Curriculum·J304 Lending, Borrowing, and Collateralized Leverage·about 31 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 overcollateralization 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 prices reported by Coinbase, accepted on-chain when they sat within 20 percent of a Uniswap time-weighted average. 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 as high as $1.30, while trading near a dollar elsewhere. Because Compound valued DAI debt at the reported price, every DAI borrower's liability was revalued upward at once, while ETH also fell about 8 percent in the same hour, and about $89M of positions were liquidated. Compound counted 124 of 225,793 addresses affected, and one address, reported as the third-largest COMP farmer, was liquidated for about $46M. 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. Overcollateralization 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 overcollateralization 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://www.comp.xyz/t/dai-liquidation-event/642
- https://compound.substack.com/p/developer-community-call-recap-dai
- https://blockonomi.com/chainlink-compound-liquidations/
- https://www.theblock.co/news/defi/2020-11-26-dai-compound-dydx-liquidations-defi-85850
- https://medium.com/@whiterabbit_hq/black-thursday-for-makerdao-8-32-million-was-liquidated-for-0-dai-36b83cac56b6
- https://www.theblock.co/news/defi/2020-03-31-mkr-auctions-conclude-with-crypto-venture-firm-paradigm-emerging-as-the-biggest-winner-60447
- https://cointelegraph.com/news/maker-debt-crisis-post-mortem-recommends-new-safeguards
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; Decrypt reported that a malicious actor may have manipulated the price, and Compound's own call recap describes an adverse market condition. 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.
Liquidation totals differ by source: Decrypt gives $89M (from LoanScan, after correcting $100M), The Block $88.4M, and Compound's recap 85.2M DAI repaid by liquidators. The lesson uses $89M. What it cost to move the Coinbase book was not published by any of these sources, so the lesson does not state a figure for it.
How far Compound's own on-chain DAI price rose is not settled by these sources. Leshner's forum post says the Coinbase price was accepted only within 20 percent of a Uniswap time-weighted average, and Hayden Adams, quoted by Blockonomi, said the anchor caused the most extreme prices to be rejected; Decrypt says the chain treated DAI as $1.30. The lesson therefore says the debt was revalued upward and uses the $1.30 Coinbase print only as the stress case in the worked example.
ETH fell about 8 percent globally during the same hour, per Compound's account, so for ETH-collateralized borrowers both sides of the health factor moved. Compound named it the DAI liquidation event, and the lesson treats the debt repricing as the defining move.
The Maker shortfall referred to in the misconception is estimated differently by source: about $4.5M at the time of the debt auctions (The Block), 5.67 million DAI (Whiterabbit, 14 March 2020) and 6.65 million DAI (a later community post-mortem reported by Cointelegraph). The auctions sold 20,980 newly minted MKR for about 5.3 million DAI.
That oracle design has moved toward medians across sources and time-weighted feeds since 2020 is the lesson's own reading of the field rather than a sourced finding. 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.