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Minimal? My understanding is someone was able to pull ETH out at near zero DAI. Nothing the contract didn't allow, but unforseen use of it which caused some peo

Minimal? My understanding is someone was able to pull ETH out at near zero DAI. Nothing the contract didn't allow, but unforseen use of it which caused some people who had invested that ETH to essentially lose their life savings!

ComputerGuru 7y ago
If there really are people that literally put their entire life savings into a single, unproven vessel then they almost certainly did so because they were gambling it would make them (an order of magnitude+) more money than a more reliable stable alternative. They won’t find much pity.
- legionof7 7y ago
  I work in the crypto industry and I think this a failure of our community to properly inform people of the risks. These people weren't gambling for massive returns. They thought it would be a safe way of getting pretty good ones.
  - TylerE 7y ago
    Really? I've never seen a hive of more rampant unchecked greed.
    - seibelj 7y ago
      You mean r/WallStreetBets and how they play with options in the traditional market? Don’t clutch your pearls too hard - greed is everywhere, not just crypto.
      - roywiggins 7y ago
        I don't know if it's true, but my impression is that the same people who got really into complicated crypto trades also got into complicated option trades once it became accessible via app.
        mwill 7y ago
        My impression of /r/wallstreetbets in particular is that they seem to think particularly highly of crypto. There might be an overlap elsewhere but I don't think I've seen it on wsb personally
    - deleted 7y ago
      [deleted]
  - cortesoft 7y ago
    Returns are always the inverse of risk. If you are getting "pretty good" returns, then you have pretty high risk.
    - Acrobatic_Road 7y ago
      They thought they were risking 13% of their collateral in the event of a liquidation - not 100%. They were risking way more than they thought.
      - vinniejames 7y ago
        No one lost 100% They lost their collateral and got to keep the loan the took out against it. If I stake $2000 of Ethereum, and in return get $1500 in a stablecoin, when my $2000 in collateral gets liquidated I still have 75% of that in the loan I took out and can walk away. The people with the 100% loss story are being deceptive
        ppf 7y ago
        That's not the complete story. They have lost one asset with a certain set of liquidity characteristics, and unexpectedly gained one with another set.
        vinniejames 7y ago
        There was nothing unexpected here. Users traded their eth X days ago for dai, with the full intention of adjusting their liquidity characteristics What happened here simply precluded the possibility of the reverse trade when the loan became under collateralized, this was not unclear to anyone involved
        ppf 7y ago
        Traded? You mean loaned. That was always the wording that was used to promote DAI, whatever the underlying transaction might be.
  - Aeolun 7y ago
    If someone invested in crypto thinking it would be a safe way of getting anything that’s still on them.
  - barkingcat 7y ago
    No such thing... better the return, higher the risk. Fact of life.
nootropicat 7y ago
It's more complicated. Their collateral ratio has dropped below the liquidation level of 150%. So at best they would only get a fraction of their collateral back (any liquidation has a discount and a 13% penalty) - fundamentally they lost because their speculative bet didn't pay off. So yes, they lost more than they should, but describing it like they lost everything because of the liquidation problem alone is misleading. The "attack" was trivial in that there was only one bid at an auction - not enough people liquidating undercollateralized positions, but now so many people are looking at this it's never going to repeat again. It's an obvious risk only in hindsight.
- wbl 7y ago
  Market makers face this potential problem every day in the real world. They get sophisticated about it or die.
- nullc 7y ago
  > never going to repeat again So now it just needs a little help from miners to actively exclude all other bidders. My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas.
  - nootropicat 7y ago
    >So now it just needs a little help from miners to actively exclude all other bidders. A mining cartel that censors transactions is indeed a real risk. Fortunately, ethereum is switching to PoS where even an average person with a smartphone could realistically generate several blocks a day, as opposed to multiple megawatt (or even giga) mining farms, so it's only a temporary issue. >My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas. Most likely lack of liquidity and/or gas pricing misconfiguration. Even at an ultra-high 600 gwei (during the peak congestion, the market rate was ~200 gwei) the total fee was less than $10. Simply put: not enough people running liquidation bots. Example: https://etherscan.io/tx/0x239cc6ba8f28b7a3b66cd5e1b558b0c735641d3a44405afe5b28eb2e5ef37665 https://etherscan.io/tx/0x239cc6ba8f28b7a3b66cd5e1b558b0c735...
rolltiide 7y ago
I dont think it was an unforeseen use. People that execute these smart contract dark patterns knew for a long time and didnt steer public discussions that way. The very foreseen problem was that people dont show up to governance decision in crypto. Yes you can use a blockchain for voting but nobody shows up. The real problem is that there are no alert protocols built into wallets and client side defi apps. Now people are discussing it. The bigger gamble was whether liquidation and auction could occur fast enough to prevent emergency shutdown. They did, one person showed up to the auction and bid $0. System worked. Everyone with dollar signs now is going to research that and bid $1 until the order book is populated and it never happens again. Software updates to overfit for this possibility would be worse.
- perl4ever 7y ago
  "Everyone with dollar signs now is going to research that and bid $1 until the order book is populated and it never happens again." Not familiar with this, but your comments sound like "we have a proof of concept that this issue could be solved, therefore it is solved".
  - rolltiide 7y ago
    > but your comments sound like "we have a proof of concept that this issue could be solved, therefore it is solved". What? No. This is about more people showing up to a foreclosure auction because they heard about the guy that bid $0 by being the only person at the foreclosure auction, and flipped a property for $4mm. And then you have an actual market. The auction house itself doesn't need to be patched. The auction process doesn't need to be patched. If the auction house has sympathy for the people that got foreclosed on then they can do whatever they want to compensate them from their own pocket, they can automatically do that in case a reserve bid isn't met, but the fact that the auction occurred in a timely fashion is proper behavior.
    - perl4ever 7y ago
      I just feel like it's a typical libertarian comment that markets solve things because they will probably react eventually. It's not wrong to expect the feedback, but in the meantime, havoc that affects people occurs. That legitimately can affect peoples' opinion of a process.
egdod 7y ago
Imagine putting your life savings into shitcoins.

