Bitcoin

The Compound Liquidator made $ 4 million after oracles raised the DAI price

The cryptocurrency market suffered a sharp decline in the early morning hours (UTC) of Thursday morning, which led to the prices of major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) will fall by more than 10%.

Generally, when traders close their positions quickly, the price of stablecoins increases as demand for them increases.. This fall, however, this effect was particularly noticeable in the price of Dai (DAI), which briefly hit $ 1.3 between 7 a.m. and 8 a.m. UTC.

Dai / USD price on Coinbase, courtesy of TradingView

The most remarkable thing is that DAI only acted on this inflated valuation with Coinbase and Uniswap. Other exchanges like Kraken and Bitfinex appear to have maintained a relatively stable price.

Dai / USD price on Bitfinex, courtesy of TradingView
The Compound Liquidator made $ 4 million after oracles raised the DAI price
The Compound Liquidator made $ 4 million after oracles raised the DAI price

Coinbase and Uniswap are the two of Compound’s Oracle Open Price Feed. The former serves as a base, while the latter is used as a health check and anchor for pricing. But still, Uniswap seems to have bugged their function and also released a much higher price than normal.

Compound bills were $ 89 million this morning, roughly $ 89 million of that According to DuneAnalytics, $ 52 million came from DAI.

One of the features of a settlement is its extremely large size of 46 million reimbursed DAI.

As explained the DeFi researcher, Sam Priestley, this settlement was made with a COMP-Leveraged Farmer who used USD Coin (USDC) and DAI as collateral to encourage recursive lending in the same currencies. Due to the obvious increase in the DAI price, the account was below the billing threshold.

The liquidator was almost blocked $ 2.4 billion CDAI valued at approximately $ 50 million at a price of $ 0.0209 while DAI returned only $ 46 million. This is the expected behavior given Compound’s current 8% payout incentive.

As such, the transaction involved the use of a uniswap flash swap and calls to update the compound oracle. Four more transactions by the same liquidator removed an additional $ 6 million in debt.

The event highlighted the dangers of relying on some data points for oracles, Chainlink (LINK) founder Sergey Nazarov told Cointelegraph. “We predicted this vulnerability over a year ago through centralized oracles and poor data quality.” He explained the risks of using a single exchange as a reference. Continuously:

“DeFi protocols based on centralized oracles that pull data from a single exchange, DEX or otherwise, inadvertently put users’ funds at risk. […] The Chainlink network was not affected by this vulnerability as we receive the data from several leading data providers and hundreds of exchanges to ensure that we are capturing the actual price of a cryptocurrency through adequate market coverage. “

There is no evidence that it was tampering, but The fact that the DAI price has risen specifically on the exchanges used by Compound’s oracles could arouse suspicion. Overall, the settlement contributes to the youngest Flash credit attacks Nazarov concluded to highlight DeFi’s over-reliance on just a few data sources such as oracles.

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