Compound Finance Imposes Lending Limit After Aave Incident

Faced with a serious incident from Aave that took place last week, Compound Finance quickly took precautions for itself.

Users of the decentralized finance lending platform Compound Finance have approved a proposal to limit the protocol’s maximum borrowing to 10 tokens.

The proposition put out by financial modeling firm Gauntlet was approved by a majority vote on November 28, even though the total turnout was less than 7% of the COMP tokens in circulation.

According to Gauntlet, the idea will reduce the risk of insolvency from liquidations, price manipulation, and the risk of shorting or longing an asset while taking advantage of Compound loans, which have a substantial scale influence on the circulating supply of that asset.

Most notably, popular DeFi tokens such as Uniswap (UNI) and COMP have cut their borrowing restrictions from 11.25 million and 150,000 to 550,000 and 18,000, respectively, in this proposal.

Other illiquid cryptocurrencies on Compound have been considerably impacted, such as Yearn.finance (YFI), which has decreased its loan limit from 1,500 to only 20. Wrapped Bitcoin (WBTC), Ethereum’s on-chain equivalent of Bitcoin, has plunged to 1,250.

On November 22, it was revealed that Avraham Eisenberg of Mango Market attempted to exploit the protocol by shorting large amounts of Curve (CRV), forcing the protocol to liquidate the position at a loss due to significant slippage. The token slide also caused Eisenberg to suffer significant losses.

The aforementioned problem is best shown by the recent meltdown of the lending protocol Aave in the previously mentioned article Coincu.

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Harold

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