Crypto Marketplace Asks For Refund After Bug Sends $ 90 Million To Users

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A technical glitch in a cryptocurrency market has just enriched some cryptocurrency users with tens of millions of dollars and threats from the market’s founder have sparked a debate on the rules of digital currency in a world without authority .

Compound, a popular cryptocurrency platform, released last week what should have been a routine update to the code that governs user transactions. However, the update contained a bug that mistakenly sent up to $ 89 million in crypto tokens to some users’ accounts.

Compound Labs noticed “unusual activity” on Wednesday night, but by that time the tokens were already being distributed with no easy way to collect them.

Company founder Robert Leshner quickly took to Twitter to persuade Compound users to return the surprise windfall from persuasion to praise to threats against anyone who doesn’t return the tokens.

First, Leshner said users can keep 10% of the bonus funds, but threatened to reveal the identity of holdouts who do not return the money.

“If you received a large and incorrect amount of COMP from the Compound Protocol Error: Please return it,” he tweeted, indicating an account ID. He added: “If not, it is reported as income to the IRS, and most of you are doxxed.”

Doxing or publicly revealing information that many people might consider private, such as a person’s name and home address, is considered a massive protocol violation in the cryptocurrency world, where users value it. often confidentiality and the absence of central authority.

Leshner later retracted his statements, calling his tweet a “bonehead” and telling users, “I appreciate your ridicule and your support.”

On Friday, Leshner jumped on board with an offer to reward the first five people to return funds with a digital asset, or NFT, which he said would be redeemable for a real-world reunion with the founder.

“It was, without a doubt, the worst day in the history of the Compound Protocol,” Leshner told trade publication CoinDeskon on Friday.

The opposite of a hack

What happened with Compound Labs was the opposite of a typical hack, in which one person or group exploited a bug to take money from others. “Instead of people losing money, they magically make it. The money appears and it’s yours, the bank can’t reverse it,” said RA Farrokhnia, professor at Columbia Business. School that runs the Columbia FintechInititative.

The extra money came in the form of COMP tokens, which are typically awarded to people who interact with the compound market by lending, borrowing, or depositing cryptocurrency into a lending pool. Users who own COMP tokens have a say in how the platform works and can also exchange them for dollars, however, there are a limited number of COMP tokens that can be in circulation.

“The funds that were handed out were earmarked for future community members and protocol contributors,” Leshner told CBS MoneyWatch on Friday evening. “It’s basically like an endowment for the protocol, to make it work for hundreds of years.”

When the tokens were issued in error, Leshner said he hoped users wouldn’t claim them, but by Friday nearly all of them had been claimed.

“It lasted 48 hours,” Leshner said. The biggest losers in the update debacle were essentially future users, he added.

Terribly common

Multi-million dollar mistakes are desperately common in the decentralized world of crypto finance. In June, Alchemix, another crypto-borrowing platform, prematurely forgave about $ 4.8 million in loans. The previous month, another crypto-lender, BlockFi, mistakenly sent users bonuses worth $ 10 million.

Such failures are even more common with conventional banks, note crypto fans. Citibank mistakenly wired $ 900 million to some hedge funds last year; in February, he lost a legal battle to force the lucky beneficiaries to return the funds.

“It happens every day,” said Peter Jensen, CEO of Rocketfuel Blockchain. “Ask the banks how many transactions are misallocated. “

But unlike banks, cryptocurrency markets do not have a waiver or central authority function like the Federal Reserve, and the technology behind digital currency is still new enough that it is not known which laws and regulations apply.

“There is no way for us to reverse it,” said Leshner of Compound. He added that a code update to fix the bug is in progress.

Compound contributes its code, but doesn’t control it instead, users vote on all changes, which take effect with a delay.

“The company basically gave away free money, and they would like it to come back,” said Farrokhnia of Columbia. “But there is no recourse, you just have to rely on the good graces of the recipients to return the money.”

Separation of the crypto community

As of Monday morning, around 117,000 COMP tokens (valued at around $ 36 million) had been returned, Compound reported. “It’s kind of a moral dilemma for people,” Leshner said. “I think if these were dollars accidentally appearing in a bank account, no one would hesitate to assume that this is not their property… I think the beneficiaries of this new wealth are wondering if it is the their, if they have the right to keep it, what is the social or moral expectation of them. In addition to exhausting the reserves intended for future Compound users, Leshner fears that the incident could harm more to the reputation of cryptocurrency in the Wild West. “This allows a negative narrative to set in,” he said. “It plays on the fears of those hostile to cryptocurrency that these systems don’t perform well, even though, when built correctly, they can perform flawlessly, without error, for decades, ”he said. The error split the crypto community into two camps, said Leshner. Some people side with his argument that the tokens belong to the to the entire Compound community, including future participants, and should be returned. Others think the bug is essentially a bank error in their favor. The final cost of the error to future users will depend on the value of the COMP tokens, which dropped after the bug was reported. On Monday, COMP tokens were worth around $ 317 each, according to Coinbase.

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