Recently, Compound Finance, the DAO powering, did voting on proposal 131, which intended to stop users from being able to lend relatively illiquid assets on the protocol. After two days of voting, Compound Finance has approved this proposal 131, which means that the users won’t be able to use illiquid assets on its platform. Temporarily, the Compound has paused four tokens ZRX, BAT, YFI, and MKR.
According to this proposal, illiquid assets are those cryptocurrencies that cannot be readily traded without a substantial loss in value. They did this step to prevent manipulation because these assets are volatile, and anyone can easily manipulate them. According to Compound Finance’s proposal, they did this step to remove illiquid assets to protect their platform against market manipulation, like the $100 million exploit on Mango Markets.
In this proposal 131, 99.9% of all voters supported it, and in this voting process, users utilized more than 554,120 COMP tokens. Not only did simple users support this process, but the founder of Compound Finance, Robert Leshner, also voted in favor of the proposal.
The voting process temporarily paused 0x, Basic Attention Token, Maker, and Yearn Finance, from Compound Finance. According to the proposal, these four tokens have less liquidity in open markets and are vulnerable to price manipulation, which could result in protocol exploitation.
Regarding this proposal, Compound Governance tweeted that Proposal 131 has passed with a quorum, and they will apply this proposal in two days. The Compound’s governance has scrutinized the manipulation risk for a long time, and this proposal is a result of their effort.
The reason behind pausing illiquid assets on its platform is relative to the Mango Market exploit. On the 11th of October, a Solana-based trading platform, Mango Market, was hunted with a $117 million exploit. The reason behind this big exploit was the illiquid nature of the Mango Market token MNGO. To prevent Compound from this kind of exploit, they paused illiquid cryptocurrencies.
