Robert Steinadler, 7 months ago

Compound's ETH market is frozen – What went wrong?

Compound allows its users to earn interest with crypto lending. Unlike Celsius, Compound is a decentralized protocol governed by the holders of COMP tokens, granting them voting rights and enabling them to determine the direction that the protocol is taking. With more than $2 billion in total value locked, Compound is the ninth-largest protocol on the market and is of significance to the DeFi space.

What went wrong, and why is the ETH market on Compound frozen?

An upgrade froze the ETH market

The ETH market on Compound is worth $800 million, and it got frozen after an upgrade went wrong on Tuesday. While this is impacting users’ ability to interact with the protocol, the developers released a statement claiming that all funds remain secure even though they remain inaccessible. The ETH market is the second-largest market on Compound and therefore a majority of users got affected.

Withdrawals, as well as liquidations, are not available until next week. This still creates a problem even with the funds remaining secure because there are still liquidations possible once the bug is fixed.

Investors are advised to keep an eye on any leveraged positions that they still have open and monitor those positions frequently. Should the price of ETH drop, they might risk liquidation as soon as the fix is implemented. The good news is that affected users with open positions are still able to add funds to avoid liquidation.

Why is this happening at all?

The upgrade that went wrong was meant to improve the protocols oracles. Oracles are important because that’s how each protocol receives price data among other vital information to determine the status of an asset or the derivative of an asset.

The provider for these oracles is Chainlink which is the market leader for these solutions. Chainlink proposed the upgrade, but unfortunately, they programmed a wrong price feed into it. Now that the feed is broken, it will take a week or so to fix it because the fix has to go through a review process as well as passing a successful vote by the protocol's governance in order to be implemented.

Compound claimed that the broken upgrade was audited three times, but apparently, the flaw wasn’t found on all three occasions. The market showed little reaction to the failed upgrade, and the recent price moves are not caused by the incident, but rather by general market conditions.

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