Sunsetting Perp V1

Vote is live

The vote to decide the method in which remaining Perp v1 funds are to be shared among remaining users of the v1 exchange following the shutdown on May 15 is now live. Holders of PERP and staked PERP on Ethereum Mainnet and the Optimism Rollup are eligible to vote.

May 15 Incident Report, Settlement Plan Vote, & Decision to Sunset Perp V1

On May 15 (UTC) Perp v1 was forced to halt trading as a consequence of market volatility that started on May 12. Late on May 15 (UTC), a very large position on the CREAM market was liquidated causing a large price deviation and subsequent bad debt. This triggered a flow of funds from the insurance fund to the clearinghouse, rendering the insurance fund empty. This put the exchange in a critical state, and an emergency decision was made to perform an immediate shutdown to prevent further loss of funds. The shutdown successfully prevented further liquidations of larger positions from completely draining the exchange, thus protecting a group of retail traders with smaller positions.

Importantly, Perp v1 represents the original build of the Perpetual Protocol, which was released some 18 months ago in December 2020. This build remained operational primarily to help traders bridge from Perp v1 to Perp v2, the latest build of the protocol, which still operates in its new and improved state today. The issues with Perp v1 have been known for over a year, and they were the prime motivation behind the upgrade to the new model in Perp v2. When Perp v2 launched, the team considered shutting down Perp v1, but there were still a few dozen active traders on Perp v1. Therefore, it was allowed to run; however, only with a clear and bold warning in the UI alerting Perp v1 traders that active maintenance had ended, but trading could continue at their own risk.

In sum, extreme market volatility caused the Perp v1 Insurance Fund (note: this should not be conflated with the Perp v2 Insurance Fund, which is a separate fund assigned to the traders of Perp v2) to be completely drained, as it was designed to do by covering unexpected losses in such extreme circumstances. However, a large part of these funds remain in the clearinghouse following an emergency trading halt.

After analysis of the positions and the remaining funds in the v1 exchange, as well as lengthy discussions with stakeholders, a proposed settlement plan will be put to vote to return the remaining funds (approx. 5.5M USDC) in the clearinghouse to Perp v1 users.

Perp v1 Settlement Plan Vote

The Perp v1 Insurance Fund Settlement Plan puts forth four options for distributing remaining funds:

  1. Distribute remaining funds proportionally according to users’ remaining margin and unrealised PnL at the time of V1 being paused
  2. Distribute remaining funds and first cover 99% of our users starting from lowest margin and PnL up (this covers most retail users; excludes negative PnL). The remaining users then receive pro rata according to their margin and unrealised PnL.
  3. Distribute remaining funds to small position holders first ($100,000 unrealised PnL and margin or less; excludes negative PnL), and any remainder to larger position holders, proportionally according to users’ remaining margin and unrealised PnL.
  4. We will sort wallets from small to large according to the position size and then close positions sequentially by 1%. Once the largest account has had it’s 1% closed then we still start again at the bottom of the list

The Perp v1 Insurance Fund Settlement Plan vote will be posted on Snapshot on the 19th of May at 10am UTC+8 to vote on the final outcome.

Sunsetting Perp v1

With the complete depletion of the Perp v1 Insurance Fund, this event brings the gradual sunsetting of v1, a process that slowly began six months ago, to completion.

This decision came after an extended effort by the core developers and the community to keep it operational, but recent market conditions and v1’s long-standing design issues finally made it unsustainable.

