By Shelly Melancon (Switzerland)
Lending and automated interest rate protocol, Compound, is currently ruing the loss of $90 million as a result of a single-symbol software bug. Compound had reportedly disbursed the funds in excess to some users as rewards for providing liquidity on the protocol.
According to reports, the lending protocol sent out $70 million liquidity mining rewards in excess to one user and $20 million to several other users, bringing the total amount to $99 million, plus the $9 million originally meant to be paid as rewards. Due to its core lending utility, Compound allows users to lend collateralized funds and those who deposit their funds for the lending are usually rewarded.
Single Error in Software Code Caused Erroneous Payouts
However, in this instance, the DeFi protocol seems to have given the unidentified users a fortune as a result of a mistake in its software code. The error was made following a recent upgrade on the smart contract that pays out liquidity mining rewards. And just one tiny symbol that was omitted seems to have caused this huge loss for the DeFi protocol.
Although Compound has stopped the smart contract from paying out more rewards, it has also called for the return of the erroneously disbursed funds via a ‘threat’ from its founder, Robert Leshner. Even though the threatening tweet was later retracted, Leshner has appealed for the immediate return of the COMP tokens. At the time of upgrade, over 280,000 COMP tokens were deposited in the smart contract, but they have all been disbursed in both the actual and the erroneous payouts.
In a subsequent tweet, Robert revealed that two users who were mistakenly gifted over 32,000 COMP tokens valued at $12 million had returned theirs. To incentivize other recipients of the excess rewards, Robert has suggested that each of them keep 10% of the rewards and reimburse the rest, treating them as white hat hackers.
Yet, another option lies before the remaining beneficiaries, which is keeping the whole amount but paying a fraction of it as tax to the Internal Revenue Service. Robert has pledged to report the incident to the financial regulator. This option seems more enticing to the adamant users as what they’ll pay as tax and keep to themselves is more than the 10% option proposed to them by Compound.
Compound Expects Other Beneficiaries to Return Excess Rewards
Compound now relies on the goodwill of the remaining recipients of the rewards and hope they will uphold the altruistic tenets of the DeFi sector by sending back the excess rewards. The DeFi protocol is drawing inspiration and strength from a similar incident on another lending protocol, Alchemix, which unwittingly disbursed $4.8 million in excess to some of its users. However, Alchemix later retrieved about $2.3 million, incentivizing the lucky recipients with the remaining 10%.
One other option that lies before Compound is revealing the identity of the remaining recipients, of which Robert Leshner acknowledged that they were ‘doxxed,’ meaning the protocol has some private information about them. But Robert Leshner has been advised not to take this route as it contravenes the tenets of DeFi.
Compound claims no supplied or borrowed funds were affected, but it must recover the $90 million. Native token of the protocol COMP had declined by 15% after the incident was reported, but it is fighting its way back up.
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