Summary
On February 2, 2025, the 3x ETH ILM experienced a rapid liquidation due to extreme market volatility, causing additional losses beyond normal 3x leverage drawdowns. This proposal seeks to compensate affected users with esSEAM tokens at 105% of the liquidation penalty incurred, using a reference price of $0.5573 per esSEAM. Only addresses eligible for at least 1 esSEAM will receive compensation. The total SEAM budget will be sent to the Seamless Guardian for distribution according to the provided spreadsheet and Dune query (see Discourse).
Context and Motivation
The incident occurred when ETH prices dropped approximately 30% in under 5 minutes. High DEX slippage prevented proper ILM rebalancing, triggering a protective liquidation to avoid bad debt. The impact affected approximately 701 users:
- Standard losses: Users faced ~60% (3x) losses from the ETH price drop
- Additional protocol-level liquidation losses affected small accounts ($85 average loss), top 10 depositors ($5.2k each), and mid-level users
The compensation structure includes:
- Pro-rata distribution based on each address's percentage of liquidation-specific losses
- 105% coverage in esSEAM to account for vesting and reduced liquidity
- 12-month vesting schedule to ensure long-term alignment
This compensation is explicitly a one-off event and does not create a binding precedent. The scenario was extraordinarily rare, but compensation is warranted due to the protocol-level fault to maintain user confidence.
Resources/References