The main problem with v1 was a high likelihood that funding would be paid from the insurance fund due to an imbalance in longs and shorts (e.g. as described here). This imbalance is unavoidable in a pure vAMM system like Perp v1. The need to pay funding from the insurance fund meant that over time, funds in the system were syphoned away, creating the possibility that the exchange could become insolvent given the right circumstances. Several attempts were made to shore up v1, including:

  1. Free Collateral Rules: earlier this year, the calculation for margin available for withdrawal was changed to use the method applied in v2. Previous to this, traders could withdraw more margin than initially deposited, allowing funds to be syphoned off.
  2. Funding Rate Cap: after a decline in insurance fund and clearinghouse balances in late April / early May, a funding rate cap was put in place to stem these outflows (which were primarily caused by funding payments being covered by the insurance fund).
  3. Update To K Values: a consequence of the market downturn, over-estimated k values for some key markets, and the funding rate cap, mark prices that were already lagging began to depart severely from spot. The decision was made to lower k values in order to allow arbitrageurs to return prices to normal.

Again, to make it abundantly clear, no funds in Perp v2 are presently at risk and the improved vAMM mechanism remains technically and economically sound. The issues above and this settlement plan are isolated to Perp v1 traders.

We now look to Perp v2 as the future of Perpetual Protocol, and during the recent market turmoil including a 99.99% reduction in the price of LUNA, the Perp v2 model has proven to be stable and profitable. Perp v2 has numerous advantages over Perp v1, including active liquidity providers who can respond to changing market conditions, as well as liquidity mining rewards to attract more liquidity, ensuring both ample liquidity and a responsive system.

As we bring the sunsetting of v1 to completion, we are able to allocate 100% of our resources to our v2. A lot of work has been done behind the scenes, including multi-collateral, limit orders, the upcoming vePERP release and OP Summer. We strongly encourage all Perp v1 users to try Perp v2 for a better experience and better performance during extreme volatility.

Updated on 19th May 1:30 UTC

Please find data for each of the 4 team proposals at the link below:


  1. All amounts shown are expected refund under the respective proposal. Cells with - are dust positions.
  2. Amounts shown for options 1-3 assume price impact of a full close with no other trades occurring, using original v1 K values and index price at block 22169196, and assuming that your position was the first and only position to close.
  3. Option 4 models the actual functioning of an AMM system in a scenario where all traders gradually reduce their positions to zero.
  4. Data is not available for community proposals. Due to this, the vote will include a fifth option to fully evaluate and vote on community proposals in a separate vote, in favor of the four options presented by the team.

The perp v1 litepaper clearly states: “Should the Insurance Fund be depleted, the Insurance Fund will trigger the Perpetual Protocol smart contract to mint new PERP and subsequently sell them at market to ensure the system’s solvency.”

You say the insurance fund was “completely drained,” so why is PERP not being minted and sold to cover the shortfall? Protecting the safety of user funds should take priority over anything else.


if people want to think in the interest of the platform, they will refund people all their money even if it is in the form of perp tokens. if people are not fully refunded their money, few bad posts on twitter and some bad news about people losing money on this platform is all that it takes to crash the platform. it is all about reputation. most people out there are not technical. perp protocol has come long way and should see bigger picture and think long term.


Should the Insurance Fund be depleted, the Insurance Fund will trigger the Perpetual Protocol smart contract to mint new PERP and subsequently sell them at market to ensure the system’s solvency.

If the Perp team does something completely different from what the docs say, that will be the story all over twitter, discord, substack. None of the proposed solutions mention this and it will be a big reputation hit that I wonder if Perp will survive.


Regarding #3 “distribute to small position holders”. I know that some users hold multiple small positions in different accounts due to the v1 limits on positions per account, and to reduce liquidation risks occuring all at a single price.

I have a 6 figure position that is not just my own, but my family and friends. If “small position holders” are prioritized, my family and friends would suffer disproportionately just because I chose to have one consolidated position in a single account.

Additionally, why would a large user with a lot of money at risk who may also be hurt badly by this, be harmed even further?

If a position is small, it could mean that the amount is insignificant to that user. If a position is large, it could mean that the pain is much greater for that user. Why increase pain more for already high pain losses?


please also post on discord so that other users can see your point


This minting mechanism was abandoned in favor of using Perpetual DAO funds instead.
Any mint would be subject to a vote. We can add this option to the vote if there is support for it.

