Use PERP to provide max(op2, op4) to Perp v1 users

Let me summarize the context: Title and description of this vote refer to last month’s vote about Sunsetting Perp V1.

Perp v1 went tits up last month leaving behind a big hole. The protocol was stopped, but only after it was left in deep insolvency. A sunsetting plan was drafted asking the community what to do with the remaining funds (USDC). The resulting vote is this one here: Snapshot

As it’s noticed, Proposal 2 (op2, in the gov thread) won and the corresponding disbursement of funds was executed. An alternative Proposal 4 (op4) managed to get an important share of votes, however. The main virtues of that op4 is that it’d have simulated the vAMM mechanism, in a way that it benefited positions with lower leverage.

Here on this forum and on discord, some of the voters explained their rationale for having preferred op2 over op4. Without generalizing (every voter had their own reasons) it was commonly evoked that op2 benefited more the small players.

However, op2 as compared to op4 harmed the most a small group formed of the bigger plebs in the $100k-$1M range, but not the top >$1M positions. This is because they got the same degree of haircut as the bigger whale positions (op2), even though they could have exited their positions while still staying above water (op4). This is the justification for requesting op4-op2 amounts in the form of vested PERP.

Now, my opinion: I think that the reputation of the Perp protocol is at stake here. Even though it’s now v2 what supports PERP value, how we treat this case affects what we’ll anticipate for potential v2 hiccups. As a PERP holder, Proposal C is a clear net negative because of how it damages perception. Proposal B (or A, even) have the downside of spending a not insignificant part of the DAO treasury, but for a worthy cause which I think makes PERP more valuable. The vesting ensures no short term price impact, and the continued commitment of those power users.

On Proposal B vs. Proposal A: I support either and I’ll go with the one that gets the vote lead. The former is cheaper, but on the same order of magnitude. The latter could be seen as more fair, as it does the same treatment to everyone, independently of whether they have requested compensation or not. OTOH, those who don’t see this initiative as fair, but who care about PERP reputation and who worry about leaving angry creditors, may want to compensate those that expressly requested it and chose Proposal B.

4 Likes

why didnt you include an option to compensate everyone? A & B are going to come off as unethical and unfair to many PERP holders, and they’re going to vote C (or not vote and thus not make quorum) until there’s an actual comprehensive compensation plan, and then no one gets anything

why not vote on everything together

Most v1 users already got FULLY compensated at the expense of emptying our collateral. The whale Alameda also got compensated $2.5M under op2. How is C ethical when the mid-size users (composed of groups of small users like everyone else) got sacrificed to help Perp maintain PR while making their investor happy? If Perp wants to compensate the small users they should use their own money to do so, not by emptying out wallets from what we would get under normal vAMM protocol. The only reason op2 passed is that their investor Alameda still got some $2.5M back from op2 when they would’ve been liquidated under the normal vAMM rule(op4)! This new vote to compensate those users is the only chance that Perp can rectify this situation. We did our best to minimize the compensation amount from $3.6M to now ~$1M. This is a small price to leave Perp a clean record, so that they don’t have to go against their own documents that says it will cover exchange shortfall with token. It’s a small price to keep its reputation and credibility intact. No one will trust any of the white paper/documents if they don’t compensate the impacted users as they have promised in their own documents!

1 Like

That is essentially Option A, since everyone else was already compensated in the first v1 vote.

If you are talking about a 100% reimbursement to everyone, that would mean a payout an order of magnitude larger than needed to make the victims happy. If PERP holders aren’t willing to pay $1.3 million to solve this problem, I don’t know why they would be willing to instead pay over $20 million to solve it? Most of that $20MM would go to Alameda who is so far silent on this issue.

The goal here is to spend minimal DAO funds to repair the reputation of Perp, and to ward off even more expensive legal battles.

The losses of just the top two non-Alameda addresses is more than $3.6 million if the court orders the DAO to pay 100% of their loss. So I am so far confused by the actions of PERP voters.

