Viral: Users Receive $90 Million In Cryptocurrency After A Bug Sends It To Them; CEO Begs Them To Return It
A flaw in a recent upgrade of the decentralised banking platform Compound delivered users approximately $90-million in bitcoin in error, prompting the firm's founder CEO to ask users to return it willingly.
A malfunction in a recent upgrade of the decentralised banking platform Compound gave users approximately $90-million in bitcoin in error, prompting the site's founder's CEO to ask users to return it willingly.
The snafu is a setback for bitcoin platforms trying to disrupt the financial system. DeFi platforms don't have banks or other middlemen administering funds, instead of relying on “smart contracts” struck between users that are governed completely by computer code. Proponents say DeFi is more egalitarian in cutting out traditional firms, often using the mantra “Code is law” to emphasize that computer code, rather than fallible humans, governs the system. But critics note that when the code has contained mistakes, it's led to disasters for users.
“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,” said Andrew Park, a senior policy analyst for Americans for Financial Reform, an investor advocacy group that's been a critic of many crypto projects. “If I have my money in Compound, how much faith am I going to have in that system now?”
The Compound Error is the most recent high-profile blunder. Last month, a well-followed cryptocurrency project went dark for many hours. In August, a hacker used a flaw in another DeFi project to steal almost $600-million in tokens, which he later restored.
This week's incident occurred on Compound, one of the numerous DeFi sites that allow users to lend out cryptocurrency in exchange for interest. Unlike previous platforms maintained by firms like BlockFi Inc., Compound is run by a distributed network of users using smart contracts rather than a single company. The compound also distributes a token, called COMP, that gives users a say in how the protocol works and whose price on Friday was about $319 per coin.
The problems began on Wednesday when users authorised a bug-ridden update to Compound's platform. On Twitter, Compound Labs Inc. Chief Executive Officer Robert Leshner stated that the problem resulted in too much COMP being distributed to some consumers. However, because the network is decentralised and requires a waiting period, neither his company nor anyone else could pause the token distribution. Leshner stated that the impact was confined to 280,000 COMP tokens, which were worth $89.3 million on Friday.
In an interview, Leshner said the mistake shows that Compound's protocol needs to have a lengthier review process and more community developers hunting for errors before changes are introduced.“This is not an event that calls into question whether DeFi can be operated safely. It's a wake up call for decentralized, community-run protocols to improve the processes by which changes are introduced,” Leshner said.
Leshner threatened to divulge their identities to the Internal Revenue Service if they didn't return the majority of the erroneous tokens once Compound users claimed them. He eventually expressed regret for the threat. “Open source, decentralised protocols are in their infancy and difficult to implement. “However, each hiccup makes the system more anti-fragile,” Leshner added.
While the glitch this week did not appear to harm users' assets, it does illustrate that DeFi will likely need to improve consumer protection before gaining widespread use, according to Kevin Werbach, director of the University of Pennsylvania's Wharton School's Blockchain and Digital Asset Project.
"The vast majority of people in the world are not going to trust their money to something if they are told a bug will cause you immutably to lose everything,” Werbach said. “That's not satisfactory.”