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

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 entire turnout amounted to lower than 7% of the COMP tokens in circulation. 

Most notably, tokens similar 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, similar to Yearn.finance (YFI), which had its borrow cap lowered from 1,500 to simply 20. Wrapped Bitcoin (WBTC), which beforehand had no borrow restrict on Compound, has been slapped with a lending ceiling of 1,250.

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Proposal 135 has handed with quorum. ✅

Proposal 135 units borrow caps for ten Compound v2 markets.

The proposal will likely be utilized in two days. https://t.co/JvlEPJZrgp

— Compound Governance (@compgovernance) November 28, 2022

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

On Nov. 22, it was revealed that Mango Markets hacker Avraham Eisenberg tried to take advantage of 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 because of vital 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 quick squeeze.

Gauntlet then proposed to freeze a sequence of tokens on Aave v2 that could be susceptible to an exploit because of lack of liquidity. At present, the Compound Finance protocol has $654.7 million in whole borrowings collateralized by $2.146 billion in property.