Anchor Oracle Price Discrepancy on December 9th

Thank you team for the transparency and quick announcement.
I appreciate the consideration for reimbursement.

My initial thoughts on the ANC reimbursement (as a ANC staker / LP provide) is;

  1. Mixing the reimbursement with stablecoin (UST) may dampen the sell pressure.
  2. Find a way to swap the reserve ANC funds into UST (over certain period of time),
    and have the team distribute the reimbursement in UST (swapped from ANC).
  • unknown swap periods and distribution period may help dampen volatility as well

Also,
I’m curious if there are certain steps to take in the near future for the affected wallets.
Will the team filter out the wallets affected and verify on chain history?

Again. Great work Anchor!!!

Hi all,

first of all, kudos with the way Anchor is dealing with the situation. Trust and transparency go hand in hand and trust is what Anchor is all about. Therefore in my view there is no way around it and we need to:

  • have a glitch free correction in place asap (something the devs have already addressed yesterday)
  • find full reimbursement for those effected by this glitch.

How to reimburse?

  • Preference 1 - if possible revert the transactions, this might be technically impossible but if I understand correctly the post of Do Kwon, a lot of the liquidated collateral has been bought up by TFL (correct me if I misunderstood). If this is the case, already these funds could be reverted by a policy decision of TFL.
  • Preference 2 - mix of ANC coming from community fund/investor fund and UST from the yield reserve. (2 X 4,5 M$) - 4,5 M$ from the yield reserve is acceptable in my view as not reimbursing will have a very negative effect on collateral being deposited which will really put in play the yield reserve.

To mitigate selling pressure on ANC it could be a good idea to reimburse up to 75% (of the 4,5 M€) with the possibility to get access to the remaining 25% in case a vesting schedule is accepted (if technically possible).

Last remark looking at preference 2. Reimbursing the effected borrowers with funds from within the Anchor ecosystem is kind of a socialistic thing to do. Instead of 239 people effected we spread the pain over the whole community (ANC holders, LP providers, …) and somehow that is fair. That said, anchor is - at the moment - the flagship for the Terra ecosystem and a well functioning flagship is key to Terra in this exponential adoption phase. Help from the mothership would in any case be more than appreciated. Up for debate on Terra governance level?

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Everyone is taking risks correct, but the assumption is always that the protocol is operating correctly, when that’s not the case why should anyone use it? This was an issue, the protocol has the means to remedy the situation, so let’s do just that… or you risk every borrower exiting the protocol and the 19.5% flagship yield is no longer a thing.

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Reverting transactions is a big nono, it’s history… it happened, it’s recorded in the ledger, it’s gonna stay that way. I also don’t agree with a vesting period, affected parties did not ask to be affected by the issue, why would they need to wait to get reimbursed?

I do believe we should find a way to lessen the impact on ANC holders, but vesting is not the way for me.

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It’s a fact that people know that smart contracts carry risks and if you have the option to ensuring yourself, ok no reimburse.

In that case, we cannot tamper with their confidence, we have to find a way to support everyone affected.

If Anchor doesn’t have insurance for these kinds of things, the community should band together for Anchor’s prosperity.

Im in favor of reimbursement to affected people.

Ps: I’m an ANC staker, and I have not suffered any loss.

Given that Anchor’s integration with Chainlink’s oracle network is already in the pipeline, I believe this unfortunate event provides the perfect occasion for Anchor’s community to devise a policy regarding protocol malfunction. Fortunately, the scope of the damage is relatively small, too, compared to the sheer amount of assets under management.

I encourage everyone to consider this issue as a matter of policy rather than a one-of decision: our decisions will set a precedent that will serve as the basis for future stakeholder’s expectations.

Some of us have emphasized on the fact that smart contract and oracle risks are always a given when dealing with Anchor and DeFi as a whole, and that, thus, transferring losses from impacted wallets to Anchor stakeholders is somewhat unfair. I agree on principle: the risks of interacting with Anchor protocol were not obfuscated and thus, it is the user’s responsibility to assess risk before interacting with Anchor or any protocol.

