Connection suspends the activity of four cryptos
Compound, one of the most prominent DeFi protocols in the ecosystem, has suspended four different cryptos namely 0x (ZRX), Basic Attention Token (BAT), Maker (MKR) and Yearn Finance (YFI).
The decision means that the above-mentioned crypto can no longer be used by users as collateral for loans.
After two days of voting, the DAO holds the power Composite finance approved “Proposition 131”, which will prevent users from lending relatively illiquid assets on the protocol.
Why Compound decided to limit the use of four cryptos
The decision taken by Compound was not implemented without reason. In fact, the reason seems to be to protect users from potential attacks involving price manipulation.
In fact, a similar incident happened recently 117 million dollars utilization of Mango Markets. So Compound is playing it safe and trying to defend itself, according to the proposal on the platform’s board forum that was recently passed.
Specifically, the four cryptos (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. vulnerable to price manipulation that can exploit the protocol.
What Compound’s proposal to protect users says
Almost 99.9% of all voters supported the proposal, which was adopted on 25 October 554,126 composite (COMP) tokens used in the voting process.
Robert Leshnerthe 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 happen on Compound due to the collateral having much higher liquidity than MNGO and Compound, which require excessive secured loans. However, as a precaution, we propose to suspend the offer for the above assets, given their relative liquidity profiles.”
Additionally, it appears that in a security review of Compound v2 conducted in September, the Volt Protocol team had identified potential market manipulation risks associated with low liquidity tokens. Specifically, the report states:
“Attacks are 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 loanable liquidity on each of these markets comparable to or greater than common daily volume across all centralized and decentralized exchanges.”
What happened in Mango Market’s exploitation
Compound confesses its fear and does not act randomly. In fact, the antecedent of Mango Markets does well to warn other decentralized platforms as well. Let’s look specifically at what happened.
October 11, Mango Markets, a Solana-based trading platform, was leveraged for nearly $117 million. Abraham Eisenbergthe hacker behind the Mango Markets exploit manipulated the value of the published security, the platform’s native token (MNGO), to higher prices.
He then took out substantial loans against the inflated collateral, which drained Mango’s coffers. The exploiter then drained the assets, which included Solana, USDC, USDT, BTC and MNGO.
Shortly after exploitation, the price of MNGO bottomed out before the exploiter staged an artificial pump.
The exploiter then claimed that he and a team of hackers engaged in a “highly profitable business strategy” and that these were “legal actions in open markets, using the protocol as intended.”
After a proposal in Mango’s board forum was approved, Eisenberg was allowed to keep $47 million as a “bug bounty” while $67 million was sent back to the treasury.
Composite and institutional client loans with crypto security
Back in September of this year, Compound had already announced another major innovation, destined to make and remain one of the most important protocols in the entire DeFi space.
In fact, Compound finally unveiled crypto-secured lending for institutional customers. Essentially, crypto-backed loans mean they can be backed by Bitcoin, but also Ethereum and a variety of ERC 20 tokens supported by the protocol.
In this way, institutional investors who have quantities of these crypto-assets will, under classic compound rules, be able to receive liquidity in dollars or USD Coin in return. A step that opens the doors of DeFi to large financial institutions.
In a delicate phase like the current bear market, the moves Compound implemented prove to be significant. They propose to make a difference in a sector that still has a long way to go and many solutions to offer even to the traditional financial world.
