Deciding on Payouts
A protocol covered by Sherlock will bring a possible covered exploit in their protocol to the attention of Sherlock, specifically the Sherlock Protocol Claims Committee (SPCC). It is likely the security experts at Sherlock in charge of the covered protocol will be involved in this process and may lead the process of bringing the possible covered exploit to the attention of the SPCC. The covered protocol will also submit the amount of the claim. It is likely the security experts at Sherlock in charge of the covered protocol will also be heavily involved in advising the proper amount for which to create a claim.
Once a possible exploit and the amount claimed by the covered protocol is brought to the attention of the SPCC, the process of deciding the validity of the claim begins. The SPCC will be made up of members of the core team of Sherlock as well as advisors to Sherlock. These members will be well-versed in the general nature of exploits and possible claims covered by Sherlock. This committee will be comprised of some of the foremost security experts in the DeFi space. All of the members of the SPCC will have a stake in Sherlock (likely in the form of tokens or equity) and will have an interest in doing what is best for the long-term health of Sherlock. They will also have reputations and public identities existing outside of Sherlock that they will want to uphold. These factors will make it very likely that the members of the SPCC will see it in their best interest to make the most accurate claims decision possible.
The decision made by the SPCC will be binary (either a claim will be accepted or not). Once a decision is made on a claim by the SPCC, there are a few possible paths. The first path for a covered protocol is to accept the decision. The second path is to revise the claim (usually the amount of the claim) and re-submit. A covered protocol is limited to 3 submissions for each potential exploit (to be defined by the block number or range of the potential exploit). The third and last path is to escalate the arbitration. This would require the covered protocol to “stake” a reasonable claim amount (i.e. the lesser of $50k or 1% of the claim amount) to escalate the claim above the SPCC. The escalation would move the claim decision from Sherlock’s hands into the hands of UMA’s Optimistic Oracle. The claims decision would then be voted on by UMA tokenholders using UMA’s Data Verification Mechanism and the resolution of that vote will be the final claim decision. If the covered protocol is proven correct, then the amount specified by their claim will be paid out. They will also receive their stake back in full. If the covered protocol's escalation is not successful, then the amount specified by the claim is not paid out and the 1% (or less) stake is not returned.
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