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Decentralized Compound Finance Suspends Operations Of Four Crypto
Compound, one of the most prominent DeFi protocols in the ecosystem, has temporarily paused four different crypto, namely, 0x (ZRX), Basic Attention Token (BAT), Maker (MKR) and Yearn Finance (YFI).
Kabir V.
7:51 1st Nov, 2022
DeFi

The decision means that the above crypto can no longer be used by users as collateral for loans.

After two days of voting, the DAO that powers Compound Finance approved “Proposition 131,” which will prevent users from lending relatively illiquid assets on the protocol.

Compound decided to restrict the use of four crypto

The decision made by Compound was not implemented without any reason. In fact, it appears that the reason lies in protecting users from potential attacks involving price manipulation.

Indeed, a similar incident occurred in the recent $117 million exploit by Mango Markets. So, Compound is playing it safe and trying to defend itself, according to the proposal on the platform’s governance forum that was passed recently.

Specifically, precisely the four crypto (0x (ZRX), Basic Attention Token (BAT), Maker (MKR) and Yearn Finance (YFI) were suspended because it appears that these tokens have less liquidity in the open markets. Consequently they were vulnerable to price manipulation that could exploit the protocol.

What Compound’s proposal to protect users says

Nearly 99.9% of all voters supported the proposal, which passed on 25 October, with 554,126 Compound (COMP) tokens used in the voting process.

Robert Leshner, the founder of Compound Finance, also voted in favor of the proposal:

“An attack based on the manipulation of an oracle, similar to the one that cost Mango Markets $ 117 million, is much less likely to occur on Compound due to the collateral assets which have much higher liquidity than MNGO and Compound, requiring excessively secured loans. However, as a precaution, we propose to suspend the offer for the above assets, given their relative liquidity profiles.”

In addition, it appears that in a security review of Compound v2 performed in September, the Volt Protocol team had identified potential market manipulation risks related to low liquidity tokens. Specifically, the report stated:

“Attack is possible when the amount of a token that can be borrowed on markets such as Aave and Compound is large compared to the liquid market. The most notable example is ZRX, which has borrowable liquidity on each of these markets that is comparable to or greater than the usual daily volume across all centralized and decentralized exchanges.”

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