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News Report

MKR Holders Vote Against Compensating Vault Owners Liquidated on Black Thursday

2 mins
Updated by Ana Alexandre

In Brief

  • Maker (MKR) holders vote no to compensation for MakerDAO vault holders affected by forced liquidations on Black Thursday.
  • The affected MakerDAO vault owners lost about $2.5 million as the project's price oracles failed to work properly.
  • Some commentators say the result of the vote sets a bad precedence.
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After kicking the can down the road, the MakerDAO compensation vote finally happened with the majority voting against compensating vault owners liquidated on Black Thursday.
Some reactions to the news say the development constitutes bad precedence with vault owners left holding the short end of the stick.

No Compensation for MakerDAO Vault Owners

On Sept. 22, the revised MakerDAO governance vote for compensating vault owners affected by the events of Black Thursday came to an end. About 65% of the participants voted against any compensation for vault owners. During Black Thursday on Mar. 12, 2020, the crypto market along with the broader financial market experienced a massive crash in the price of assets. As the price of Ether (ETH) fell, MakerDAO vault owners became undercollateralized. Amid the large volume of forced liquidations, the Maker oracle protocols failed to update the ETH price as high gas fees and Ethereum network congestion led to slow transaction throughput. Rogue actors reportedly took advantage of the black swan event to engage in opportunistic profiteering via zero-bid attacks. These entities gained ETH without submitting any DAI stablecoin collateral thereby draining the liquidity held by affected vault owners. In all, the opportunistic profiteering led to a total loss of 6.65 million DAI (about $6.65 million, at press time). Of the $6.65 million DAI shortfall, $4 million was actual “bad debt” to the MakerDAO project, with vault owners taking a $2.5 million haircut due to the failure of the auction system on Black Thursday. In the aftermath of the event, MakerDAO held debt auctions to correct the shortfall in collateral. However, none of these recouped funds went to the affected vault owners. Back in April, some investors sued the Maker Foundation for $28 million. The aggrieved users accused the Maker Foundation of misrepresenting the risks associated with owning collateralized debt positions in light of the events of Black Thursday. As previously reported by BeInCrypto, MakerDAO has since enacted a raft of protocol upgrades to prevent losses from forced liquidations. As part of these improvements, the lending platform approved multiple price feeds for its oracles to ensure vaults are adequately collateralized.


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