AFTER MANGO MARKETS EXPLOIT, COMPOUND PAUSES 4 TOKENS TO PROTECT AGAINST PRICE MANIPULATION

Last updated: June 19, 2025, 19:28 | Written by: Caitlin Long

The decentralized finance (DeFi) space is a constantly evolving landscape, filled with innovation and opportunity, but also fraught with risk. Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights a newsletter crafted to bring you significant developments over the last week. After the Mango Markets exploit last week, Compound protocol paused the supply of four tokens as lending collateral to protect it against any price manipulation. Crypto staking protocol Freeway [ ]The recent $117 million exploit of Mango Markets served as a stark reminder of the vulnerabilities that can plague even the most sophisticated platforms.In response, Compound, a leading decentralized lending protocol, has taken proactive measures to safeguard its users. Decentralized lending protocol Compound has paused the supply of four tokens as lending collateral on its platform, aiming to protect users against potential attacks involving price manipulation, similar to the recent $117 million exploit of Mango Markets, according to a proposal on Compound s goveThis action involves temporarily pausing the supply of four tokens – YFI, ZRX, BAT, and MKR – as lending collateral on its platform. Welcome to Finance Redefined, your weekly dose of essential decentralized finance (DeFi) insights a newsletter crafted to bring you significant developments over the last week.After the Mango Markets exploit last week, Compound protocol paused the supply of four tokens as lending collateral to protect it against any price manipulation.Crypto staking protocol Freeway said oneThis decision, driven by a proposal passed on Compound's governance forum, aims to protect against potential price manipulation attacks, ensuring the overall stability and security of the Compound ecosystem.The move highlights the importance of vigilance and rapid response in the face of emerging threats within the DeFi world. The last week of October turned bearish for the DeFi market despite the string of hacks, as the majority of Compound pauses 4 tokens to avoid price manipulation: Finance Redefined - XBT.Market Market Cap: $2,331,012,819,955.52This isn’t about stifling innovation; it’s about fostering a safe and sustainable environment for DeFi to flourish, benefiting both developers and users alike.We'll delve into the specifics of the Compound protocol's response, analyzing the implications of the paused tokens and exploring broader strategies for mitigating price manipulation risks in DeFi.

Understanding the Mango Markets Exploit and Its Impact

Before we delve deeper into Compound's actions, it's crucial to understand the context: the Mango Markets exploit. The platform offered trading in its native MNGO token, MNGO Perpetual contracts (a kind of perpetual futures derivative), and allowed users to borrow assets against the value of their portfolio. On Octo, Eisenberg deposited USD 5 million in USDC into two accounts on Mango Markets.This incident shook the DeFi community and served as a wake-up call regarding the potential for sophisticated attacks on decentralized exchanges (DEXs) and lending platforms. Decentralized lending protocol Compound has paused the supply of four tokens as lending collateral on its platform, aiming to protect users against potential attacks involving price manipulation, similar to the recent $117 million exploit of Mango Markets, according to a proposal on Compound s governance forum thatWhat exactly happened?

How the Mango Markets Exploit Unfolded

Avraham Eisenberg, the individual responsible for the Mango Markets exploit, executed a calculated plan to manipulate the price of the platform's native token, MNGO. After Mango Markets exploit, Compound pauses 4 tokens to protect against price manipulation After Mango Markets exploit, Compound pauses 4 tokens to protect againstHere's a breakdown of the events:

Eisenberg deposited $5 million in USDC into two accounts on Mango Markets.
He then used these accounts to artificially inflate the price of MNGO perpetual futures contracts.
By manipulating the price, Eisenberg was able to borrow a substantial amount of assets against his inflated MNGO holdings.
He drained approximately $117 million from the platform, leaving Mango Markets in a state of crisis.

This exploit highlighted the vulnerability of DeFi protocols to price manipulation, especially those with relatively low liquidity and less stringent security measures.The exploit served as a stark reminder that even seemingly robust systems can be susceptible to attack if the right vulnerabilities are exploited.

Compound's Response: Pausing Token Supply

In the wake of the Mango Markets exploit, Compound took swift action to prevent a similar incident from occurring on its platform. Decentralized lending protocol Compound has paused the supply of four tokens as lending collateral on its platform, aiming to protect users against potential attacks involving price manipulation, similar to the recent $117 million exploit from Mango Market's, according to a proposal on Compound's governance forum.The protocol proposed and implemented a temporary pause on the supply of four tokens – YFI, ZRX, BAT, and MKR – as lending collateral. See full list on cointelegraph.comWhat does this mean in practice?

