Refund dYdX user funds lost from high price impact out of ProtoRev profits

Fascinating thread. It reminds me of the stories of military veterans who emerge years after the war has ended, essentially living in the past.

This is not 2016 where everything is brand new and we’re trying stuff to see what sticks. Tomorrow starts 2024, and CZ has been slapped, LUNA has been labeled a security, and SBF put the entire world on high alert about crypto.

I’d recommend folks spend more time looking at how other ecosystems operate. Particularly ones where there’s an entity that feels implored to keep things on track, typically a foundation. This entire thread reads like a plea for consumer protection intervention. Probably the lowest-hanging fruit for regulating entities I’ve seen. I finally get why those were created.

And as for the, “one-offs aren’t what governance is for” and “it’s the precedent it sets” statements echoed throughout, is this from some codified scripture or something? I think you just made that up, and while it’s punk rock and stuff, it’s dated. The world is changing, and it’s going to continue to change whether people believe it or not.

Luckily for folks in the US like me, I have Kraken and Coinbase accounts, where I have moved my Cosmos-related assets. Pretty decent return on stablecoins, and they even offer futures trading for approved regions. Plus you get free tax documents, which is particularly useful for this ecosystem. With centralized exchanges, if you lose an eye-watering amount you have actual recourse. Remind me of the benefits of DeFi again, cuz I forget. Speaking of recourse, shoutout to Gemini for providing weekly updates on the Genesis bankruptcy ordeal. I recently filed my vote there, and it feels so good to know that grown-ups are working hard to make sure things are right by the consumer. USA USA!

If you wanna be a guinea pig, cool. I’m a regular person who wants to do a trade and move on with my life, so I’m changing my mind on this decentralized thing.

I’ve learned a lot from Cosmos, though. I, too, thought that boring bureaucracy and 9-5 work didn’t have to be this way. I thought if we let smart, technical people make decisions, there would be emergent coordination that would surpass the stodgy mediocrity we’re born into. Apparently human nature isn’t ready for that yet.

Back to Ethereum. The DAO Hack was a one-off, so what are you so afraid of? We’re afraid of a precedent. But if we’re the community, then we’re afraid of what our future selves will think? I cannot grasp this, but I think it comes down to a desire to make rules that apply everywhere, to everyone. Damn g, if that’s your mentality, it’s really gonna slow down explosive innovation. Let’s not paint ourselves into our own box.

The solution is simple: have leaders who make decisions. Get a couple leaders with a spine, who aren’t afraid to say, “yeah I know you’re mad about UST, and we’ve determined that was a wild, unforeseen catastrophe and only barely related to this case. And we believe that if it’s very straightforward to ascertain the cause for an unfortunate flaw, and it’s fixed very simply, we’ll just Occam’s razor that shit and make it right. I’ll take the heat for this, but know that we can’t dwell on this forever, and have a lot of building to do.”

“If you can’t fix it for everyone, then don’t fix it for anyone” is sophomoric. It’s also not a very convincing stance when regulators come and ask what measures you’re taking to preseve order in your ragtag ecosystem.

If there were a functioning foundation for Cosmos, all they’d have to do is set up a meeting with dYdX, Skip, and Osmosis. I dunno: three Zoom calls, and relay through their communication channels the TL;DR of the outcome. Namely, “yes, we’re going to make it right by this user, but the mechanism is not clear yet” or “nope, we emerged from our cave and the Wild West is still happening and this user is SOL.”

wen leaders

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Hi everyone,

Firstly, I’d like to thank everyone for the insightful discussion on this post. Your perspectives and feedback have been essential in shaping our next steps.

After considering the response, we have decided not to move forward with the proposal to reimburse a dYdX user from ProtoRev profits.

While there are valid arguments both for and against the proposal, the predominant response has been against it. We believe that this particular case should not set a precedent. The response has also highlighted the necessity for a deeper discussion on the topic of collected ProtoRev funds to be held in the future.

What happens next:

  • We will not take this proposal to an on-chain vote.

  • Squid and dYdX will implement the following technical updates to prevent similar issues in the future:

    • dYdX will:

      • Add a check on the dYdX V4 front end where if a deposit will incur >2.5% price impact, the user will be recommended to reduce their amount via the UI.
      • Show the user the quoted toAmount before they are asked to sign a deposit or withdrawal transaction.
      • Choose to route through Squid V2 (CCTP enabled) when Squid V1 returns a quote with high price impact.
    • Squid will:

      • Return a failed route if price impact is larger than 2.5% for a deposit or withdrawals for any dYdX routes.
      • Return a failed route on high price impact or USD value difference between fromAmount and toAmount on all swap quotes.
      • Add an option on the Squid V1 and V2 API to bypass guardrails, for users or developers who would like to trade regardless of price impact.
  • This being said and given the extraordinary measures of this particular case, the parties involved (Squid, dYdX and the user) are making further steps towards reaching a resolution in which we all feel rightly justified.

This proposal was an important step in exploring all possible options to recover the funds that were lost. Our aim is to demonstrate a high level of consideration and care for users of the new dYdX chain, as part of our efforts to encourage use of the upgraded, more decentralized platform and to cultivate a stronger DeFi ecosystem within Cosmos overall.

We’re grateful that this platform for discussion exists, and value the participation of the Osmosis community. We believe that discussions like these drive our industry forward, making it stronger and more beneficial for everyone involved.

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Actually, we still are, and will be for years to come.

This proposal was presented to the Osmosis community which is a Decentralized Autonomous Organization.