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Similar to @Long-run-view, I have a 6-figure position where I continually added collateral to in order to prevent liquidation, even borrowing money from friends and family to not let the position be liquidated.

The closing of V1 forced my position to be closed and leaving me in a financially devastating position. I agree with @Nitgoy that people should be refunded, even if it’s in the form of perp tokens in order to retain trust and goodwill with the protocol’s users


DAO compensation should not be an additional option but something added on top of whatever option gets chosen, IMHO.

As for the options, it’s a pretty weird choice to propose. Option 4 seems like a distraction, it’s unclear what it tries to achieve. Options 2 and 3 are very similar and they’ll divide the votes of those who otherwise support compensating the max number of people first. Assuming that vote fairness is the goal, I think you should simplify it to two options: 1. full-proportional, 2. small players first.

More generally, I’d notice that the current situation --insurance fund depletion-- is something that has happened and dealt with by central perpetuals numerous times (most notably, Okcoin/Okex). In their case they settled all positions and then clawed back on the profits in the form of a socialized loss.
I understand that Perp is different because of the long/short imbalance, but it seems quite unfair to penalize the free collateral; that’s punishing traders that played it safe and protected their positions.


What if we just shut down the cream market and the rest of the market continues to run?

I can see the temptation but after the market downturn recently and various events, including the CREAM flash moon, v1 was left in an unsustainable condition.

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I completely agree with this.

We can make a form for the compensation person to write, so that we can shave off some accounts that don’t care.

Please clarify what option 2 does.

A lot of users on discord (and some in this forum) have pointed out that penalizing the safest positions the most seems unfair.

Does option 2 sort users by margin size, or by margin ratio?

If margin size then it doesn’t seem like any of the options address the problem of haircutting the free collateral users. E.g. a user with 0.5x leverage that can’t be liquidated at 1.0x leverage, who could have simply withdrawn collateral without ever making a trade, but now takes an extra haircut.


I agree with that as well. I believe v2 users would also feel a lot safer if Perpetual Protocol will compensate users (via any form of delayed pay back). This will recover investor confidence in PERP. I think it’ll be a win-win for all parties.


yea, it will be more fair to go with the lowest margin ratio first.

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为什么早没有停止V1?为什么突然停止V1? 只要不是开盘价任何时候停止都会有问题,因为系统与交易者做的对手盘。
我希望Perp拿出更大的勇气担当,剩余资金兑付,缺口通过发债、融资、增发Token、 Perpetual DAO 资金等任何可能负责人的态度去面对这个问题。

Many traders are hedging and arbitrage on perp, taking more risk than the transaction itself. What are traders doing wrong? Just because of believing in perp’s vAMM? Does V2 find a problem, and then become a V3, V2 trader will end like this?
vAMM was born with this defect. The official found out long ago, and turned to focus on the development of V2 instead of actively maintaining V1, but it has repeatedly stated that it will not be left alone.
Why didn’t V1 stop earlier? Why stop V1 suddenly? Stopping at any time as long as it is not the opening price will be a problem, because the system is making a counterparty with the trader.
I hope that Perp will show more courage to take responsibility, pay the remaining funds, and face this problem through the attitude of any possible responsible person, such as bond issuance, financing, additional issuance of Tokens, Perpetual DAO funds, etc.


As far as I know, it sorts by margin size. Sorting by margin ratio is an interesting idea though.


The goal of staking on Perpetual Protocol is to ensure demand for PERP, while also keeping PERP off the market. This goal exists to provide the ability for the exchange to react in emergency situations, such as extreme market events. Such an event, one example being a severe market crash, could cause the exchange insurance fund to be depleted. PERP tokens will be sold at market to cover any shortfall.
Stakers are compensated for shouldering this risk using rewards. These rewards will be updated over time in order to maintain a healthy number of staked PERP.


Correct, so certainly adding this as a voting option is within reason.

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