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However, DeFi is still very young, and one of the challenges that it has manifested so far is that the networks have flaws that can be exploited and contribute to massive losses. Recently, Compound, a leading DeFi network with a total value locked (TVL) of $10.3 billion, suffered a glitch that led to losses of $162 million worth of COMP tokens.
Last week, a bug in Compound Labs accidentally gave away $162 million. Those who received these funds were excited, as it seemed as if the platform was having a giveaway. However, the founder and CEO of the platform, Robert Leshner, has now urged those who receive the COMP tokens to return them to the platform voluntarily.
On Friday, Leshner was alerted of this bug through a software update on the comptroller contract. This feature is used to distribute COMP tokens to users. However, the big caused $92.6 million worth of COMP tokens to be accidentally distributed to users. Surprisingly, this figure is equivalent to the hard cap of 280,000 tokens that can be accidentally distributed.
Two days after, Compound used its reserve funds to replenish the pool. 202,472.5 COMP tokens worth $66.9 million were added to the pool. Nevertheless, the occurrences of this entire fiasco did not go very well with people, given Leshner’s first comments on the issue.
At first, Leshner threatened users to return the funds. He stated that users could keep 10% of what they received and return the rest to the platform, failure to which the tokens received would be reported to the IRS, and pressure these users to part with huge taxes.
However, this threat did not sit well with the crypto community, and Leshner was criticized for it, given that Compound is supposed to be a decentralized finance platform that gives users anonymity by eliminating the need for third parties. Leshner later apologized for his remarks and instead stated that users should return the funds voluntarily.
So far, around 162,505 COMP tokens worth around $51.1 million have been refunded to the platform. Nevertheless, this will be one of the largest losses in DeFi associated with a glitch on smart contracts.
Software related issues in decentralized finance platforms have been on the rise. This has prompted many analysts to state that the future of DeFi is threatened of these platforms cannot offer safer avenues.
Andrew Park, a cryptocurrency critic and financial policy analyst, recently had an interview with Bloomberg where he stated that cases of glitches on DeFi protocols are not a good look. “There are reasons to criticize the existing banking system, but there are a lot of safeguards in place to prevent these kinds of things from happening.”
Glitches on smart contracts is not the only threat DeFi platforms face. Hacking attacks on these platforms have been on the rise, with a report from CipherTrace stating that this year has been the worst in terms of DeFi-related hacks. Hence, for these platforms to stand a chance against traditional financial systems, better and advanced processes need to be implemented to ensure customers do not lose their funds from such occurrences.