Authors
Background
Last Friday at approximately 11:10am UTC, the auction for the ETH Put Selling vault (denominated in USDC) settled. However, because of a bug in our Auction Frontend, many market-makers were unable to participate in the auction. Because of this, there were very few bids on the auction, and it settled at a much lower price compared to “market price”.
This proposal proposes reimbursing our users with the difference between the auction settlement price and the “market price”, for a total of $183,164.94.
Timeline of events
- At 11.10am UTC, we settled the auction for the T-YVUSDC-P-ETH vault. It sold the ETH Put $2600 expiring 25th February.
- Due to technical errors on the auction bidding UI, several market makers were not able to place their bids on the 10-minute long auction. Particularly, the frontend did not hardcode an appropriate gaslimit, so some transactions failed on-chain as they ran out of gas. An example can be seen here.
- This caused the auction to settle at a significantly lower price than the market price. $6.6 per contract, v.s. ~$18.8 per contract on Deribit.
- This has caused the vault to earn a total of $196,882 instead of $560,052 (if all the options were sold at Deribit price) — a shortfall of $363,170.
- We reached out to known options buyers, to re-price the options at $15 (offering a 25% discount). In good faith, the market makers have agreed to re-price, and send the vault back the remaining USDC as if they had purchased them at $15 instead of $6.6. From this process, we have recouped a total of $180,017 and have sent it back to the vault.
- Because the auction is permissionless, there were a few auction winners that we are not in contact with (they are just unknown addresses on-chain), so we could not recoup more of the shortfall.
- In order to make the ETH put vault whole on premiums, we are proposing that the DAO covers the shortfall of $183,164.94.
| Data | Size |
|---|---|
| Total Put Options Sold | 29,790.664 |
| Total Premiums from Auction | $196,882.00 |
| Deribit Market Price | $18.80 |
| Hypothetical Premiums if filled at Deribit price | $560,064.48 |
| Amount Recouped from MMs | $180,017.54 |
| Remaining Shortfall | $183,164.94 |
Solution moving forward
- Gnosis auctions allow a minimum price, so that the auction does not settle at an unexpectedly low price. So far, we have been setting the minimum price at an extremely low number. Instead, we will increase this minimum price to a ~20% discount on Deribit’s price as a safeguard.
- Hardcode the correct gaslimits on the auction UI so this does not happen again.
- Implement a veto function on top of Gnosis Auctions contracts that lets the auction creator have a veto in whether or not to accept the price before settling the auction.
Notes
- USDC that is sent directly to the vault contract will be credited correctly to each user because of how the vault share/price-per-share mechanism works.
- New deposits after the vault expiry are still queued and will not be credited the premiums.
Voting
Voting is now open on Snapshot for three days. This vote will be a single choice vote. You may vote on the proposal by selecting “Yes, let’s do it” or “No, this is not the way”.