MakerDAO traders who had their collateral wiped out during DeFi’s so-called Black Thursday, received bad news from the protocol’s decentralized court this week: they won’t be getting a penny (or gwei) back. Their only hope now lies in traditional/centralized courts.
On March 12th, DeFi experienced its worst day on record as prices tanked by more than 50%. Amidst the crash, projects offering leverage were hit the hardest. In particular, MakerDAO and its Vault owners using ETH as collateral to mint DAI were wiped out with mass liquidations as collateral ratios quickly dropped below the 150% minimum threshold.
Instead of the collateral being liquidated for a 13% haircut, the system resulted in a shortage of Keepers – or actors who purchase collateral at a discount to collateralize the system – which allowed one actor to purchase ~$6M worth of ETH for just 1 DAI.
In the wake of this event, hundreds of Vault owners lost 100% of their collateral, leaving the system with $2.5M in bad debt. Maker quickly recovered by hosting a series of auctions where new MKR was minted and sold for DAI to recapatilze the system.
Since Black Thursday, a select few ‘victims’ have been working on a class-action lawsuit to compensate those affected by faulty Keeper auctions.
On Tuesday, the hopes of those pleas to be resolved through decentralized governance came to a close with less than ideal outcomes. While a discussion with the Maker Foundation is still ongoing, MKR holders will not be reimbursing losses through newly minted tokens.
“Vaults that were liquidated at auction or self-liquidated their positions between 3/12/2020 12:00 UTC and 3/13/2020 13:40 UTC will be considered for compensation.” Source.
While the details of the plan have changed over time, the latest proposal suggested that new MKR would be minted and distributed to Vault owners who could prove they were wrongfully liquidated for 100% of their collateral.
Outlined in the latest forum post, the amount of MKR to be minted was put to a poll, with the winning result moving to an executive vote to ratify the decision.
0% Compensation Won
Of the 10 options available, “0% compensation” won with 65% in favor, while the next most popular option at almost 17.6% was for 18% compensation.
It’s important to note that this decision was not made by the Maker Foundation, rather by MKR holders, who stood to be diluted if the options to compensate Vault owners passed. There was no hack or exploit and this compensation was a sign that the MakerDAO community recognized that the Keeper auctions did not pan out as intended.
“While the vault compensation plan didn’t pass, the ability of a protocol to consider actions beyond its core code is already kind of revolutionary,” Vault Compensation lead MonetSupply told The Defiant. “I’m optimistic for the future of decentralized governance.”
Vote With Their Feet
Still, some Vault owners aren’t as sanguine, with a few of them criticizing that the poll was decided by a few large holders, and questioning the validity of this week’s vote after a separate poll showed most were in favor of compensation.
“Lawsuit or not, people will vote with their feet if there is no trust,” Vault owner who goes by the name of ItsGus in the forum wrote. “People should take note and be wary of future interaction as Maker has proven to go against its own decisions.”
For MKR holders, the common theme appears to be ‘know the risks’ of using leverage.
DeFi’s poster child is going through a difficult time in terms of community support, at a time when it continues to slide in DeFi Pulse’s TVL leaderboard and as MKR lagged other DeFi tokens which went parabolic over the summer, even as Dai supply is at an all-time high.