ComputerGuru 7y ago

If there really are people that literally put their entire life savings into a single, unproven vessel then they almost certainly did so because they were gambling it would make them (an order of magnitude+) more money than a more reliable stable alternative. They won’t find much pity.

legionof7 7y ago
I work in the crypto industry and I think this a failure of our community to properly inform people of the risks. These people weren't gambling for massive returns. They thought it would be a safe way of getting pretty good ones.
- TylerE 7y ago
  Really? I've never seen a hive of more rampant unchecked greed.
  - seibelj 7y ago
    You mean r/WallStreetBets and how they play with options in the traditional market? Don’t clutch your pearls too hard - greed is everywhere, not just crypto.
    - roywiggins 7y ago
      I don't know if it's true, but my impression is that the same people who got really into complicated crypto trades also got into complicated option trades once it became accessible via app.
      - mwill 7y ago
        My impression of /r/wallstreetbets in particular is that they seem to think particularly highly of crypto. There might be an overlap elsewhere but I don't think I've seen it on wsb personally
  - deleted 7y ago
    [deleted]
- cortesoft 7y ago
  Returns are always the inverse of risk. If you are getting "pretty good" returns, then you have pretty high risk.
  - Acrobatic_Road 7y ago
    They thought they were risking 13% of their collateral in the event of a liquidation - not 100%. They were risking way more than they thought.
    - vinniejames 7y ago
      No one lost 100% They lost their collateral and got to keep the loan the took out against it. If I stake $2000 of Ethereum, and in return get $1500 in a stablecoin, when my $2000 in collateral gets liquidated I still have 75% of that in the loan I took out and can walk away. The people with the 100% loss story are being deceptive
      - ppf 7y ago
        That's not the complete story. They have lost one asset with a certain set of liquidity characteristics, and unexpectedly gained one with another set.
        vinniejames 7y ago
        There was nothing unexpected here. Users traded their eth X days ago for dai, with the full intention of adjusting their liquidity characteristics What happened here simply precluded the possibility of the reverse trade when the loan became under collateralized, this was not unclear to anyone involved
        ppf 7y ago
        Traded? You mean loaned. That was always the wording that was used to promote DAI, whatever the underlying transaction might be.
- Aeolun 7y ago
  If someone invested in crypto thinking it would be a safe way of getting anything that’s still on them.
- barkingcat 7y ago
  No such thing... better the return, higher the risk. Fact of life.

