COMPOUND FINANCE

DESCRIPTION OF EVENTS

"Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications."

"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."

"Compound's price feed error caused the liquidation of $90 million in assets. According to DeBank founder hongbo, the huge liquidation of Compound was caused by the dramatic fluctuations in the DAI price of the oracle information source Coinbase Pro. It is a typical oracle attack to manipulate the information source that the oracle relies on to perform short-term price manipulation to achieve misleading prices on the chain."

"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."

"When traders rush for the exits, the price of stablecoins generally increase as the demand for stability rises. In today’s crash, however, the effect became particularly pronounced on Dai, which briefly traded for $1.3 between 7 am and 8 am UTC."

"The Compound protocol uses Coinbase Oracle 69 for account liquidity calculations, anchored to within 20% of the Uniswap time-weighted average price. Any Ethereum address can post the signed/reported price on-chain, which allows for a permissionless and autonomous price feed 18 that rapidly de-risks accounts."

"From approximately 12:00am to 1:00am PT on Thanksgiving morning, the price of DAI on Coinbase Pro began trading at increasing prices and volume across the DAI/USDC, DAI/USD, and ETH/DAI pairs, reaching as high as $1.30. This coincided with a decline in ETH prices globally, of approximately 8% during the same time period."

"Most notably, Dai traded at this inflated valuation only on Coinbase and Uniswap, while other exchanges including Kraken and Bitfinex seem to have maintained a relatively stable price." "Coinbase and Uniswap are the two exchanges used by Compound’s Open Price Feed oracle. The former acts as the baseline, while the latter is used as a sanity check and anchor. Nonetheless, it appears that Uniswap failed in its function and also posted a much higher price than normal."

"[T]his Dai price spike, combined with an acutely falling ETH price, pushed some Dai positions on DeFi lending protocol Compound into being undercollateralized and thus capable of being liquidated." "The so called “DAI liquidation event” has shown, that the open oracle, which is used by Compound, has weaknesses. The root cause is, that the oracle uses only one price source, which is Coinbase. The effect is, that the Coinbase prices are used in Compound, even if they deviate largely from the rest of the market. The Uniswap price is used to define a +/- 20% bounding, but as seen, this doesn’t solve the problem."

“From what I’ve heard, the compound liquidations would have been much worse without the addition of [Uniswap] TWAPs to the Compound oracle … While the Coinbase oracle price spiked, Uniswap TWAPs did not increase much, causing the most extreme prices to be rejected.”

"Not only should most of these liquidations not have happened, folks that had non-DAI collateral lost ~30% of value of their collateral in the liquidation process due to the erroneous oracle allowing the collateral to be seized at an adverse and improper exchange rate."

"[I]t does not seem like the big compound liquidation was an oracle problem. [T]he market price of DAI was $1.30 in a real market with real trading."

"This morning, $DAI prices on Coinbase Pro escalated rapidly, leading to the liquidation (repayment) of 85.2M DAI borrowed from Compound."

"124 of 225,793 users were impacted; there are no under-collateralized accounts, and all markets are healthy."

"Fundamentally, the protocol and price feed performed as designed; real trading, on America’s largest exchange, was used to aggressively reduce the risk of borrowers in the protocol. What was unexpected was the adverse market condition that occurred, how quickly it occurred, and for many users, that it could occur at all."

Compound Finance relied on CoinBase for the price of DAI stablecoins. In a time of rapid market crash, the price on CoinBase went above $1.30 on CoinBase, while other services had prices around $1.03. This caused customers who had loans to fall below the required backing and get liquidated.

SlowMist Hacked - SlowMist Zone (May 18)
Fix the Compound oracle problem - Ideas - Compound Community Forum (Jul 24)
$100 Million Liquidated on Defi Protocol Compound Following Oracle Exploit – News Bitcoin News (Jul 24)
Compound (Jul 24)
Compound liquidator makes $4M as oracles post inflated Dai price (Jul 24)
To Chainlink? That's the DeFi Question: Exploring the Recent Compound Liquidations (Jul 24)
@scott_lew_is Twitter (Jul 24)
@rleshner Twitter (Jul 24)
DAI Liquidation Event - Compound Community Forum (Jul 24)
DAI Liquidation Event - #4 by cryptoguy123 - Compound Community Forum (Jul 24)
DAI Liquidations - Google Sheets (Jul 24)
$103 Million Liquidated on DeFi Protocol Compound After DAI Price Rise | Cryptoglobe (Jul 24)
@arbingsam Twitter (Jul 24)
Blockchain Hacks: 2020 | $15 billion lost, how can we mitigate hacks in 2021? | CertiK Foundation Blog (Jul 23)
Rekt - Coinbase & The Oracle (Sep 23)

More case studies

Uniswap Fake Deriswap
Liquidity Pair

Saffron Finance
Lock Up