After two days of voting, the DAO powering Compound Finance has approved “proposal-131,” which will prevent users from being able to lend relatively illiquid assets on the protocol.
In this case, Illiquid assets are cryptocurrencies that cannot be readily sold or exchanged without a substantial loss in value.
Generally, these types of assets are volatile and can be easily manipulated.
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Compound founder Robert Leshner joined Decrypt's Dan Roberts and Stacy Elliott at Chainlink SmartCon 2022 to talk about the shift Compound has seen in borrowing demands and how it has adjusted accordingly, why he believes stablecoins "will win and conquer everything," and how regulators are approaching the space.
This initiative to remove illiquid assets is also expected to protect the protocol against market manipulation like the $100 million exploit on Mango Markets, claims the proposal.
Nearly 99.9% of all voters supported the proposal, with 554,126 Compound (COMP) tokens used in the voting process.
Robert Leshner, the founder of Compound Finance, also voted in favor of the proposal.
The final voting result to pause the supply of low-liquid assets. Source: Compound Finance.
Four tokens, namely 0x (ZRX), Basic Attention Token (BAT), Maker (MKR), and Yearn Finance (YFI), are to be paused temporarily from Compound finance.
According to the proposal, these tokens have less liquidity in open markets and are vulnerable to price manipulation that could exploit the protocol.
Proposal 131 has passed with quorum. ✅
Proposal 131 pauses supply for cZRX, cBAT, cMKR, and cYFI on Compound v2.
Since September 2, Compound’s governance has scrutinized the manipulation risk involved with less-liquid assets.
Compound and Mango markets
On October 11, Mango Markets, a Solana-based trading platform was exploited for nearly $117 million. The exploiter used a combination of efforts to drive the price of MNGO (Mango Market’s native Token) higher.
Later, using the over-valued MNGO, the exploiter took out a $117 million loan, wiping Mango’s treasury.
The exploiter then drained the assets, which included Solana, USDC, USDT, BTC, and MNGO.
Shortly after the exploit, the MNGO price hit rock bottom before the exploiter staged an artificial pump.
The exploit was made possible because of the illiquid nature of the MNGO token.
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