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Compound Finance to impose lending caps in light of failed Aave exploit

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Customers of decentralized finance lending platform Compound Finance have passed a proposal to limit the utmost borrowing of 10 tokens on the protocol. The proposal put forth by monetary modeling agency Gauntlet handed Nov. 28 by majority vote, though the full turnout amounted to lower than 7% of the COMP tokens in circulation. 

Most notably, tokens comparable to Uniswap (UNI) and COMP had their borrow limits slashed from 11.25 million and 150,000 to 550,000 and 18,000, respectively. Different much less liquid altcoins on Compound had been additionally affected, comparable to Yearn.finance (YFI), which had its borrow cap diminished from 1,500 to only 20. Wrapped Bitcoin (WBTC), which beforehand had no borrow restrict on Compound, has been slapped with a lending ceiling of 1,250.

In accordance with Gauntlet, the proposal would stop “insolvency threat from liquidation cascades,” “value manipulation Mango squeeze exploits,” “threat of excessive utilization” and “threat from shorting belongings from a brief place on Compound of great measurement relative to the circulating provide of the asset.” Though the associated incident was in a roundabout way referenced, Gauntlet additionally carried out modeling and threat evaluation for DeFi lending protocol Aave. 

On Nov. 22, it was revealed that Mango Markets hacker Avraham Eisenberg tried to use the protocol by shorting excessive quantities of Curve (CRV), which was an illiquid token on Aave on the time, forcing the protocol to liquidate the place at a loss attributable to important slippage. Nevertheless, it turned out that the slippage was far lower than anticipated, and Eisenberg reportedly misplaced an estimated $10 million within the assault after a CRV brief squeeze.

Gauntlet then proposed to freeze a sequence of tokens on Aave v2 which may be susceptible to an exploit attributable to lack of liquidity. Presently, the Compound Finance protocol has $654.7 million in complete borrowings collateralized by $2.146 billion in belongings.