurred.

I have named what I believe to be a fair price for agreeing to waiver participation in pending lawsuits. Maybe a compromise is I have to bring 2600 dai back to get my 32.1 eth and we shake hands as a deal neither of us enjoy.

Can you explain the reason for this statement?

the auction should have never occurred

Are you saying that the value of ETH in the vault didn’t actually fall below the minimum required collateral value?

i am saying the foundation should have employed their safety mechanisms whrn it was apparent that the entire system had collapsed

and i am stating that i will not agree to less that full return of my collateral. this is a business decision, not a math problem.

I’m not sure who need to see this:

Maybe some other hard working people, like @MakerMan, @LongForWisdom, @Spidomo, wake him up?

I stayed away from this one because I felt it was vault holders that should make their cases.

I will point out that the vault owner by deciding how much collateral to deposit and ultimately how much DAI to borrow that set their liquidation value directly.

For ETH given Liquidation Fee of 13% and Liquidation Ratio of 150% the nominal collateral return runs about 24.8% unless a keeper overbids (which does happen from time to time).

So only under the best circumstance could one hope to get back approximately 25% of the collateral simply because when the price went against you and you got liquidated the value of your collateral + 13% liquidation fee was 75% of your total equity value. When markets are dropping the OSM will be higher than the real market value, only if markets are rising would the OSM be low and if a vault was in the process of liquidation might it fetch more value.

One thing I posted about is that if markets are not dropping that fast or lets say a the OSM just reduces the CR below the LR IF the liquidation system could auction off the collateral in a vault sequentially IF any collateral is returned this would improve the remaining CR so that the rest of the collateral would not need to be auctioned. I posted about this elsewhere as an idea to reduce liquidations but would only have allowed more time for the auctions to be stopped and many vaults to have some collateral saved vs. peeling off what happened at 0-bid.

I want to remind vault owners that the network was under a mempool attack at the time as commented on here.

And that finally out of the total liquidations (off top of my head something like 13M DAI) Maker system ate 5.3M of losses. So it isn’t just vault owners that lost out but MKR holders as well. In a more centralized system this probably would have been dealt with sooner, but in this pretty inefficient and slow decentralized one it is dragging on.

Every time I see ETH climbing I cringe thinking of everyone here and how Maker still has to improve not at liquidating but at reducing liquidations because I don’t feel massively safe here except in the USDC facility with liquidations turned off or at CRs so high as to not be immensely useful against the pricing risk and network tx risk we saw not just in Black Thursday but variations of this going on today driving up Ethereum network tx costs to as high as Black Thursday.

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