Or a flaw that could render Osmosis legally liable in the future. Depends on how you choose to look at it. Permissionless systems are built to be permissionless for a reason.

Comparing a DEX in its relatively nascent stages with established, centralized exchanges is interesting.

I think you may have missed the memo on how governance works in Osmosis. Also, not sure this type of delivery makes your message one that will be well received by majority.

I’m not sure what your point is here, since this was raised with the Osmosis community (and not a “functioning Cosmos foundation”), it discussed and it seems that the general consensus is no with veto (this is my impression anyway).

Thank you. Wish you all the best.

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If things worked the way you wanted them to, why did we build any of this on blockchains? We should just delete the Osmosis chain and put everything in a database on a server in Sunny’s garage. We’ll never have a chain halt again, and we can Zoom call the Sunny Foundation to go into the database and fix things up for anyone who sent a transaction they swear they didn’t mean to.

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He is having a meltdown, best to not engage.

Back to the topic, great to see dYdX and squid taking responsibility for their mistakes. Glad this is over.

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Governance does not apply to off-chain issues. If I build a bad front end that ends up doing something unintentional and someone loses all their funds, that’s my problem, not the chains problem.

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I think that’s what I’ve been saying the entire time? See here as just one instance of several:

Positive point to be taken from this discussion; the forum is soooo very much alive when it becomes a topic where people can easily relate to.

So our medium of choosing for governance discussions is ok, now we only have to make sure more people engage in the discussions; also the harder to grasp ones.

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Sorry I thought you were implying this “should” go through governance.
Governance is one way to go, although it’s not ideal and should be a last resort.
It could easily go very badly and end up with the proposer losing even further funds… but it’s still an option.

As for ‘setting precedent’, this is a complicated subject. I don’t know how many here are lawyers, but I am not one of them so I won’t go too deep here.
All I’ll say is that sometimes the “right” thing to do comes with some unavoidable consequences.

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Just because other chains did it doesn’t mean osmosis needs to do it.

The UI showed the user the trade rate. You can argue all you want it could be highlighted and all that but the fact is the information was displayed to the user. The user signed it. If you sign things in crypto without reading or at least skimming what you are signing, i bet is not the first time that user has lost funds.

This is a very slippery slope. We osmosis refunds it, we will see an avalanche of proposals, many of them scam, trying to get funds from the community pool.

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I guarantee if we build with that mentality we will see no mainstream adoption ever.

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What’s most interesting about this thread is the mere idea that now is the time to debate philosophy.

I’m not here to convince anyone. In fact, the best outcome is for a significant subset of anarchists to leave Cosmos, so the grown ups can finally hear each other talking.

Maybe Osmosis used to be a self-sovereign DAO. It’s kind of fun to imagine a close-knit community who takes advice from no one. Maybe operates all trades and OTC purely via Telegram. But that’s not reality. When Osmosis submitted its application to be listed on a US publicly-traded company like Coinbase, that changed things.

There are rules to follow. Rules that people in this thread didn’t make up. They were written by a non-Osmosis member, and someone pledged to follow it. You can read them here:
https://www.coinbase.com/blog/new-asset-listing-process

It’s futile to continue a debate that pretends we’re untouchably sovereign. Aragon was recently delisted from Coinbase, as part of their stated mission to continually revisit tokens they’ve listed to the American public. Perhaps it didn’t meet expectations and evolve in accordance to how Coinbase wishes to represent itself.

If you’re a responsible adult in web3 and find this message, pay no attention to the rallying cry in favor of the “Code Is Law” doctrine espoused here. A doctrine that, apparently, nobody bothered to write down. There’s a lot of serious work to do this year, and as long as your “community token” is listed on approved exchanges, you’re a part of something larger. We’re — at least a little — embedded into the fabric of society.

Remember when mp3s were “only for bad people?” All those ads showing teenagers who pirated music and how their parents got fined exorbitant amounts. You couldn’t even say mp3 without conjuring the notion of piracy. But then what happened? Then we all changed. Amazon and iTunes waited until the term was more neutral, and now it’s so commonplace you can buy 'em anywhere. I think we’re going through a similar evolution with web3, perhaps especially this year. Because like mp3s, crypto has begun integrating with large institutions worldwide.

Maybe you want Osmosis (or any chain) to stay within a tiny community forever. Okay. But the burden is on you to adapt to reality, I’m afraid. This is your wake up call, friends.

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The backend governance is not responsible for various frontends as these are separate entities. Please learn the difference and ask for a refund from the entity responsible for the loss of funds. This request is inadequate as it doesnt even ask for central entity that received 20% of these funds to return them nor asked the responsible party of the loss of funds.

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Exactly this. dYdX and Squid are who were resposnisble. Plus, Skip got a 20% cut (not blaming them though).

Also, I’m not sure why we’re even going on about this since the proposer has come to the conclusion that this should be resolved with the involved parties, of which Osmosis isn’t one of them.

Some of the recent messages on here give off “yelling into the void for literally no reason” vibes.

I think it might be good to close this topic. There is an outcome, one which is desired by a lot of people in here. I can imagine some would have wanted a different outcome, but the situation is different already.

It will stay a more controversial topic for a long time, until we have finalized what happens with the ProtoRev. Then it will be a different ballgame all together.

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Agreed. This post has been locked because the issue described in the initial discussion is being resolved via other means.

I’d encourage anyone interested in having broader discussions about refund policies, protorev, or Osmosis’s position in the shifting DeFi landscape to start a new post discussing these!

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