That being said, to my understanding, the responsibility for the faulty liquidations lies with the protocol, as it was the Anchor Oracle Price Feeder and not an exogenous piece of infrastructure that malfunctioned. Furthermore, I believe it is in the long-term best interest of Anchor’s stakeholders to take remedial actions :

  • Anchor is positioned as a reliable and stable source of yield for both crypto natives and ‘‘normies’’. Confidence in the protocol is of the utmost importance if we intend for Anchor to receive large deposits, and deposits from non crypto natives which are more risk averse than us fellow degens.
  • Anchor does not exist in a vacuum, other protocols have been faced with faults and hacks before and the actions they took contribute to shaping the expectations of the public. Over time, I believe that protocols which either have a clean track record, or a record of making harmed users whole will outperform protocols which have less favorable histories. I believe ThorChain and Popsicle Finance are examples of how proper remediation can reestablish protocols and chains following faults.
  • Finally, setting up a remedial policy now, when the damage is somewhat constrained, should allow us to devise a rational policy to be followed, should another such event happen.

This brings me to the means by which Anchor should make users whole. Because the liquidated collateral is not in Anchor’s custody anymore and because is immutability is one of the main features of blockchain technology, rolling back the transactions is not possible. I also don’t believe that TFL should be involved in making users whole, unless TFL’s liquidator directly participated in the faulty liquidations (in which case this portion of the liquidations could be reversed via bona fide retrocession of the collateral). Finally, because it is not the purpose of the yield reserve to be drawn upon to make borrowers whole and because remedial action should not hinder the protocol’s ability to pay out the advertised yield in the long-term, I believe we should refrain from mobilizing the reserve.

This obviously narrows the toolsets available to our remedial action but here’s what I believe to be the best course of action:
Recognize that, as ANC stakeholders, we are underwriting the protocol for the better and worse, and accept that making users whole will most likely have an adverse impact on the price of ANC in the short-term.
Set-up a remedial plan whereby ANC from the community pool is gradually sold on the open market for UST and streamed to the impacted wallets so as to make them whole without crashing the price of ANC.
Recognize that, as underwriters for the protocol, ANC holders should be compensated for the risk they take. This is in line with the discussion around ANC’s tokenomics which arguably need some tweaking, and perhaps a move from the buyback system to perhaps a protocol yield sharing model, but these considerations deserve a thread of their own.

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adding a little more context; this is a link to the bad oracle price: Terra Finder

compensation with ANC tokens vested in a way not to crash the market (daily vesting = 5% of total 10 days volume)

Just my two cents here. I would be cautious on how we approach this particular issue as it sets a precedent moving forward, as one user already mentioned.

People have to understand the risks of utilizing new technology that still is very much in its infancy. While refunding affected wallets seems like the obvious choice, it sends the following message: the risks of using Anchor are unilaterally mitigated by the community’s ANC pool.

As a community member and ANC LP provider, I will have to factor this risk in future investment decisions involving the ANC token.

This does not mean I am against refunding affected wallets, I am saying we are sending a new message to current and future Anchor members.

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Recalling our history:

We got liquidated in a death spiral mode in May with 30% premiums. Fighting and selling other assets to save our luna. Liquidated slowly and painfully. It hurts.
But there were no compensations. Protocol came up with improvements.

We got liquidated when anchor frontend server was overloaded, anchor website was unusable and borrowers couldn’t adjust their ltv. It hurts.
But there were no compensations. Protocol came up with improvements.

We got liquidated from discrepency in oracle price, around 53% ltv. We payed a premium for the opportunity & leverage we had. It hurts.
But there should be no compensations. Protocol came up with oracle prices improvements.

Giving now compensations only for the last case will give the wrong message.

That anchor protocol or ozone can compensate similar cases from now on.

If community decides to compensate those cases let’s find a long term formula, ensuring the protocol will survive the next fights.

Or compensate with a NFT(warrior medal).

And we free up developer’s time to focus on the real development.

And not for calculating compensations.

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The May liquidation you are writing was not caused by protocol error - relating to this is not fair.
The one from few days ago happened because the protocol error.
I was liquidated, even though I had my bluna prepared for price dump, but I did not had a chance to do so.
You writing to free dev’s time to focus on real development is unfair. I wonder if you would have the same opinion if you would be in on the other side.

