Bug puts $162 million up for grabs, says founder of DeFi platform Compound
We thought the carnage was over for popular decentralized finance, or DeFi, staking protocol Compound, but as it turns out, millions more than we thought are at risk. About $162 million is up for grabs after an upgrade gone very wrong, according to Robert Leshner, founder of Compound Labs.
The price of Compound’s native token, called comp, is down about 4.8%.
At first, the Compound chief tweeted Friday that there was a cap to how many comp tokens could be accidentally distributed, noting that “the impact is bounded, at worst, 280,000 comp tokens,” or about $92.6 million.
But on Sunday morning, Leshner revealed that the pool of cash that had already been emptied once had been replenished – exposing another 202,472.5 comp tokens to exploit, or roughly $66.9 million at its current price.
Some, including a core developer at DeFi platform Yearn, are billing this as the biggest-ever fund loss in a smart contract incident, but investors, for their part, don’t seem to care all that much.
“The crypto market shrugged off the largest-ever fund loss as if it was nothing,” said Mudit Gupta, a core developer at decentralized crypto exchange SushiSwap. “The future for DeFi is bright but we’re in uncharted territory, and there’s a lot to be learned still.”
What keeps going wrong
DeFi protocols such as Compound are designed to recreate traditional financial systems such as banks and exchanges using blockchains enriched with self-executing smart contracts.
On Wednesday, Compound rolled out what should have been a pretty standard upgrade. Soon after implementation, however, it was clear that something had gone seriously wrong, once users started to receive millions of dollars in comp tokens.
For example, $30 million worth of comp tokens were claimed in one transaction.
The saving grace of the entire debacle, however, was the fact that the pool of cash that was open to exploit – something called the Comptroller contract – had a finite amount of tokens. The problem is that this leaky pool got a fresh influx of cash, and 0.5 comp tokens are being added roughly every 15 seconds, according to Gupta.
“When the drip() function was called this morning, it sent the backlog (202,472.5, about two months of COMP since the last time the function was called) into the protocol for distribution to users,” Leshner wrote in a tweet Sunday morning.
Leshner noted that this brought the total comp at risk to 490,000 comp tokens, or about $162 million.
There are a few proposals to fix the bug, but Compound’s governance model is such that any changes to the protocol require a multiday voting window, and Gupta said it takes another week for the successful proposal to be executed.
In the meantime, this pool of cash is once again up for grabs for users who know how to exploit the bug.
Compound made clear that no supplied or borrowed funds were at risk, which is some consolation.
“No user funds are or were at risk so it’s not that big of a deal,” said Gupta. “Everyone kinda got diluted but didn’t lose anything directly.”
There are also some white hats in the community.
After the Compound founder begged users to voluntarily return the platform’s crypto tokens, some did. Leshner said that as of Sunday morning, about 117,000 comp tokens, or $38.7 million, had been returned.
But as Mati Greenspan, portfolio manager and Quantum Economics founder, points out, how things play out with this bug is almost entirely beside the point. “The bigger issue is — can it happen again?” he said.
Compound is the world’s fifth-largest DeFi protocol with a total value locked of $10.3 billion, according to DeFi Llama, which provides ranking and metrics for DeFi protocols.
Greenspan said the protocol can easily absorb this loss and a lot of it will likely be returned, “but the larger issue would be if people lose confidence in the system’s ability to function properly.”
Gupta said one immediate problem is that the Comptroller account has given away comp tokens that were reserved for future rewards.
You can think of Comptroller as the heart of Compound, Gupta explained. It facilitates all core features like borrowing, lending, and rewarding.
Comptroller oversees the pool of cash used to pay rewards to users who provide their crypto to borrowers at a set interest rate, which is typically a single-digit APY.
“Future rewards might have to be reduced to make Comptroller solvent,” said Gupta.
The Federal Supreme Court (STF) in Brazil suspends Elon Musk’s social network after it fails to comply with orders from Minister Alexandre de Moraes to block accounts of those being investigated by the Brazilian justice system.
Cris Faga | Nurphoto | Getty Images
X has to pay one last fine before the social network owned by Elon Musk is allowed back online in Brazil, according to a decision out Friday from the country’s top justice, Alexandre de Moraes.
The platform was suspended nationwide at the end of August, a decision upheld by a panel of judges on Sept. 2. Earlier this month, X filed paperwork informing Brazil’s supreme court that it is now in compliance with orders, which it previously defied.
As Brazil’s G1 Globo reported, X must now pay a new fine of 10 million reals (about $2 million) for two additional days of non-compliance with the court’s orders. X’s legal representative in Brazil, Rachel de Oliveira, is also required to pay a fine of 300,000 reals.
The case dates back to April, when de Moraes, the minister of Brazil’s supreme court, known as Supremo Tribunal Federal (STF), initiated a probe into Musk and X over alleged obstruction of justice.
Musk had vowed to defy the court’s orders to take down certain accounts in Brazil. He called the court’s actions “censorship,” and railed online against de Moraes, describing the judge as a “criminal” and encouraging the U.S. to end foreign aid to Brazil.
