Compound Finance, the Ethereum [ETH]-based decentralized lending protocol, took a significant step that will reduce its vulnerability to DeFi exploits. DeFi exploits have singlehandedly managed to wreck havoc in the cryptocurrency market. Furthermore, several DeFi platforms have fallen victim to these attacks over the past few weeks.
Compound Finance set to impose borrowing cap
Users of the DeFi protocol voted to approve a proposal that will adjust the risk parameters for ten of Compound V2’s assets. In other words, a lending cap will come into effect, which will limit the borrowing capacity of users.
The assets include wrapped Bitcoin [wBTC], Uniswap [UNI], Chainlink [LINK], Sushiswap [SUSHI], and Aave [AAVE] among others. Prior to this proposal, there was virtually no limit on the amount of wBTC that could be borrowed from the protocol.
The limit will be readjusted to 1250. Other tokens that witnessed a drastic decrease in their limits include Uniswap, which went from 11.2 million to 550,000. LINK, will now be limited to 45,000.
The proposal was put forth by Gauntlet, a financial modeling platform that uses battle-tested techniques from the algorithmic trading industry to inform on-chain protocol management. The firm made the proposal after extensive deliberation over market and liquidity data.
The vote ended in the early hours of 29 November, with users voting overwhelmingly in favor of the proposal. According to the governance forum, more than 470,000 votes were in favor.
Rise in DeFi exploits
This move by Compound Finance came due to increasing threat of exploits against DeFi protocols, particularly those that engage in lending. These exploits pave the way for insolvency due to uncontrolled liquidation.
Avraham Eisenberg, the man behind the exploit carried out on Mango Markets last month which led to a loss of $116 million, is partly responsible for DeFi protocols scrambling to alter their policies. Gauntlet also carried out the risk assessment for Aave. He approved a vote that decommissioned low liquidity pools in order to avoid such exploits.
Data from Defi Llama showed that since the beginning of November, over $60 million have been lost to DeFi exploits.
