Great initiative. I’ve been in crypto for several years, never did centralized margin trading. I started recently with Perp due to its decentralized trustless nature and healthy looking Discord. I entered in the ETH-USDC pair when the price was just under 2k with 4x leverage and was in some nice profit until… Poof, gone. I had a seriously bad first experience with margin trading in general and would love a bit of direct refund if possible (I put less value in PERP staking than this initial margin position). Please let me know if I need to apply somewhere but I suspect the nature of blockchain makes it possible to help everyone anonymously.
1 Like
If there is to be compensation, I would strongly suggest that both Margin and Unrealized Profit (UP) are considered as equal buckets of collateral for determining compensation amount. The total collateral could then be used as a weighting to deliver pro rata compensation amounts to individual users as a % of the total compensation.
Reason being is that both Margin and UP are effectively the same when it comes to determining leverage and liquidation price. 2 users with equal amounts of total collateral, but split differently, would have the same risk profile to their position. In all likelihood, the user with higher UP and less margin, was simply in their position for a longer amount of time.
Someone with a higher margin % of collateral that got liquidated at a higher price should not disproportionately benefit compared so someone with a very low liquidation price, but with all of their collateral existing as UP. It just would not be logically consistent and would arbitrarily pick relative winners and losers based on the format.
5 Likes
I was going to just come here to say that there needs to be some type of unrealized profit compensation. The opportunity cost of having a large position that’s 2-4 months old right now is massive. Even if its margin + 20% of what you were in profit.
To to be greedy but at this point it almost feels like the fact that this is the second time it happened, only repaying initial margin is kind of a slap in the face.
3 Likes
This is an extremely important point. I would urge the community to move ahead with this form of restoration, as it most accurately accounts for the damage that was done. Remember: these are early days, and righting a wrong will build an even more loyal and bullish community.
2 Likes
This is an excellent point. I agree with you.
3 Likes
Excellent point. Agree.
2 Likes
I’m curious though - how would you determine the UP? You’d have to pick the price of ETH at a certain time. It could be hard to reach an agreement on that particular time.
1 Like
I totally agree with the point that UP and margin are in a way interchangeable. After all, some platforms have daily settlement that move UP into margin accounts. Some unfortunate person could have gone long ETH on perp and short ETH elsewhere (say, to collect funding fees), and the crash would have resulted in massive damage to their net position if the unrealized profits are not accounted for.
With all that said, I would strongly suggest deferring such a decision to a separate vote. I wasn’t around for 1st crash, but people say it was super close to 50/50. Asking for more compensation would likely result in an outright proposal rejection.
3 Likes
I think people should be compensated. The only reason this system failed to support prices was because of a lack of traders. The goal right now should be to support more traders on the system as much as possible. This event also saw over $47M in volume that day. At the end of the day, the more traders we keep in the system, the more money PERP holders get in fees. Also, last time we reimbursed people the PERP price was totally fine. There wasn’t a major dump at all that was not correlated with standard ebbs and flows of the crypto markets as far as I could tell, so I think the statement that we’re diluting into infinity is a bit wonky.
This problem will just be solved with more users, and like any organization, we should be willing to dilute some shares to encourage more value distribution for the system and get more users.
3 Likes
Perpetual Protocol currently has a fully diluted valuation of ~1 billion USD. The community treasury owns 77,750,000 PERP (54.8%, ~550 million USD). Even if we include the UP from before the flash crash (which I would support), this restoration of lost capital is a drop in the bucket.
Even though the liquidation amount is trivial relative to the treasury size, I agree it is unsustainable in the long run for the protocol to always make payments when disastrous crashes occur - but that’s the whole point! Supporting early users right now is a strong signal that the mechanism and UI problems will be resolved, and that severe issues like this won’t occur again. If we don’t support early users that were impacted, then I don’t know how any new users can feel comfortable using the exchange.
3 Likes
Agree that we should consider the acceptance of different compensation plans. I would suggest there could be different options to be voted by the perp community.
Just wanna share my situation here. Was keeping a position of fair size in perp since early March, was going to keep it open since I have an estimated liquidation price around $700. Was aware during the time of the crash and witness my estimated liquidation price keeping climbing up as the mark price dropped. I realized that was a cascading liquidation event due to lack of liquidity to buy in during the crash. I finally got liquidated at the price of $899. It was pretty rough to lost everything while I have been managing my position reasonably.
Anyway, I realize perp is a fairly new protocol and there are risks. But there are reasons that we don’t simply use CEX like FTX, and instead supporting a new DEX. To be honest, it is hard to put real money in perp again without any form of mitigation. Of course I am just a tiny retail trader, which the volume is neglectable. So, the perp community could decide what is truly important and this is the time to speak for yourself to the whole crypto community.
Besides the compensation and the team’s suggestion, I would suggest the protocol to introduce some form of mechanism to incentivize arbitragers (or any of us) to step in at times like this (when the mark price completely deviates with the index price) and the market itself could surely help to prevent event like this from happening again, or minimizing the damage.
2 Likes
How much did the treasury earn from fees during the event?
Do you mean insurance fund? I don’t know about the fees from the event specifically but ETH generated about 65k USDC in fees on Aug 18.
1 Like
Hi everyone - from reading everything I can gather that there are a couple of potential outcomes suggested. I want to just list them here and see if these are the options everyone wants to vote on before creating the vote.
- No compensation
- Reimburse affected users - margin only in PERP, vested 6 months
- Reimburse affected users - the full position in PERP, vested 6 months
Once we have consensus from the community on the options we can move to a vote. So please just a quick agree or disagree to this post will be helpful.
I also have a question about what the “full” position would mean in this case. Is it the index price as at the time of liquidation multiplied by the position size liquidated? Or how would this be calculated?
1 Like
What would happen if the votes split 40/31/29? Would the “no compensation” win, or would we aggregate the 60% that voted for a compensation and then settle on option 2 since 31>29?
1 Like
Not sure why you would ever aggregate two options from a vote together…?
1 Like
He’s asking this question because it means that in this possible world, the majority would have voted to support the community members that were impacted. And yet, the “leave early users out to dry” option would win.
To avoid this outcome, I think we need to move ahead with a vote on two options:
- Allow early community members to suffer for mechanism and UI flaws
- Support early users who were impacted by restoring their margin account in the form of vested PERP (with the same plan as last time - half vested for 3 months, the other half vested for 6)
It’s more effective to unite behind this position, even though it’s not ideal.
3 Likes
Well, that was just an example to demonstrate that while the majority of people could be in favour of at least some sort of compensation (e.g. 60%), but the end result of such a vote is no compensation at all. I think giving 2 competing options in favour of compensation would lead to “no compensation” being the winner, especially considering that last vote was 49/51 or something.
3 Likes
This is a bad idea. The compensation vote is now split.
1 Like
I’m only here to execute the will of the community! So if we’re saying the first option is no compensation and the second option is compensation - are we saying that it should be full compensation or margin only.
And if full, then how would one calculate what full would even be?
1 Like