As per Cointelegraph, LoanScan has reported that $89 million was liquidated in the last 24 hours on the Compound Liquidator loan platform. This involves the third-largest COMP farmer, who, Nansen CEO Alex Svanevik noted, was liquidated for $46 million.
“As far as I can tell, Compound worked exactly as it should. But questions will be asked about the oracle.”
Compound is a website that allows users to lend out and borrow cryptocurrencies. With $1.55 billion in reserves tied up in its smart contracts, it is the third biggest DeFi site. The user needs to set up equity that exceeds the sum they are investing in order to borrow cryptocurrencies.
The 3rd largest COMP farmer took a big hit with the liquidations. Around $46m.
Tx: https://t.co/waOEZlh3U1 pic.twitter.com/QrlkPjJHyc
— Alex Svanevik 🧭 (@ASvanevik) November 26, 2020
Loan Exploits
However, these loans operate using the decentralized Ethereum network. If the blockchain notices that the debt has been undercollateralized, it forces the liquidation of the loan.
In specific, this liquidation is noteworthy for its exceptionally large size of $46 million in DAI.
This liquidation was done on a leveraged COMP farmer, who used USD Coin (USDC) and DAI collateral to power recursive borrowing in the same currencies, as DeFi researcher Sam Priestley stated. The obvious spike in the DAI price put the account below the level for liquidation.
Nearly 2.4 billion cDAI was received by the liquidator, worth nearly $50 million at a price of $0.0209, thus returning only $46 million in DAI. Given the current Compound liquidation reward of 8 percent, this is an anticipated action.
The transaction in question included the usage of a Uniswap flash swap and calls to upgrade the oracle of the Compound. The extra $6 million in liability was removed by another four transactions made by the same liquidator.
Chainlink (LINK) creator Sergey Nazarov told Cointelegraph that the incident demonstrated the pitfalls of focusing on only a few data points for oracles.
DeFi protocols that rely on centralized oracles that pull data from single exchanges, DEXes or otherwise, are inadvertently putting user funds at risk. […] The Chainlink network was unaffected by this exploit because we source data from multiple leading data providers and hundreds of exchanges, making sure we capture the real-world price of a cryptocurrency through proper market coverage.
What is COMP?
The Compound Governance Token (COMP) or sometimes verbally Compound Coin) generated by the Compound Finance Team is the main governance token of the Compound Lending Protocol. U
ltimately, members of the Compound Lending Site, without depending on or involving, our staff, would be granted the ability to propose, negotiate, and introduce improvements to the Compound.
COMP is an ERC-20 asset token that just like the Compound Smart Contract itself would operate on the Ethereum Network.
Furthermore, COMP requires its owner to assign voting privileges to an account of their choosing, be it the own wallet of the owner, another user, an application, or a specialist in DeFi. The Compound Governance, just like EOS, Lisk, Steem or Bitshares, would basically operate on a Delegated Proof of Stake model.
Only initiatives with the backing of at least 1% of the overall COMP supporting supply would then be placed up for voting, however.
These proposals might involve attaching support to a new asset, changing the collateral element of an asset, changing the interest rate formula of a sector, or changing some other protocol attribute or variable that can be changed by the existing administrator.
