This Compound exploit allows users to 4x their initial capital-using their borrowed amounts

Published on by Cryptoslate | Published on

An exploit on Compound is allowing users to leverage their initial capital multifold, creating more Compound DAI than real DAI, and a situation that some are terming "Impossible."

This is not a security lapse or bug in the Compound protocol, but a sneaky loophole that makes borrowing against borrowed collateral possible.

Compound calculates each DAI deposit under additional gross supply, regardless of if it was just-borrowed and quickly re-deposited.

Using three or more wallets makes this task easy; borrowing DAI with a small stablecoin capital and using all that amount to quickly borrow more DAI. Interestingly, an application is touting such "Recipes" already.

Introducing Debt Swap - switch your Compound stablecoin debt from USDT to DAI in a single click.

A mail to Compound requesting information on the topic was unanswered at press time.

One user, at the time, found out they could borrow capital on leveraged options, going back-and-forth multiple times to over 100x in leverage and theoretically unlimited capital.

Compound has a set of new governance rules on the platform, quelling opportunists from pooling illiquid tokens and farming the most yields.

Last month, the Compound community noted BAT poolers were taking the chunk of yield rewards, despite no borrowers taking out BAT loans.

The prominence of DAI on Compound is creating some discussion around the token's market supply on MakerDAO forums.

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