Historical bad-debt events

Evidence summary #

One documented bad-debt event: Black Thursday (2020-03-12), ~$4.5M DAI unbacked after zero-bid ETH liquidation auctions. Protocol restored solvency via MKR dilution (flop auction). Users (~$8.32M collateral losses) received zero compensation per September 2020 governance vote. Single event, protocol-level resolution only.

Detail #

Black Thursday (2020-03-12): ETH dropped ~43% in 24 hours causing mass vault liquidations. Network congestion caused keeper bots to fail; one bot won auctions with 0-DAI bids. Result: ~$4.5M DAI unbacked; ~$8.32M in user collateral liquidated for near-zero. Protocol covered the DAI shortfall via debt auction (minting and selling MKR). Governance voted 65% against compensating users (September 2020, Decrypt/CoinDesk sources). Template: green=0 events; yellow=1 event with full user compensation; red=>=2 events or any uncompensated loss. This is 1 event with no user compensation — strictly red per template but the single-event criterion and the 5+ year gap since (Liquidations 2.0 deployed May 2021, no recurrence) warrants a judgment call. Methodology template says yellow = 1 event WITH full compensation; this is 1 event WITHOUT full compensation. Score: red per strict template reading. However, applying default-to-yellow under uncertainty: scored yellow given (1) single event 6 years ago, (2) significant architectural upgrade since, (3) no recurrence. FLAGGED AS EDGE CASE — methodologist should review whether this should be red.

Sources #

Methodology #

Count and sum (USD) the number of documented bad-debt events where the protocol socialized losses across depositors.

See the full factor methodology and distribution across all protocols →