Dai reached a price of $1.3 on Uniswap and Coinbase, the two exchanges used by Compound’s oracles, as the crypto market suffered a powerful crash on November 26, which sent prices of major currencies such as Bitcoin and Ether tumbling in excess of 10%.
It has been reported that when traders rush for the exits, the price of stablecoins generally increases as the demand for stability rises.
However, the effect became particularly pronounced on Dai, which briefly traded for $1.3 between 7 am and 8 am UTC.
Dai traded at this inflated valuation only on Coinbase and Uniswap, while other exchanges including Kraken and Bitfinex seem to have maintained a relatively stable price.
A single liquidator on Compound made $4M after both Coinbase and Uniswap reported a much higher price for DAI to its oracle, @shvandrew reports with commentary by @SergeyNazarov https://t.co/uQKBg2iYT5 — Cointelegraph (@Cointelegraph) November 26, 2020
The report said that Coinbase acts as the baseline, while Uniswap is used as a sanity check and anchor. It appears that Uniswap failed in its function and also posted a much higher price than normal.
According to data from DuneAnalytics, Compound’s liquidation this morning amounted to $89 million, of which about $52 million came from Dai.
Likewise, one liquidation in particular is notable for its extremely large size of 46 million Dai repaid.
DeFi researcher Sam Priestley said that this liquidation was performed on a leveraged COMP farmer, who used USD Coin and Dai collateral to power recursive borrowing in the same currencies. The apparent increase in Dai’s price put the account below the liquidation threshold.
As per the report, the liquidator seized almost 2.4 billion Dai, worth approximately $50 million with a price of $0.0209, while returning just $46 million in Dai. This is expected behavior given the Compound’s current liquidation incentive of 8%.
Sergey Nazarov, the founder of Chainlink (LINK), said:
“We predicted this very exploit of centralized oracles and poor data quality over a year ago.”
Thus, he added:
“DeFi protocols that rely on centralized oracles that pull data from single exchanges, DEXes or otherwise, are inadvertently putting user funds at risk. […] The Chainlink network was unaffected by this exploit because we source data from multiple leading data providers and hundreds of exchanges, making sure we capture the real-world price of a cryptocurrency through proper market coverage.”