Faulty Oracle Transaction Update Resolution Proposal: Safety Pool LQ compensation of ~8,470 LQ for users impacted by collateral liquidations and liquidators that returned seized collateral.
Summary: This proposal aims to decide on an immediate path forward to return funds to affected users stemming from the faulty oracle price feed update transaction yesterday. For a brief moment the prices of DJED and iUSD fluctuated significantly due to an error in the WingRiders API used by CoinGecko’s Price Feed API. To review a high level overview of what occurred please see our initial disclosure message on Twitter with timestamps and details here: https://twitter.com/liqwidfinance/status/1745436398373478778
As a result of this faulty oracle transaction users who experienced losses from the liquidation penalty and the liquidators who returned seized collateral must be made whole. Since the faulty oracle update issue resulted in a shortfall event as the Liqwid Safety Pool section describes in the Whitepaper it should come into effect here. In accordance with the Safety Pool framework we propose LQ allocated to staking rewards are used to repay impacted users plus a 10% buffer for slippage.
The total amount owed to liquidated users and liquidators impacted is ~$27,100. At current LQ price of ~$3.20 this equates to ~8,470 LQ
Reasoning: As outlined in the WP, the Liqwid Safety Pool has been specifically implemented as a mitigation tool in the unfortunate case of a shortfall event within a Liqwid market. The Safety Pool is a shared security mechanism that utilizes LQ to recover from shortfall events such as this.
The Safety Pool details the process for navigating shortfall events starting with the governance vote to determine immediate next actions to cover losses. Working from a specific process for how to navigate these points with Liqwid DAO community members will ultimately enable a diverse set of options leading to the best outcome for Liqwid users.
Proposed Plan: The total USD value of user losses and liquidator profits stemming from the faulty oracle price feed must be 100% repaid to make these individuals whole. This is the sole purpose for including the Safety Pool mechanism in Liqwid’s LQ staking architecture.
Repay 100% of USD value of liquidated user losses in LQ + 5% slippage bonus
Repay 100% of USD value of liquidation profit + 10% slippage bonus
*This only applies to liquidators that have refunded the assets they completed liquidations for. So far two liquidators have returned their assets.
Do you support this proposal to activate the Safety Pool and fully repay individuals impacted by this shortfall event?