- Over $100 million in loans were liquidated on Compound after a possible oracle exploits on Coinbase.
- A further $8 million in crypto loans were liquidated on dYdX, a DeFi lending platform.
Almost $103 million in loan collateral has been liquidated on Compound Finance, a DeFi lending and borrowing platform, over the last 24 hours after a price spike on DAI stablecoin on Coinbase. According to data aggregator, LoanScan, a further $7.81 million was also liquidated on the dYdX exchange, totaling close to $110 million in DeFi loan liquidations.
The momentary DAI price spike
DAI caused massive liquidations on Compound as the price of DAI momentarily spiked by 30% on Coinbase, the lending platform’s primary price oracle. According to Alex Svanevik, CEO at Nansen, a crypto-analysis firm, the liquidations arose from an under-collateralization of Compound users’ loans. Svanevik said,
“My understanding is that the DAI price on Coinbase was driven up to a premium of around 30%. Compound’s oracle uses Coinbase for pricing data.”
Nearly 45% of the total liquidated amount on Compound arose from one wallet address, the third-largest COMP farmer, facing liquidation in a total of $46 million.
The 3rd largest COMP farmer took a big hit with the liquidations. Around $46m.
— Alex Svanevik 🧭 (@ASvanevik) November 26, 2020
So how exactly does a DAI price spike to $1.30 cause such massive liquidations?
As a lending/borrowing platform, Compound allows users to borrow and lend multiple cryptocurrencies across the platform. Borrowers must place more significant collateral than the loan they are receiving over collateralized loans. If, at any moment, the smart contract notices the loan is under-collateralized, then it will automatically liquidate the loan and repay itself. Svanevik further explains,
“This caused liquidations as the value of the loans exceeded collateralization-ratio thresholds.”
As DAI’s value spiked, the amount of DAI loaned out increased relative to the collateral provided, leading to under-collateralized positions, hence the liquidations.
Of the total $110 million in crypto loans liquidated, $56 million was from DAI borrowers, $38 million from Ethereum (ETH) borrowers, $10 million from USDC stablecoin borrowers, and $4 million from wrapped BTC (wBTC).