It appears we just saw our latest DeFi exploit/attack, but this one was much different than all the rest.
Bitcoin, Ethereum, and the rest of the crypto market spiked dramatically lower on Wednesday evening as buying pressure finally abated. The running theory is that due to it being Thanksgiving, the buying pressure that had come from institutional pressures was temporarily taken offline.
Whatever the case, BTC dropped 14 percent from its highs while ETH sustained heavy losses of 18 percent.
When the market began to drop, users began to notice that Ethereum transaction fees had begun to spike by approximately 1,000 percent. Liquidations, referencing how on-chain loans are regularly liquidated amid price crunches, were cited as the cause.
This appears to be correct, but the liquidations were not natural: according to DeFi tracker LoanScan, approximately $100 million worth of loans were liquidated on Compound in the past day. Analysts purport that it was a result of an oracle manipulation attack.
Compound is a decentralized loaning platform where users can pool assets such as Wrapped Bitcoin, Ethereum, and stablecoins and withdraw other coins as a loan.
What are oracles?
In crypto, oracles are a technology that allows smart contracts to speak with data sources that aren’t based on a blockchain.
The most popular type of oracle is Chainlink, which is integrated into countless DeFi applications and blockchains.
It’s most often used to provide price feeds for DeFi