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DeFi Protocol Compound Gifts Users Large Sums of Money in $90 Million Mistake

UTC by Tolu Ajiboye · 3 min read
DeFi Protocol Compound Gifts Users Large Sums of Money in $90 Million Mistake
Photo: Depositphotos

Compound becomes latest DeFi platform to make a disbursement mistake and has asked recipients to refund the $90 million worth of COMP tokens.

DeFi staking protocol Compound made a costly mistake by erroneously giving out $90 million to its users. The error was a result of an upgrade gone wrong. In the aftermath of that error, Compound Labs founder Robert Leshner is enjoining users to return the funds. He suggested that users may keep a small percentage as compensation but threatened severe repercussions for anyone who failed to comply. In a late Thursday tweet Leshner said:

“If you received a large, incorrect amount of COMP from the Compound protocol error: Please return it, keep 10% as a white-hat. Otherwise, it’s being reported as income to the IRS, and most of you are doxxed.”

Leshner has since softened his position on his company’s threat to dox customers, calling it a ‘bone-headed’ approach.

The price of COMP, Compound’s native token, initially took a 13% dive within 24 hours after news of the bug. However, it has since regained its losses.

It is up for debate whether the recipients of the erroneously disbursed funds would choose to return millions of dollars. However, if history is anything to go by, that remains a distinct possibility. A blockchain security researcher, Mudit Gupta, told CNBC that Alchemix, another DeFi protocol, experienced a similar incident a few months back. While the platform disbursed more rewards than intended to users, almost everyone who received the extra rewards refunded them. The notable difference is that Alchemy exchange lost $4.8 million compared to Compound’s staggering $90 million. However, Gupta still remains hopeful. He noted:

“This makes me optimistic that people will refund most of the COMP tokens, as well, but you can never be sure.”

DeFi protocols like Compound are capable of recreating traditional financial systems such as banks and exchanges. They achieve this through blockchains that possess self-executing smart contracts.

Compound Mistake Comes after DeFi Platform Attempted Routine Upgrade

On Wednesday, Compound embarked on what seemed like a straightforward upgrade. However, upon implementation, it became evident that there was a serious problem. As Leshner explained in a tweet:

“The new Comptroller contract contains a bug, causing some users to receive far too much COMP.”

Leshner further noted that the absence of admin controls or community tools meant the COMP distribution could not be disabled. He continued by saying any attempted fix would not kick into effect for another seven days. In Leshner’s words, “Any changes to the protocol require a 7-day governance process to make their way into production.”

Although Compound clearly stated that no supplied or borrowed funds were at risk, that did little to patch things. Extremely large numbers of protocol users began reporting massive windfalls. For instance, a user claimed $29 million worth of COMP tokens in just one transaction. Another said they received 70 million COMP tokens into their account, or about $20.8 million at the time they posted.

Some crypto figures like Bitcoin developer Ben Carman believe it is impossible for Compound to recover the money. He said:

“They shouldn’t be able to recall the money without rolling back the chain,” explained Carman. “They’d have to purposefully 51% attack the chain to get rid of some blocks.”

Others questioned whether Compound’s initial threat to dox its users who failed to comply was prudent.

″Doxxing their customers is about the worst thing a crypto company can do from a PR perspective,” said Mati Greenspan, portfolio manager and Quantum economics founder.

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Tolu Ajiboye
Author Tolu Ajiboye

Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.

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