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 â€“ a premium of 30% â€“ 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 â€“ forced liquidation of the borrowerâ€™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, â€œAs far as I can tell, Compound worked exactly as it should. But questions will be asked about the oracle.â€
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 â€“ 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 userâ€™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 platformâ€™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.
â€œIt boggles my mind that we are in late 2020 and defi platforms are still vulnerable to oracle attacks,â€ said one Twitter user @linkfrogposter. â€œThis 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.â€
What do you think about Compoundâ€™s $100 million liquidations? Let us know in the comments section below.
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