$100 M Liquidated on Compound Following Oracle Exploit
Nov 27th 2020
$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.