Implications of the Token Pause

The pause on these tokens has several key implications for Compound users:

No New Collateral: Users can no longer supply these tokens as collateral to borrow other assets on Compound.
Existing Borrowing Unaffected (Initially): Users who had already used these tokens as collateral were initially still able to manage their positions, but the protocol could adjust parameters if needed.
Potential for Gradual Reduction: The proposal likely outlined a plan for gradually reducing the reliance on these tokens as collateral in the long term.

The primary goal of this pause is to reduce the risk of price manipulation affecting the Compound protocol.By limiting the amount of these tokens that can be used as collateral, Compound aims to make it more difficult for malicious actors to exploit vulnerabilities related to their price stability.While potentially inconvenient for some users, the pause prioritizes the overall security and stability of the platform.

Why These Specific Tokens?

A natural question arises: why were YFI, ZRX, BAT, and MKR specifically targeted for this pause?There are several factors that likely contributed to this decision. After the Mango Markets exploit last week, Compound protocol paused the supply of four tokens as lending collateral to protect it against any price manipulation.While not explicitly stated, some possible factors include:

Volatility: These tokens may exhibit higher volatility compared to other assets supported on Compound.
Liquidity: The liquidity of these tokens on various exchanges could be relatively lower, making them more susceptible to price manipulation.
Market Capitalization: While all are reputable projects, a relatively lower market capitalization can sometimes make a token more vulnerable to manipulation attempts.
Historical Data: Compound's risk assessment models may have identified these tokens as having a higher historical risk profile.

By carefully analyzing these factors, Compound's governance forum determined that pausing the supply of these tokens as collateral would significantly reduce the overall risk exposure of the protocol.

Analyzing the Impact on DeFi Lending and Borrowing

Compound's decision to pause the supply of these four tokens has broader implications for the DeFi lending and borrowing landscape.Let's consider some of the potential effects.

Short-Term and Long-Term Effects

In the short term, the pause may lead to:

Reduced Lending Volume: The overall volume of lending and borrowing on Compound could temporarily decrease as users adjust to the new restrictions.
Shift in User Activity: Users who primarily used these tokens as collateral may migrate to other DeFi platforms that still support them.
Increased Volatility in Affected Tokens: The reduced demand for these tokens on Compound could potentially lead to increased volatility in their prices.

In the long term, the incident could:

Increased Security Awareness: The entire DeFi community is likely to become more aware of the risks of price manipulation and the importance of robust security measures.
Stricter Risk Management Practices: DeFi protocols may adopt more stringent risk management practices, including more frequent audits, stricter collateralization ratios, and enhanced price monitoring mechanisms.
Innovation in Security Solutions: The incident could spur innovation in security solutions specifically designed to prevent price manipulation attacks, such as advanced oracle systems and on-chain monitoring tools.

Mitigating Price Manipulation Risks in DeFi: Best Practices

The Compound and Mango Markets incidents highlight the need for proactive measures to mitigate price manipulation risks in the DeFi space.What can developers and users do to protect themselves?

For Developers: Building More Resilient Protocols

DeFi developers can implement several strategies to build more resilient protocols:

Robust Oracle Systems: Rely on decentralized oracle networks that aggregate price data from multiple sources to prevent single points of failure.Examples include Chainlink and Band Protocol.
Circuit Breakers: Implement circuit breakers that automatically pause trading or lending activity if unusual price movements are detected.
Dynamic Interest Rates: Use dynamic interest rates that adjust based on market conditions and collateralization ratios to discourage risky borrowing behavior.
Liquidity Monitoring: Continuously monitor the liquidity of supported tokens and adjust risk parameters accordingly.
Regular Audits: Conduct regular security audits by reputable firms to identify and address potential vulnerabilities.
Insurance Protocols: Consider integrating with insurance protocols like Nexus Mutual to provide coverage for users in case of exploits.