Anchor compensating to all those 200 people gives a good signal to the world - that the protocol and it’s community care for its members and can take the responsibility for its own mistakes.

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@mamato This is what I was referring to. On principle, I agree with you. However, do take into account that while it sends a positive signal to the world, it sends a negative one as well, which is, as an ANC token holder, you carry the financial responsibility of refunding the protocol’s technical errors. Is this a fair statement?

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I feel you.
However we are assuming that a person given the recompensation in the form of ANC token would sell those and make an impact on ANC price. Keep in mind that the people that had been liquidated were, as it seems, using anchor to it’s fullest so I doubt that all tokens would be sold immediately.
What I think would be the best solution would be to reimburse with bonded ANC tokens (have heard those coming up ?).
The person who was liquidated would have the exact UST back in the form of collateral, and all the other users will not feel the sudden token dump (some users would leave the tokens as collateral and others for sure would sell but keeping 21 day period.)

Can it be done in a such way?

I was one of the affected accounts. Will the reimbursement occur naturally via an airdrop or will it need to be claimed?

Community members complaining about potential sell side event on anchor should think about how they would feel be it that their positions had been unfairly liquidated

It has put me in a tough spot since the event given the market weakness. The integrity of the protocol should be valued above all else.

Agree, hopefully others do as well.

I think the reimbursement should follow the cause of the incident, and since the validator voting seems to be the issue, Terra ecosystem wide support should not be exempted from the discussion.

Protocols build on top of the promises the L1 platforms provide, and a healthy price feed is definitely one of the most basic requirements. I believe that in this context, the burden of Terra ecosystem wide faults should be dispersed across the ecosystem instead of specific protocols. Ozone, in my understanding, was established for this purpose.

Either it be Ozone or TFL liquidation profits, I think it would be more fair for these ecosystem fund sources to be used for the reimbursement.

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Questions that I still have:

  1. What’s the point of having insurance if the protocol will cover for technical failures?
  2. Should we expect, from now on, users to demand reimbursements for any technical errors?
  3. Should there be a maximum reimbursement coverage moving forward? European banks I think have a cap of €100,000 per account.
  4. If this scenario repeats itself, but the loss is larger, should this signal a sell pressure of the ANC token right away, knowing what happens next?
  5. Why not just pay for insurance to cover the whole protocol, if we are to financially cover for all technical errors moving forward?
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I seem to keep reading for compensation to come from the same sources.

Have any other options been explored.

I don’t see this as an Anchor issue rather than a price feed issue. if the community feels that strongly about a refund, the community should help with the bill as well and ANC should not be stuck with the whole bill.

Maybe a fund pool can be created that any Anc or bluna holder can contribute to, maybe something as simple as giving up a portion of your airdrop or the positive apr on the loan for a few weeks or contribute a some UST or luna etc…

It would also give TFL the opportunity to contribute without any “decentralised” issues (assuming they own or would become new investors in ANC).

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You re not right about May liquidations. Check the proposals that came out strengthening anchor protocol.

Understand how you feel, i was feeling the same.

I am actually in the same side. Been liquidated multiple times badly.

Not sure what is fair and unfair to be honest today. I get emotional and excited but the same time i feel nothing.

A human in real life would judge:
Tell the people that got unfair cheap bluna in kujira protocol to return the blunas to the owners becouse the price was not fair.
But i am sure kujira people will say, this is not fair on their side either. That they had ust sitting there not earning interest and they understand more defi and the risks being above safe ltv.

My point actually is
1 Compensate all past and future unfair cases such as protocol errors, server downtimes, oracle bugs, hacks, market price manipilation, bots price manipulation and be unsure that the protocol survives.
2 Make sure that the protocol survive. Focus on the fight

I vote for the 2) and looking forward for defi, infrastructure, community to mature and Ozone protocol that attacks some the above issues.

Anchor Protocol does not have a chance to stand alone itself. Not yet.

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Some of us have been liquidated as well, fairly and unfairly. Firstly, I think as a user we should know the risks of using defi, and this is one of them. Secondly, at least personally I am not ‘complaining’ about the sell side, I am thinking long term about the integrity of the protocol, and to me there’s higher risk in setting a precedent in which all costs are covered with ANC.

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