Compound-Issued DAI Just Eclipsed Actual DAI, Courtesy an Infinite Issuance Loophole


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There’s now more DAI, the MakerDAO stablecoin, issued on DeFi project Compound than DAI’s actual circulating supply, CoinDesk reported June 3.

DAI on Compound > Actual DAI

DeFi – the shiny new sub-sector of crypto that promises ultimate decentralization and returns for early adopters – is facing a strange conundrum. Ease of token issuances is causing a situation where there’s more issued token than actual tokens – creating a bubble-like scenario doomed to end badly.

Numbers on Compound’s website confirm the above – onchain-DAI is just 148 million tokens, but Compound DAI is over 401 million (at press time).

Critics on Twitter find this both amusing and unsustainable. While projects like renBTC and Wrapped Bitcoin are backing by equal reserves custodied by BitGo, no one really governs DeFi platform, allowing anyone to issue a token using some loopholes.

Compound, on its part, has introduced new Liquidity Governance proposals to change distribution rules and check any untoward “yield farming” as users supply illiquid tokens to partake the maximum rewards.

COMP tokens currently trade at $185-$190. Market cap data values Compound at over $3 billion, and the protocol was launched just last month on June 18. There’s over $1 billion worth of pools locked under Compound as well – making it very attractive for participants seeking loopholes to turn a quick profit.

Similar to Banks

So how did Compound DAI issuances exceed DAI in the first place? There are some reasons for this. First, Compound counts each deposit of DAI as “additional gross supply,” even if the token was shuffled around back-and-forth a few times by one user.

This means if there’s 100 DAI and a user deposits 200 USDC, they can borrow all that DAI and deposit again. Many users are probably running a few wallets to make this work more easily.

Ken Deeter of Electric Capital told CoinDesk:

“Note that this is actually what banks do with USD as well. If I deposit $100, and $90 gets lent out, someone gets paid with that $90 and they deposit it in the bank. Now there’s $190 in the bank even though there was only $100 to start with.”

DAI pays out over 7% to Compound users, making it one of the biggest yield providers. With Tuesday’s change to the protocol – which went into effect today – all that counts for COMP earnings going forward are the total amount borrowed and lent. 

This also indicates DAI might see a price surge in the short-term, as yield farmers choose a token that’s both liquid and boast low-volatility.

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