Compound suspends 4 tokens as lending assets due to their low liquidity

Renowned crypto lending platform Compound has recently declared the suspension of four tokens as lending collateral on the platform due to their low liquidity. This implies that the platform will not allow its users to deposit these tokens to take loans, in an effort to protect the protocol from market manipulation attacks rising these days.

On Monday, the governance members of Compound passed Proposal-131, which asked to stop using liquid assets as security for loans. The tokens are maker (MKR), yearn finance (YFI), 0x (ZRX), and basic attention token (BAT). The idea was overwhelmingly approved by the members, receiving 554,126 votes in favor, or 99.99% of the total votes cast with only a single voter in opposition.

According to the proposal, it was found that the four assets had poor liquidity profiles. Low liquidity assets’ prices are simple to influence. The idea comes following a $114 million price-rigging $100 million attack on Mango Markets, a well-known lending market on Solana, earlier this month.

A wakeup call for Compound 

In reaction to the Mango exploit, Compound’s founder Robert Leshner, who supported Proposal-131, stated on the Unchained Podcast that lending protocols should review their risk thresholds. It acted as a wakeup call for lending protocols, such as Compound Finance, he continued. An outside analysis of the Compound Finance software revealed that some tokens used on Compound might be manipulated into stealing money. He stated:

“Every protocol has to address the risk parameters assuming that some black hat hacker is going to try to exploit it. It’s a great wake-up call for every DeFi project on every single blockchain to take this as a wakeup call.”

Members of Aave, the biggest lending protocol on Ethereum, have been having a conversation similar to this. Ren (REN) and the 0x protocol (ZRX) have been proposed as urgent replacements for the use of collateral assets on Aave by Chaos Labs, a crypto risk management company. Aave has not yet proposed a vote to disable those collateral assets.