[GIP-276] Return of Liquidation Profits & Fees for Expired Credit Managers
Summary This proposal aims to reimburse affected users for profits and fees generated during the forced liquidation of expired Credit Managers on Arbitrum, Optimism, Sonic, and Ethereum Mainnet, and to establish a streamlined process for future events.
Specifically, this proposal entails:
- Transferring 100% of the profits currently held by the DAO Old Liquidator wallet directly to the affected user wallets.
- Reimbursing the portion of liquidation fees collected by the DAO Treasury.
- Formally requesting kpk (curator) to reimburse their portion of the fees collected during these events.
- Establishing a Standing Mandate to automatically refund profits for future emergency liquidations occurring in Chaos Labs Legacy Markets during market pauses.
Motivation Recently, specific Credit Managers were set to expire. Following the expiration, the accounts were paused, and liquidations were subsequently whitelisted to close out positions.
These liquidations occurred on paused accounts that were effectively forced into liquidation due to the expiration status, rather than user negligence regarding health factors. Consequently, it is ethically inconsistent to profit from users in this specific scenario.
Given that these accounts were forcefully liquidated as part of an emergency or migration process, it's proposed to return all earnings (Liquidator profits and Protocol fees) to the affected users. This action reinforces commitment to fairness and user protection during protocol interventions.
Specification The reimbursement process covers three distinct components: the immediate restitution for past events and a forward-looking rule for future operations.
-
Liquidator Profits (Current Event) The Emergency Liquidator wallet collected arbitrage profits from these transactions. The total accrued profits from these specific liquidations will be sent directly to the wallets of the affected users as detailed in the tables below.
-
DAO Treasury Fees & kpk Reimbursement (Current Event) The DAO Treasury collected a fee share from these liquidations. The DAO will reimburse this amount. Additionally, the DAO requests kpk to mirror this action for their respective fee share.
-
Standing Mandate for Future Legacy Liquidations To eliminate the need for repetitive governance votes regarding standard emergency maneuvers in the Chaos Labs Legacy Markets, this proposal establishes a permanent mandate.
The Standing Rule: The DAO grants pre-authorization for the Liquidator or Treasury to automatically refund liquidation profits to affected users in any future event that meets all the following criteria:
The Trigger: A liquidation occurs in the Chaos Labs Market. The Condition: The liquidation occurs while the market is technically Paused, meaning the user had no ability to manage their position. The Actor: The liquidation is performed by a Whitelisted Emergency Liquidator.
Operational Execution: In such instances, the liquidation profit (excess collateral seized) is classified as user property rather than protocol revenue. It will be sent directly to the user's wallet as an operational maintenance action, requiring no further Snapshot or on-chain governance vote.
Distribution Data
Arbitrum Reimbursements
Optimism Reimbursements
| Borrower Wallet | Credit Account | Liquidation Tx | Token | Liquidator Profit Refund |
|---|---|---|---|---|
| 0x4d86...0a84 | 0x321c...D91a | https://optimistic.etherscan.io/tx/0x63fd57e5cf95b50a39fdcd7cc8dd0219f0fc89f1662e71d1de91d04fab480b172 | WETH | 0.0051 |
Sonic Reimbursements
| Borrower Wallet | Credit Account | Liquidation Tx | Token | Liquidator Profit Refund |
|---|---|---|---|---|
| 0x531b...8689 | 0x9225...d4ce | https://sonicscan.org/tx/0x85c33e7bc9eb0eca637e865cc3382d2f11e6420467f5ccf353ea8efd68c96d65 | WS | 17.3410 |
Ethereum Mainnet Reimbursements Curator + DAO liquidation fee is split between kpk and DAO treasury 50/50. So this proposal asks DAO permission to send 50% of the specified fee, while another 50% should be sourced from kpk side.
| Borrower Wallet | Credit Account | Liquidation Tx | Token | Liquidator Profit Refund | Curator + DAO Fee |
|---|---|---|---|---|---|
| 0x6D7A...688f | 0xF236...dff9 | https://etherscan.io/tx/0x73b80d27b4155b9102059aea61bed4e5e108ab25a30b1c06abb174eeae70b295 | wstETH | 5.2670 | 2.6340 |
| 0xE442...D6c | 0x5cab...5731 | https://etherscan.io/tx/0xe2ec2f5f566f3c21a78b5b465177ce7a41bc35a1696b83b9d3909333a85e62ac | wstETH | 2.7630 | 0.9210 |
Execution Upon reaching the "For" quorum, the following actions will be queued:
Transfer: Execute batch transfers from the Liquidator Wallet to the addresses listed in the specification. Transfer: Execute batch transfers from the DAO Treasury to the addresses listed in the specification.
Communication: The DAO contributors will coordinate with kpk to facilitate the return of their portion of the fees.
Off-Chain Vote
Timeline
Jan 12, 2026Proposal created
Jan 12, 2026Proposal vote started
Jan 15, 2026Proposal vote ended