In an effort to protect against economic attacks, DeFi lending platform Compound Finance has restricted the maximum amount that can be borrowed on ten tokens.
A proposal that came into effect on Nov. 28 imposed borrow caps for ten Compound V2 markets, including Compound’s own native token COMP.
The proposal was passed with 470,137 COMP tokens used to vote in favor, with the protocol’s risk management firm Gauntlet accounting for the majority of the votes. Gauntlet was the entity that put forth the proposal based on its assessment of Compound’s overall risk tolerance and liquidity data. Compound co-founder Robert Leshner was the second highest voter in favor, using a total of 70,072 COMP tokens.
Under the new protocol risk parameters, borrow limits will be imposed on WBTC, BAT, UNI, COMP, LINK, SUSHI, ZRX, AAVE, YFI and MKR.
One of the more drastic cuts that has been made is to the YFI borrow cap, which was previously at 1,500 but has now been reduced to just 20. A borrow cap of 1,250 has also been imposed on WBTC, which previously had no limit.
“Setting borrow caps help avoid high-risk attack vectors while sacrificing little capital efficiency and allowing for a threshold of organic borrow demand,” wrote Gauntlet’s Pauljlei in the proposal summary.
According to him, the conservative borrow caps would not have prevented users with organic borrow behavior from interacting with the protocol in the past month. Pauljlei was presumably referring to the actions of Mango Markets exploiter Avraham Eisenberg (a recent guest on Unchained) as an example of inorganic borrowing activity. Eisenberg is known to have borrowed tokens on DeFi protocols after inflating the price of the collateral asset on a number of occasions.
Pauljlei explained that these borrow limits will immediately help protect against insolvency risk from liquidation cascades, price manipulation exploits and the risk from large scale shorting of assets.