For Users: Practicing Safe DeFi Habits

DeFi users also have a crucial role to play in mitigating risks:

Due Diligence: Thoroughly research DeFi protocols before using them, paying attention to their security measures, audit history, and governance structure.
Diversification: Don't put all your eggs in one basket. [ ] Inter Milan fan token soars after Champions League win over Barcelona FC Altcoin [ ] BlackRock Bitcoin ETF Records 16 Days of Consecutive Inflows as BTC Tests $97K BitcoinDiversify your holdings across multiple DeFi protocols to reduce your risk exposure.
Collateralization Ratios: Understand and maintain healthy collateralization ratios to avoid liquidation.
Stay Informed: Keep up-to-date with the latest security incidents and best practices in the DeFi space.
Use Hardware Wallets: Store your cryptocurrency on a hardware wallet for enhanced security.
Beware of High Yields: Be wary of DeFi protocols offering unusually high yields, as they may be riskier or even scams.

The Role of Governance in DeFi Security

The Compound example highlights the crucial role of governance in maintaining the security and stability of DeFi protocols.Decentralized governance allows token holders to participate in decision-making processes, including those related to security upgrades and risk management.

Benefits of Decentralized Governance

Decentralized governance offers several benefits:

Transparency: Governance proposals and discussions are typically public, allowing users to understand the rationale behind important decisions.
Community Input: Token holders can contribute their expertise and insights to the governance process, leading to more informed decision-making.
Faster Response Times: Decentralized governance can enable faster response times to security incidents, as proposals can be quickly submitted and voted on.

Challenges of Decentralized Governance

However, decentralized governance also presents some challenges:

Voter Apathy: Token holders may not always participate actively in governance, leading to low voter turnout.
Governance Attacks: Malicious actors could attempt to manipulate governance proposals to their advantage.
Slow Decision-Making: The governance process can be slow and cumbersome, especially when dealing with complex issues.

To overcome these challenges, DeFi protocols should focus on improving voter participation, implementing robust governance mechanisms, and fostering a strong community culture.

Looking Ahead: The Future of DeFi Security

The DeFi space is constantly evolving, and security measures must evolve along with it.As the industry matures, we can expect to see further advancements in DeFi security, including:

Emerging Security Trends

Formal Verification: Using mathematical techniques to formally verify the correctness of smart contracts.
On-Chain Monitoring: Developing sophisticated on-chain monitoring tools to detect and prevent malicious activity in real time.
AI-Powered Security: Leveraging artificial intelligence to identify and predict potential vulnerabilities.
Account Abstraction: New smart contract wallet standards like ERC-4337 will provide increased flexibility and customizability of account security.

These emerging trends, combined with ongoing research and development, will help to create a more secure and resilient DeFi ecosystem. The top 100 DeFi tokens showed bullish momentum after nearly three weeks of price performance dominated by the bears. Majority of the tokens traded in the green on the weekly charts, with several of them seeing double-digit gains. After Mango Markets exploit, Compound pauses 4 tokens to protect against price manipulationDeFi is growing rapidly, and increased security measures will help to foster trust, expand accessibility, and support new use cases.

Conclusion: Key Takeaways on DeFi Security

The Compound's decision to pause the supply of YFI, ZRX, BAT, and MKR following the Mango Markets exploit underscores the ever-present risks in the decentralized finance realm.This proactive measure highlights the crucial need for constant vigilance, robust security practices, and rapid response mechanisms to combat price manipulation and other vulnerabilities. Decentralized lending protocol Compound has paused the supply of four tokens as lending collateral on its platform, aiming to protect users against potential attacks involving price manipulationThe incident also serves as a lesson for both developers and users. Compound users can no longer use YFI, ZRX, BAT and MKR tokens as collateral for loans. Decentralized lending protocol Compound has paused the supply of four tokens as lending collateral on its platform, aiming to protect users against potential attacks involving price manipulation, similar to the recent $117 million exploit of Mango Markets, according to a proposal on Compound s governanceDevelopers must prioritize building resilient protocols with robust oracle systems, circuit breakers, and continuous liquidity monitoring, while users need to practice safe DeFi habits through diligent research, diversification, and proactive risk management.By embracing these principles, the DeFi community can collectively foster a safer, more sustainable, and ultimately more trustworthy ecosystem.The future of DeFi security lies in continuous innovation, proactive risk mitigation, and a collaborative approach that involves developers, users, and the broader community. Security is not just a feature; it's a foundational requirement for the long-term success of DeFi. What steps will you take today to improve your DeFi security posture?