$100 Million Liquidated on Defi Protocol Compound Following Oracle Exploit


Lenders on decentralized finance (defi) protocol Compound on Thursday got liquidated for a massive $103 million, according to analytics provider Loanscan. This happened after what appears to be an oracle exploit on the Dai stablecoin.

An apparent error or malicious attack to the Dai-dollar-peg data supplied by the Coinbase oracle pushed the price of the stablecoin to about $1.30 – a premium of 30% – leaving some users on Compound under-collateralized.

Compound gets its pricing data from Coinbase Pro. Now, once this happened, and based on the built-in protocol rules, this could only mean one thing – forced liquidation of the borrower’s position.

According to Alex Svanevik, chief executive officer of data analytics firm Nansen, the liquidations affected the third-largest COMP farmer, who was liquidated for $46 million. Svanevik told industry media that, “As far as I can tell, Compound worked exactly as it should. But questions will be asked about the oracle.”

Compound, the third-largest defi platform, allows users to borrow funds such as Dai from each other. However, to borrow, a user is compelled to provide collateral that exceeds the amount they are borrowing – meaning all loans should be over-collateralized.

When the price of Dai spiked in the suspected Thursday oracle exploit, liquidations occurred because the loans had become under-collateralized.

For example, if a Compound user borrowed the equivalent of $100 in Dai, and then the price of the stablecoin rose to $1.30, it means the user’s borrowed amount has also increased to $130. However, if the user has less than this amount in collateral, they would be considered under-collateralized. Compound will liquidate them.

This is the platform’s biggest liquidation yet. In July this year, Compound saw $6.3 million worth of liquidations in 24 hours. Some observers criticized Compound for relying on a centralized platform like Coinbase for its price feeds.

“It boggles my mind that we are in late 2020 and defi platforms are still vulnerable to oracle attacks,” said one Twitter user @linkfrogposter. “This is why the Chainlink price feeds [for example] uses multiple sources of information (multiple independent node operators and multiple independent data providers). A median is then calculated.”

What do you think about Compound’s $100 million liquidations? Let us know in the comments section below.

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