Proposal to reimburse community benefit generated during the Jan 3 liquidation event

http://forum.mirror.finance/t/liquidations-caused-by-unrepresentative-oracle-pricing-of-mspy-on-jan-3-2022/2569 describes what exactly happened on Jan 3, 2022. In short, Band protocol fed unrepresentative pricing for mSPY to Mirror for 1 second which incorrectly let to the liquidation of almost all my mSPY positions. Total loss for me comes down to 268,928 UST, of which 255,084 UST went to profit for the liquidator, 13,845 UST went to the mirror community by buying and burning MIR (1.5% closing fee for the liquidated positions). All the transactions and math can be verified here.

Since the majority of the 268,928 UST loss is now in hands of some anonymous liquidator and after discussion with the mirror community it seems that for now, we can’t come to an agreement to reimburse the majority of these funds. There does seem to be a majority agreeing on the community reimbursing the 1.5% position closing fee that was paid during liquidation to close these positions. Total amount for this equals 13,845 UST over all 37 transactions and went directly into buying and burning mirror tokens. I hereby ask and beg the community to agree on spending 13,845 UST / 1.53 UST/MIR (current pricing of MIR when I opened the poll) = 9,049 MIR, rounded down to 9,000 MIR. This would basically undo the benefit the mirror community had by this unfortunate event.

I can confirm that mirror dev team is working hard on coming up with solutions and making changes to prevent this from ever happening again.

If there are any questions, please ask them here or reach out to me on telegram @leen93 before voting no on this poll. Poll can be found at Mirror

Thank you for your support!

1 Like

When entering the mirror site for the first time, you must accept a warning describing all risks.

If the community now agrees to a refund, there will be precedent. Which will be used again and again in the future when the oracle price differs slightly from the real price.

If you get liquidated after a 4% move and lose all your life savings, blame your trading strategy.
Anyone who has such poor risk reward management will sooner or later lose everything anyway.

The community should not allow such a precedent and vote “NO”.

3 Likes

It’s not just a 4% price move, SPY was reported over 496$ for 1 second while it stayed for sale on all exchanges besides 1 dark pool for way less than 480$ on their orderbook at that exact time. Pricing oracle failed to send over a representative price for SPY and mirror failed to have some other safety mechanism to not immediately liquidate positions in case this happens. The dev team agrees it’s an issue and is working on fixing it (probably a time delay). This is not just normal stuff happening. Please read the details.

I’ve read your original post and can agree with both sides of the argument. On the one hand this space is extremely risky and cutting it this close with your liquidation threshold is inadvisable. On the other hand the issue, as you have described it, sounds like an edge case that the team hadn’t considered before. Also if they are trying to find a fix for this issue to ensure that it doesn’t happen again I think that counts as a strong argument to argue that this was an erroneous liquidation.

I disagree that this will set a precedent. If a position is liquidated because of a flaw in the system I believe reimbursement should be in order. I will therefore vote ‘YES’ to this proposal.

2 Likes

Absolutely not. The platform is “use at your own risk”, and on top of that automated processes were put in place that could be anticipated would have to handle incorrect/inaccurate data at some point? This is the inevitable result of setting yourself up for failure. If there’s any remedy here it would be to reverse the liquidation transactions and leave it at that. But the community should not have to cover the costs of someone doing incredibly risky things like this.

Say you staked MIR for governance and somehow there was a negative value as a voting reward - yes, you should get reimbursed for that, there was no way to anticipate that result, it is not working as intended, there is obviously a bug somewhere. Your case is different to this in that being liquidated was a known risk but you went ahead with automated processes on a threshold that would be tight if everything was working correctly anyway.

I don’t think there is any way to reverse the liquidation transactions, they would always require these funds back that are now moslty with the liquidator.
I understand you not wanting the community to pay for this, but I want you to understand that this vote is not to decide if the community pays for this. The community had close to 14k UST benefits from these liquidations in fees. All I’m requesting is them being reimbursed. This will put the total effect of these liquidations (mirror burned) + reimbursements (mirror spent) at 0 for the community if that is what you feel is correct. Without this poll passing, the community will have gained almost 14k UST from me, just because mirror accepted unrepresentative pricing for their liquidation decisions. I’m not asking to cover my complete losses, I’m asking the mirror community to give back, what the community accidently took from me.

Having the community reimburse the whole amount including what went to the liquidator is a complete different question. It had some support from some people in the dev team, but was voted down by the community last week. I feel devastated, but understand the decision and will have to accept it and live with it. I’m hoping the community is willing to do the right thing and give back to me the fees that were paid during liquidations, giving me a start in my long road to grow my equity back up.

If it’s a technical bug, it should be reimbursed. Yet, the question remains: was it a technical bug ?