nootropicat 7y ago

It's more complicated. Their collateral ratio has dropped below the liquidation level of 150%. So at best they would only get a fraction of their collateral back (any liquidation has a discount and a 13% penalty) - fundamentally they lost because their speculative bet didn't pay off. So yes, they lost more than they should, but describing it like they lost everything because of the liquidation problem alone is misleading. The "attack" was trivial in that there was only one bid at an auction - not enough people liquidating undercollateralized positions, but now so many people are looking at this it's never going to repeat again. It's an obvious risk only in hindsight.

wbl 7y ago
Market makers face this potential problem every day in the real world. They get sophisticated about it or die.
nullc 7y ago
> never going to repeat again So now it just needs a little help from miners to actively exclude all other bidders. My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas.
- nootropicat 7y ago
  >So now it just needs a little help from miners to actively exclude all other bidders. A mining cartel that censors transactions is indeed a real risk. Fortunately, ethereum is switching to PoS where even an average person with a smartphone could realistically generate several blocks a day, as opposed to multiple megawatt (or even giga) mining farms, so it's only a temporary issue. >My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas. Most likely lack of liquidity and/or gas pricing misconfiguration. Even at an ultra-high 600 gwei (during the peak congestion, the market rate was ~200 gwei) the total fee was less than $10. Simply put: not enough people running liquidation bots. Example: https://etherscan.io/tx/0x239cc6ba8f28b7a3b66cd5e1b558b0c735641d3a44405afe5b28eb2e5ef37665 https://etherscan.io/tx/0x239cc6ba8f28b7a3b66cd5e1b558b0c735...

rolltiide 7y ago

I dont think it was an unforeseen use. People that execute these smart contract dark patterns knew for a long time and didnt steer public discussions that way. The very foreseen problem was that people dont show up to governance decision in crypto. Yes you can use a blockchain for voting but nobody shows up. The real problem is that there are no alert protocols built into wallets and client side defi apps. Now people are discussing it. The bigger gamble was whether liquidation and auction could occur fast enough to prevent emergency shutdown. They did, one person showed up to the auction and bid $0. System worked. Everyone with dollar signs now is going to research that and bid $1 until the order book is populated and it never happens again. Software updates to overfit for this possibility would be worse.

perl4ever 7y ago
"Everyone with dollar signs now is going to research that and bid $1 until the order book is populated and it never happens again." Not familiar with this, but your comments sound like "we have a proof of concept that this issue could be solved, therefore it is solved".
- rolltiide 7y ago
  > but your comments sound like "we have a proof of concept that this issue could be solved, therefore it is solved". What? No. This is about more people showing up to a foreclosure auction because they heard about the guy that bid $0 by being the only person at the foreclosure auction, and flipped a property for $4mm. And then you have an actual market. The auction house itself doesn't need to be patched. The auction process doesn't need to be patched. If the auction house has sympathy for the people that got foreclosed on then they can do whatever they want to compensate them from their own pocket, they can automatically do that in case a reserve bid isn't met, but the fact that the auction occurred in a timely fashion is proper behavior.
  - perl4ever 7y ago
    I just feel like it's a typical libertarian comment that markets solve things because they will probably react eventually. It's not wrong to expect the feedback, but in the meantime, havoc that affects people occurs. That legitimately can affect peoples' opinion of a process.

egdod 7y ago

Imagine putting your life savings into shitcoins.