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 value of stablecoins typically improve because the demand for stability rises. In immediately’s crash, nonetheless, the impact grew to become notably pronounced on Dai (DAI), which briefly traded for $1.3 between 7 and eight AM UTC.
Dai/USD worth on Coinbase, courtesy of TradingView
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 secure worth.
Dai/USD worth on Bitfinex, courtesy of TradingView
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 examine and anchor. Nonetheless, it seems that Uniswap failed in its operate and likewise posted a a lot larger worth than regular.
Compound’s liquidation this morning amounted to $89 million, of which about $52 million got here from DAI, in response to information from DuneAnalytics.
One liquidation specifically is notable for its extraordinarily giant dimension of 46 million DAI repaid.
As DeFi researcher Sam Priestley defined, 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 improve in DAI worth put the account beneath the liquidation threshold.
The liquidator seized nearly 2.4 billion cDAI, price roughly $50 million with a worth 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 the usage of a flash swap from Uniswap and calls to replace Compound’s oracle. One other 4 transactions issued by the identical liquidator eliminated a further $6 million in debt.
The occasion highlighted the hazards of counting on only a few 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 clarification of the dangers of utilizing a single trade. He continued:
“DeFi protocols that depend on centralized oracles that pull information from single exchanges, DEXes or in any other case, are inadvertently placing person 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 bunch of exchanges, ensuring we seize the real-world worth of a cryptocurrency by means of correct market protection.”
Whereas there is no such thing as a proof to counsel lively manipulation, the truth that DAI worth jumped particularly on the exchanges utilized by Compound’s oracles might draw suspicion. Generally, the liquidation provides to the latest flash mortgage hacks to focus on DeFi’s extreme reliance on only a few information sources as oracles, Nazarov concluded.