Ask yourselves whether you think the Perpetual Protocol team will more easily deliver quality code while wondering if a Taiwan court will force them to pay 100% of the losses of claimants, to the tune of multiple millions of dollars.

Paying a small number of users ~40% of their loss is the fastest and cheapest way to repair the damage. Option A and B both achieve this.

3 Likes

PERP holders please consider the following:

  1. This is what it looks like when a DAO votes to not uphold an expected contract between users and the protocol:

Many of the points made there also apply to Perp.

  1. Before v1 collapsed, did you fully understand that Perp team can freeze v2 at any time, and do whatever they want with all user funds?

  2. Does the v1 collapse affect your perception of risk of v2 at all?

  3. Do you think it would affect a new user’s perception of v2 risk?

  4. I am a v2 user. But I am having serious doubts about using it, as the realization sets in that Perp is not very different from a CEX, and even worse, when something goes wrong there is apparently no return of funds.

  5. The cost of healing Perp reputation damage and returning 40% of v1 user funds is only $1.3MM. Even at a price of $0.6 PERP this is less than 3% of PERP market cap.

  6. There is a 1 year time lock on PERP becoming available to users in this vote. Limiting short run PERP price impact.

  7. No new PERP is minted for this vote. Funds come from existing PERP in the treasury.

  8. Even if there is no legal action taken due to v1 collapse. What does it mean for the safety of your funds in v2 if the Protocol expresses no fear of legal recourse? What is the mechanism that is preventing a loss of your funds in Perpetual Protocol?

  9. A terrible outcome of this vote would be that it receives only 0.1% of all PERP voted. Even if you wish to vote Option C, I encourage you to vote anyway. Apathy from PERP holders on this important issue would be a terrible outcome of the vote.

  10. In my view, Option B will increase trust in Perpetual Protocol, which will be worth far more than the 3% cost of today’s PERP market cap in the long run.

  11. Maintaining user trust is everything for a platform that holds user funds, especially when the Perp admins have centralized control of those funds.

Please debate these issues if you disagree with any of them. I want to hear what you think, even if you think Option C: Do nothing is the best answer in a long term view of Perpetual Protocol.

I am very surprised by voter actions and would like to understand points of view other than my own.

1 Like
  1. The V1 admin key is not burned and controlled by the team because V1 is deprecated. For V2 we will hand over the admin key to the DAO once the platform is mature enough. The only reason that we used the key to stop V1 is that the Insurance Fund almost got depleted. Perp has been through a lot of ups and downs but we never use that key until the IF approached 0.
    The team controls the admin key, but it’s not our interest to randomly shut down the platform or take users’ funds. PERP token holders and the team don’t take any fees out of Perp V1. All the fees went into the IF. As @Ryan said, the fees then went to the traders who took large positions again at the AMM.

Ryan agreed that he will give out $1M for the impacted users. We worked hard to lower that amount to approach it to now $1.3M. Your document said it will compensate any shortfall. What have the team done in coming up with a solution to compensation?

This vote to provide additional compensation is currently in progress.

Snapshot Vote

I think one of the problems with this whole situation is that in the first “Sunsetting V1” vote, the team rushed to provide vote options without community discussion, or at least without ranked choice voting or some symmetry in the vote options.

The options given were essentially:

  • Opt1
  • Opt1 + favor 99% accounts
  • Opt1 + favor <$100k accounts
  • Opt4

What should have been given:

  • Opt1
  • Opt1 + favor 99%
  • Opt 4
  • Opt 4 + favor 99%

Another alternative way which I pointed out after the vote went live, was for the Perp team to announce that if Opt4 won, that they would hold a subsequent vote to compensate the bottom 99%, which would have a very low cost.

Opt2 won despite paying a large amount to the biggest whale account (Alameda) because it offered to favor the bottom 99%. Opt4 had no such variant available so it lost for the same reason that Opt1 lost.

Yet another alternative method, which was proposed by the community before the vote went live, was ranked choice voting.

I think this should serve as a lesson for future governance not just for Perp, but for all Web 3.0.

Do you believe it would be worthwhile to use some PERP to compensate v1 users?