- The DeFi protocol, Compound, decided to temporarily stop trading the crypto assets Ox (ZRX), Basic Attention token (BAT), Maker (MKR), and Yearn Finance (YFI).
- This action is part of “Proposition 131”, which is intended to prevent users from lending assets with a low level of liquidity in the protocol, which lend themselves to price manipulation.
The world of digital assets, like other instances, is not free from fraud or manipulation in the systems and services it offers, which is why experts in the field make decisions that help improve the ecosystem, in favor of the assets themselves. users, first of all, so that the services continue to be used and secondly, as a measure to avoid a bad reputation and to promote the adoption of this type of digital money more and more.
Thus, recently one of the DeFi protocols (Decentralized Finance) better known, compound, decided to temporarily stop trading four cryptocurrencies: Ox (cZRX), Basic Attention token (cBAT), Maker (cMKR), and Yearn Finance (YFI).
This action has the repercussion that users are unable to use crypto currencies as collateral for loans. However, the decision was not taken by chance, since it was put to a vote for two days.
After that date, the DAO responsible for promoting Compound Finance approved the “Proposition 131″which has the purpose of preventing users from lending assets with a low level of liquidity in the protocol.
Compound government members backed the proposal with 554,126 votes in favour, a figure that is representative of 99.99 percent of the vote. Only one voter opposed the aforementioned proposal.
Decision in favor of users
As indicated above, the decision was not taken without grounds, since everything seems to indicate that mainly it was decided to act in this way, to protect users from possible attacks that involve price manipulation, this because Compound discovered that the four blocked assets had unfavorable liquidity profiles, as stated in the proposal. This data is relevant, because the prices of assets with low liquidity are usually easy to manipulate.
Also, this initiative was proposed shortly after the popular loan market in Solana, Mango Markets, was the victim of a price manipulation attack. Thus, because of the aforementioned exploit, the company lost 114 million dollars.
Apparently, the hacker used a combination of efforts to drive up the price of MNGO (Mango Market’s native token). Once the objective was achieved and using the overvalued MNGO, the operator requested a loan worth the aforementioned 114 million dollars.
Thus, the hacker managed to drain the firm’s assets without any problem, which consisted of Solana, USDC, USDT, BTC and MNGO tokens. Also, shortly after executing the exploit, the price of MNGO bottomed out before the exploiter staged an artificial inflation.
How did you manage to do with said tokens? The answer is readily apparent, given the illiquid nature of the MNGO token.
Risk parameters
Regarding this whole situation, Robert Leshner, founder of Compound, who, it should be noted, voted in favor of Proposition 131, pointed out on the Unchained Podcast, that lending protocols should examine their indicators, to avoid possible problems such as those suffered by Mango.
Despite how negative the scenario might seem, Leshner stressed that something can be taken advantage of from everything bad, since eThis exploit worked as an alert for all lending protocols, including Compound Finance, and as a call to improve their systems and services for their users.
“Each protocol has to address the risk parameters assuming that some black hat hacker will try to exploit it. It is a huge wake up call for every DeFi project on every blockchain to take this as a wake up callLeshner said, referring to the Mango Markets exploit.
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