The crypto market suffered a strong crash on Thursday morning UTC, which despatched costs of main currencies like Bitcoin (BTC) and Ether (ETH) tumbling in extra of 10%.
When merchants rush for the exits, the worth of stablecoins typically enhance because the demand for stability rises. In at this time’s crash, nonetheless, the impact turned significantly pronounced on Dai (DAI), which briefly traded for $1.3 between 7 and eight AM UTC.
Most notably, DAI traded at this inflated valuation solely on Coinbase and Uniswap, whereas different exchanges together with Kraken and Bitfinex appear to have maintained a comparatively steady value.
Coinbase and Uniswap are the 2 exchanges utilized by Compound’s Open Worth Feed oracle. The previous acts because the baseline, whereas the latter is used as a sanity verify and anchor. Nonetheless, it seems that Uniswap failed in its operate and in addition posted a a lot larger value than regular.
Compound’s liquidation this morning amounted to $89 million, of which about $52 million got here from DAI, in accordance with information from DuneAnalytics.
One liquidation particularly is notable for its extraordinarily giant measurement of 46 million DAI repaid.
As DeFi researcher Sam Priestley explained, this liquidation was carried out on a leveraged COMP farmer, who used USD Coin (USDC) and DAI collateral to energy recursive borrowing in the identical currencies. The obvious enhance in DAI value put the account beneath the liquidation threshold.
The liquidator seized nearly 2.4 billion cDAI, value roughly $50 million with a value of $0.0209, whereas returning simply $46 million in DAI. That is anticipated conduct given Compound’s present liquidation incentive of 8%.
The transaction in query concerned using a flash swap from Uniswap and calls to replace Compound’s oracle. One other 4 transactions issued by the identical liquidator eliminated an extra $6 million in debt.
The occasion highlighted the risks of counting on just some information factors for oracles, Chainlink (LINK) founder Sergey Nazarov advised Cointelegraph. “We predicted this very exploit of centralized oracles and poor information high quality over a 12 months in the past,” he mentioned, mentioning his rationalization of the dangers of utilizing a single alternate. He continued:
“DeFi protocols that depend on centralized oracles that pull information from single exchanges, DEXes or in any other case, are inadvertently placing consumer funds in danger. […] The Chainlink community was unaffected by this exploit as a result of we supply information from a number of main information suppliers and a whole lot of exchanges, ensuring we seize the real-world value of a cryptocurrency via correct market protection.”
Whereas there isn’t any proof to recommend lively manipulation, the truth that DAI value jumped particularly on the exchanges utilized by Compound’s oracles might draw suspicion. Usually, the liquidation provides to the current flash mortgage hacks to spotlight DeFi’s extreme reliance on just some information sources as oracles, Nazarov concluded.