Yesterday, dYdX experienced a chain halt lasting over 10 hours, leading to more than $3M in liquidations.
While centralized exchanges (CEXs) may compensate for system errors, the question arises: who should take responsibility in decentralized exchanges (DEXs)?
In your blog article, you address several key points:
Firstly, it’s important to clarify that the upgrade process was planned and underwent a voting procedure from 04/01 20:00 to 04/05 20:00, a span of three days prior to the actual implementation.
Consequently, it was not an impromptu maintenance action. In such instances, prudent risk management dictates that individuals should consider adjusting their positions accordingly.
This principle applies equally to validators, who, when informed by the Data Center (DC) of an upcoming maintenance window with a 24-hour notice, must assess their exposure and potentially temporarily relocate their validator nodes.
Secondly, we delve into the matter of testnet representativity.
Currently, there are 31 active validators on the testnet, and upon inspection, the entity “Crypto Learning Club” is not among them (as evidenced by Mintscan).
It’s crucial to acknowledge that while testnets serve a valuable purpose in simulating network conditions, they inherently lack the scale and user activity of the mainnet.
In the context of the recent upgrade, we encountered unexpected delays stemming from the necessity to upgrade our remote signers. Consequently, we had to await the release of stable versions before proceeding with the mainnet upgrade.
I believe it is necessary for a service to determine in advance to what extent compensation will be provided (or not) in the event of an unexpected loss. This could involve:
Refunding just the fee amount as you mentioned (though it’s a very small amount),
Refunding only 20% of liquidation loss, etc.
It’s ok to announce no compensation as DeFi, but creating a safety net in this way makes it easier for large traders to participate.
Consequently, it was not an impromptu maintenance action. In such instances, prudent risk management dictates that individuals should consider adjusting their positions accordingly.
While I fundamentally agree with the argument that traders should take personal responsibility for risk management, I also believe it’s crucial for service providers to create a more trader-friendly environment.
When comparing with CEX, if dYdX’s response is inferior, I am concerned that it might lead to user attrition. Traders largely do not care about whether a service is decentralized or not, so it’s important to improve the quality of service as a DAO, which is why I wanted to gather opinions in this brainstorming session!
It’s crucial to acknowledge that while testnets serve a valuable purpose in simulating network conditions, they inherently lack the scale and user activity of the mainnet.
I understand that a testnet cannot replicate the mainnet environment perfectly, making it incredibly difficult to eliminate all bugs.
By the way, we were unaware of the existence of the public testnet, therefore, we had not participated in it. I believe that ensuring the proper operation of the source code in advance is a duty as a validator, so we plan to participate in it from now on to contribute to pre-launch testing.
Parties who were liquidated due to a system failure should be compensated just as they would on a centralised exchange. If dydx is to be taken seriously and not suffer bad publicity this needs to happen swiftly and decisively.