Curriculum·J304 Lending, Borrowing, and Collateralized Leverage·about 30 min
Overcollateralized lending
By the end of this lesson you can
- →Compute a health factor and the price move that takes it to one
- →Explain why overcollateralisation is a statement about an oracle rather than about safety
- →Identify the price source behind any collateral you post, and what it costs to move
- →Choose a borrow size from the decline you intend to survive rather than from the maximum offered
Junior · enrolled learners
This lesson opens with The Compound DAI oracle, 26 November 2020.
- What happened
- Compound priced its markets from a Coinbase feed. Between roughly midnight and one in the morning Pacific time on 26 November 2020, DAI traded upward on Coinbase Pro across the DAI and USDC, DAI and USD, and ETH and DAI pairs, reaching about $1.30, while trading near a dollar elsewhere. Because Compound valued DAI debt at the Coinbase price, every DAI borrower's liability rose by up to thirty percent at once, and $89M of positions were liquidated. Around 124 of 225,793 users were affected and one was liquidated for about $49M. Analysts noted that moving the relevant order book would have required on the order of $100,000 against a depth of roughly $300,000, and whether the move was deliberate manipulation was never established.
- The decision point
- None of the liquidated borrowers did anything wrong by the rules they were operating under. They had posted collateral, watched a ratio, and stayed inside it. What they had not done, because the interface never framed it that way, was ask which venue's order book their solvency depended on and how deep it was. Overcollateralisation is not a safety margin against the market. It is a safety margin against a specific price feed, and the feed is a venue with a finite book.
- Recorded loss
- $89,000,000
What you will be able to answer
- →What is a health factor?
- →How close is a maximum borrow to liquidation?
- →What does overcollateralisation protect against?
- →Which side of a position can the oracle move?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://decrypt.co/49657/oracle-exploit-sees-100-million-liquidated-on-compound
- https://compound.substack.com/p/developer-community-call-recap-dai
- https://blockonomi.com/chainlink-compound-liquidations/
- https://medium.com/@whiterabbit_hq/black-thursday-for-makerdao-8-32-million-was-liquidated-for-0-dai-36b83cac56b6
Confidence high·Volatility low·Reviewed 2026-08-06·Owner unassigned
Contested
Whether the Coinbase DAI move was deliberate manipulation or genuine one-sided demand was never established, and Compound's founder attributed it to market conditions. The lesson does not need it resolved: a feed that can move thirty percent on one venue produces the same liquidations either way, which is the structural point.
Oracle design has improved substantially since 2020, with medians across sources and time-weighted feeds now standard. Per J302-01 the underlying property is unchanged, and the question to ask of any collateral is still which sources price it and what moving them costs.