The crypto market suffered a major crash on Thursday morning UTC, which caused the prices of major currencies such as Bitcoin (BTC) and Ether (ETH) to fall by more than 10%.
When traders rush to the exits, stablecoins generally rise in price as the demand for stability increases. In today’s crash, however, the effect was particularly evident with Dai (DAI), which was briefly traded for USD 1.3 between 7 and 8 a.m.
In particular, DAI only traded on Coinbase and Uniswap with this inflated valuation, while other exchanges, including Kraken and Bitfinex, appear to have maintained a relatively stable price.
Coinbase and Uniswap are the two exchanges used by Compounds Open Price Feed oracles. The former serves as a baseline, while the latter is used as a sanity check and anchor. Nevertheless, Uniswap seems to have failed in its function and also to achieve a much higher price than normal.
Compound’s liquidation this morning totaled $ 89 million, of which approximately $ 52 million came from DAI, according to DuneAnalytics.
A liquidation is characterized in particular by an extremely large repayment of 46 million DAI.
As DeFi researcher Sam Priestley explained, this liquidation was carried out on a leveraged COMP farmer who used USD coins (USDC) and DAI collateral to borrow recursively in the same currencies. Due to the obvious increase in the DAI price, the account was below the liquidation threshold.
The Liquidator confiscated nearly 2.4 billion cDAI worth around $ 50 million at a price of $ 0.0209 and returned just $ 46 million to DAI. This is the expected behavior given Compound’s current liquidation incentive of 8%.
The transaction in question involved the use of a flash swap from Uniswap and calls to update Compound’s oracle. Another four transactions issued by the same liquidator eliminated additional debt of $ 6 million.
The event highlighted the dangers of relying on few data points for oracles, Chainlink (LINK) founder Sergey Nazarov told Cointelegraph. “We predicted this exploit of centralized oracles and poor data quality over a year ago,” he said, citing his explanation of the risks of using a single exchange. He continued:
“DeFi protocols, based on centralized oracles that pull data from individual exchanges, DEXes, or otherwise, inadvertently put user funds at risk. […] The Chainlink network was not affected by this exploit as we source data from several leading data providers and hundreds of exchanges and ensure that we capture the true price of a cryptocurrency through adequate market coverage. “
While there is no evidence of active manipulation, the fact that the DAI price has increased specifically on the exchanges used by Compound’s oracles may arouse suspicion. In general, the liquidation adds to the recent flash credit hacks to highlight DeFi’s over-reliance on few data sources as an oracle, concluded Nazarov.