% of lost funds the mirror community should reimburse for the Jan 3 liquidation incident

This post is an extenstion of the primary post above.

We know what happened exactly, Mirror protocol is not working correctly and has been liquidating positions too early after a 4% spike on a single exchange (even though the same asset was still for sale for the uninflated ‘normal’ price on the orderbook of different exchanges). 1 second later price came down and NYSE aborted that record. Talking to different people, there clearly is a broad consensus that these events are not acceptable and that these liquidations should not have happened. The dev team is working on getting solutions proposed and getting this issue fixed.
The reason for the loss is clearly the Band & Mirror Protocol not working perfectly to deal with outlier prices being reported for a fraction of a second. Nobody saw this coming, till it did… Who is responsible for these losses? That is a hard question where I see a lot of disagreement. Is it the Band protocol (for not reporting a representative price) , is it the Mirror protocol (for liquidating assets based on a non-represenativie price that was fed) or me (for believing in crypto and the Mirror protocol)?

Poll 228 was published on Mirror’s governance to get a reimbursement from the community pool going for these losses. Despite hearing a lot of support for this, it has become clear this poll will not pass and there doesn’t seem much support for a full reimbursement from the mirror community pool. What I have heard multiple times in telegram chats and as replies on the above copied post is that both I and the Mirror Protocol bear responsibility, which I somewhat agree to. A lot of people seem to be agreeing on some amount of reimbursement and before I open a new poll for a lower amount of reimbursement I’d like input from the community on what amount the community would agree to reimburse me.

Hereby asking you to answer the poll below (and if possible explain your choice):

Total losses add up to 268,928 UST and can be verified here. The amount of fees that went straight to the mirror community during these liquidations (by bought back MIR), amount to close to 14,000 UST. Without any reimbursement the mirror owners are benefiting by this incident which ethically does not seem right either. That’s why I added the 14,000 UST as an option to the poll too.

What % would you be willing to agree on reimbursing me from the community pool? (select the highest % you would agree on).

  • 100% - 268,000 UST
  • 75% = 201,000 UST
  • 50% = 134,000 UST
  • 40% = 107,000 UST
  • 30% = 80,000 UST
  • 25% = 67,000 UST
  • 20% = 53,000 UST
  • 15% = 40,000 UST
  • 10% = 27,000 UST
  • 14,000 UST (the amount in fees paid
  • nothing

0 voters

I do believe a refund of fees paid to the protocol is fair. I hope you do learn a valuable lesson from this ordeal and prosper from it in the future. I truly believe that your fault is not “believing in crypto and the Mirror protocol” but rather taking extreme leveraging and hence putting yourself constantly on the brink of being liquidated.

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I do believe a refund of fees paid to the protocol is fair

I’m glad you agree to this. Thanks for your update.

I truly believe that your fault is not “believing in crypto and the Mirror protocol” but rather taking extreme leveraging and hence putting yourself constantly on the brink of being liquidated.

Not sure if I get this completely. I had a 4% buffer and that would have been enough if it didn’t liquidate for that 1 second pricing became unrepresentative. I know it’s high risk, but if mSPY pricing can be reported 4% off reality, there is no reason a less liquid stock with less volume could become 20% off to say? I know a higher buffer would have done it, but that should not have been required. That liquidation should just not have happened at that time. wheather I take too high risks setting my collateral ratio is another story, but I just don’t really see the link. I was trusting the protocol to work and not get liquidated unless SPY would actually go up 4%, but it did. I still feel having too much trust in the protocol is what I learned from this. Of course for the positions I have left, I increased my collateral substantially, since we now know about this issue. At least temporarily, until this will be solved with an update.

If SPY actually went up 4% overnight, then we would have a different story and you wouldn’t have heard from me. In that case the lesson would indeed have been to not overleverage. I never planned to leave that buffer @ 4% for long, I just needed some cash that day (as you can see in the transactions) and decided to put my buffer to slightly above 4% until I had another position I would want to close. Sometimes I think, I would have preferred an actual 4% jump overnight, I would have lost the same, but wouldn’t have to think. Then I would have really f*cked up, this time I feel it’s not 100% my fault either and in that case it’s harder to accept a loss like that, at least for me.

I expect the SPY will go 4% down in one day this year too… you have been warned.

From your other thread, not enough info here imo.

I believe further information is needed on:

  • When UST was unlocked, total amount, and where it went. If it was deposited into Anchor for example and sat there for 2 months, it would have collected $40,000 in interest
  • when short positions were opened, mSPY price at the time, and total amount shorted
  • how you calculated $300,000 in losses (losses should not be compensated for the total risk that was taken on, ie if the short was opened in Sept/Oct when SPY was about $420 and it increased 20% since before liquidating at $496 - the loss here is the error claimed between $477 and $496, the 4% margin, not between $420 and $496; you would need to assume the losses you had up to that point between $420 and $477)

A $268,000 liquidation is not necessarily a $268,000 loss. Math in other thread.

im voting nothing until some 3rd party can audit/confirm this so we have an unbias number.

Im also against poll creation for individual grievances. If someone who does not participate (or understand english) in the forum do they not deserve compensation? Consider this issue via goverance, changes to the protocol, so we can all benefit from your experience.

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Thank you, all this info is provided in this post. 268,000 is the amount sent to the liquidator (majority of the loss) and mir burned with the 1.5% fee paid. This information is confirmed by mirror’s dev team. they helped me calculate this number. This is the amount of value lost the second of the liquidation. Wheather I lost or made money from holding these positions is in my opinion not relevant. These profits and losses from holding positions before liquidations are all 100% my responsibility. When or if UST was unlocked is in my opinion not relevant either. It doesn’t affect the loss in any way. Feel free to reach out to me or the dev team for any questions concerning this. We both feel confident this calculation is correct and matches roughly the decrease in net worth seen in the ui before/after liquidation.

Who would that 3rd party be? Losses are confirmed by the mirror dev team. Losses are pretty straightforward to calculate. Calculations can be found here.

I agree on the last one, except that there are no other large losses besides my position (check tx’s during that second on the terrachain). Would I prefer everyone to get reimbursed? Yes, but I just don’t see a way for that to happen with how governance is set up right now (community pool funds are always sent to 1 specific address in polls).

Thats what I mean,

Do you want governance to address these issues individually then?

The only option available I feel?

Have you taken into account the aust that was actually returned to you after liquidation? I have just randomly selected two transactions (C95D0F89FECE5CFE4D8BD936C697F75D1EC7F67316865DBD026767E61C85D166 and 8DF6F8443C22BDD88F70A6FDD72658707E01DCCEF2EE34DCB6E8D9DF61ACCBF6) and there seemed to be aust returned to the wallet terra1gcnrgrl8dzylacy95q75qw6qm7lcejevv7nvxn that was not seemingly included in your spreadsheet.

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Yes, it’s been taken into account. What added up is profit from liquidator + fees that went to the burning mirror. Pretty much money that went to someplace else than my wallet. If it went to my wallet it is not part of my loss if that makes sense?

It’s hard to know what the position was worth at that time. It’s shown in the ui but not in the tx’s on terra finder. That’s why it’s easier to calculate losses based on money that actually left my wallet.