MarginFi to Refund Some Users After Oracle-Related Liquidations Spark Backlash

MarginFi, the decentralized lending and borrowing protocol on Solana, has committed to refunding users affected by a series of controversial liquidations. This decision comes after several days of community outcry over liquidations related to Oracle price feeds and the Liquid Stake Token (LST) assets.

Oracle Changes and Depegs Lead to Liquidations

During a recent period of high volatility in the cryptocurrency market, a few LST assets experienced temporary depegs. MarginFi had recently made changes to its Oracle system. The company asserts that these changes were meant to improve usability during Solana network congestion; however, critics allege the changes made the protocol much riskier.

These factors combined to produce mass liquidations of MarginFi users holding LST positions. Some users, even those with account health as high as 40%, reported being liquidated.

Community Accusations and Frustration

The initial lack of communication from MarginFi fueled widespread user frustration within the protocol's Discord community. Moderators directed affected users to fill out a web form for investigation, but no official announcement was made for several days.

User Apemybags (@Apemybags) took to Twitter, claiming MarginFi liquidated his jitoSOL LST collateral due to an oracle depeg despite having a health factor of 25-40%. He stated losses of approximately $15,000 with no transaction logs or a way to track where the lost collateral went.

Another user, TobiWebIII (@TobiWebIII), stated he was liquidated in a $SOL-bsol LST pair even with 30% account health. They expressed anger and threatened consequences if MarginFi didn't address the issue promptly.

MarginFi's Response

After facing significant backlash, MarginFi contributor mrgnalt (@mrgnalt) issued a statement 3 days after the incident clarifying the situation and announcing plans to refund some liquidated users.

The statement acknowledged the temporary changes to oracles during Solana network congestion but emphasized that feeds had since been returned to more stable solutions. They also committed to utilizing the protocol's insurance fund:

• Full refunds for liquidated accounts under a $10,000-$20,000 threshold.
• Compensation for less than 10 larger accounts affected.

Lingering Issues

Several concerns remain. Many users have complained about a lack of transparency. The "Activity" tab within the protocol, a feature that should log liquidations, is currently grayed out, making it difficult to track what happened to lost funds.

This incident highlights the risks associated with DeFi protocols and the crucial role oracles play in triggering actions like liquidations. The situation serves as a reminder of the importance of due diligence and underscores the need for clear communication and transparency within DeFi projects.