A total of $103 million were liquidated on popular decentralized finance protocol Compound after a sudden rise in the price of the DAI stablecoin on Coinbase Pro saw some loans become under-collateralized.
After what appears to have been an error or malicious attack, the price of the dollar-pegged stablecoin DAI surged on Coinbase to $1.30 – a 30% premium. The price rise saw some loans on Compound become under-collateralized and given the platform’s rules, were liquidated.
Compound is a lending and borrowing DeFi protocol. Users can lend out funds to earn interest and take out loans if they post enough collateral to cover the funds they get. If a user borrows $100 in a cryptocurrency, they must have more funds as collateral. With the price of DAI rising to $1.3, some loans were considered under-collateralized and were liquidated.
On social media Robert Leshner, founder of Compound, revealed that only 124 addresses out of 225,793 were affected, and that “all markets are healthy.”
In a post, Leshner wrote that the “protocol and price feed performed as designed,” as real trading on one of America’s largest cryptoasset trading platforms was used to “aggressively reduce the risk of borrowers in the protocol,” and added that what was unexpected were the adverse market conditions.
The DAI market on the platform, he said, has 1.6 million DAI supplied and 1.3 billion DAI borrowed and grew more rapidly than anticipated. The market on Compound “eclipses both the underlying DAI market, the liquidity on exchanges, and the global trading volume of DAI by a vast margin.”
Alex Svanevik, CEO of on-chain analytics firm Nansen, pointed out the liquidations affected the third-largest COMP farmer on Compound, who lost $46 million.
Outlining potential next steps Leshner pointed out the protocol could modify DAI market parameters to include a borrowing cap and reduce the size of the DAI market in it, or to modify the DAI price feed.
On social media, several users criticized Compound for relying on the price of assets on a centralized trading platform, instead of using multiple sources of information.
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