In mid-August, Musk closed down X offices in Brazil. That left his company without a legal representative in the country, a federal requirement for all tech platforms to do business there.
By Aug. 28, de Moraes’ court threatened a ban and fines if X didn’t appoint a legal representative within 24 hours, and if it didn’t comply with takedown requests for accounts the court said had engaged in plots to dox or harm federal agents, among other things.
Earlier this month, the STF froze the business assets of Musk companies, including both X and satellite internet business Starlink, operating in Brazil. The STF said in court filings that it viewed Starlink parent SpaceX and X as companies that worked together as related parties.
Musk wrote in a post on X at that time that, “Unless the Brazilian government returns the illegally seized property of and SpaceX, we will seek reciprocal seizure of government assets too.”
On August 29, 2024, in Brazil, the Minister of the Supreme Court, STF Minister Alexandre de Moraes, orders the blocking of the accounts of another company, Starlink, of Elon Musk, to guarantee the payment of fines imposed by the STF due to the lack of representatives of X in Brazil.
Ton Molina | Nurphoto | Getty Images
As head of the STF, de Moraes has long supported federal regulations to rein in hate speech and misinformation online. His views have garnered pushback from tech companies and far-right officials in the country, along with former President Jair Bolsonaro and his supporters.
Bolsonaro is under investigation, suspected of orchestrating a coup in Brazil after losing the 2022 presidential election to current President Luiz Inacio Lula da Silva.
While Musk has called for retribution against de Moraes and Lula, he has worked with and praised Bolsonaro for years. The former president of Brazil authorized SpaceX to deliver satellite internet services commercially in Brazil in 2022.
Musk bills himself as a free speech defender, but his track record suggests otherwise. Under his management, X removed content critical of ruling parties in Turkey and India at the government’s insistence. X agreed to more than 80% of government take-down requests in 2023 over a comparable period the prior year, according to analysis by the tech news site Rest of World.
X faces increased competition in Brazil from social apps like Meta-owned Threads, and Bluesky, which have attracted users during its suspension.
Starlink also faces competition in Brazil from eSpace, a French-American firm that gained permission this year from the National Telecommunications Agency (Anatel) to deliver satellite internet services in the country.
Lukas Darien, an attorney and law professor at Brazil’s Facex University Center, told CNBC that the STF’s enforcement actions against X are likely to change the way large technology companies will view the court.
“There is no change to the law here,” Darien wrote in a message. “But specifically, big tech companies are now aware that the laws will be applied regardless of the size of a business and the magnitude of its reach in the country.”
Musk and representatives for X didn’t immediately respond to a request for comment on Friday.
Late Thursday, X Global Government Affairs posted the following statement:
“X is committed to protecting free speech within the boundaries of the law and we recognize and respect the sovereignty of the countries in which we operate. We believe that the people of Brazil having access to X is essential for a thriving democracy, and we will continue to defend freedom of expression and due process of law through legal processes.”
WATCH: X is a financial ‘disaster’
Sam Altman, CEO of OpenAI, at the Hope Global Forums annual meeting in Atlanta on Dec. 11, 2023.
Dustin Chambers | Bloomberg | Getty Images
OpenAI, the creator of ChatGPT, expects about $5 billion in losses on $3.7 billion in revenue this year, CNBC has confirmed.
The company generated $300 million in revenue last month, up 1,700% since the beginning of last year, and expects to bring in $11.6 billion in sales next year, according to a person close to OpenAI who asked not to be named because the numbers are confidential.
The New York Times was first to report on OpenAI’s financials earlier on Friday after viewing company documents. CNBC hasn’t seen the financials.
OpenAI, which is backed by Microsoft, is currently pursuing a funding round that would value the company at more than $150 billion, people familiar with the matter have told CNBC. Thrive Capital is leading the round and plans to invest $1 billion, with Tiger Global planning to join as well.
OpenAI CFO Sarah Friar told investors in an email Thursday that the funding round is oversubscribed and will close by next week. Her note followed a number of key departures, most notably technology chief Mira Murati, who announced the previous day that she was leaving OpenAI after six and a half years.
Also this week, news surfaced that OpenAI’s board is considering plans to restructure the firm to a for-profit business. The company will retain its nonprofit segment as a separate entity, a person familiar with the matter told CNBC. The structure would be more straightforward for investors and make it easier for OpenAI employees to realize liquidity, the source said.
OpenAI’s services have exploded in popularity since the company launched ChatGPT in late 2022. The company sells subscriptions to various tools and licenses its GPT family of large language models, which are powering much of the generative AI boom. Running those models requires a massive investment in Nvidia’s graphics processing units.
The Times, citing an analysis by a financial professional who reviewed OpenAI’s documents, reported that the roughly $5 billion in loses this year are tied to costs for running its services as well as employee salaries and office rent. The costs don’t include equity-based compensation, “among several large expenses not fully explained in the documents,” the paper said.
WATCH: OpenAI has a lot of challengers, says Madrona’s Matt McIlwain
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