DAI Liquidation Event

[cryptoguy123]

@Elkins

Thank you for chiming in. While I find your discoveries hard to believe, I appreciate you coming here to share your perspective.

First, it is widely understood that the market price was $1.03 during this incident. There were millions of DAI available for sale at this price across nearly every exchange in these moments. Can you please comment on how and why the Coinbase Oracle failed to reflect true market value despite three promised layers of protection against off market data?

Data quality

For an oracle to provide a reliable price feed it is important to address various scenarios in which a data point to be signed does not reflect an actual market price of an asset. There are three layers in the Coinbase price oracle architecture designed to solve this:

1. Price source . We use the Coinbase Pro API as the source of the price data. Coinbase Pro is one of the most liquid crypto-exchanges in the world. There is already an ecosystem of oracles, market makers and traders that rely on an accurate data feed provided by the Pro API. As such, Coinbase is making continuous investments in the quality of the API itself, as well as the market, as measured by liquidity.
2. Off-chain filtering . The Coinbase price oracle implements a filtering mechanism that rejects data points that significantly deviate from the expected volatility of each asset.
3. On-chain filtering. Compound open oracle’s [DelFiPrice](https://github.com/compound-finance/open-oracle/blob/master/contracts/DelFiPrice.sol) contract implements concepts of an ‘anchor’ source. Data points that significantly deviate from the last price reported by the anchor source are rejected.

Specifically I’d like your comment on point #2, off-chain filtering. Everyone knows DAI should trade near $1, and given that it was clear that in this moment, there was a liquidity crisis on Coinbase and Coinbase alone, why was $1.30 allowed to be printed on the oracle? Especially since it was only sustained for a few minutes. The oracle should be smarter.

This is completely unacceptable for Coinbase to be so cavalier about reporting local market prices on an narrow illiquid slice of the market when everyone knows the real purpose of the oracle is to report true market value. Your blog post says as much. Again it states “it is important to address various scenarios in which a data point to be signed does not reflect an actual market price of an asset”.

What sanity checks did the oracle perform? Did it check to see if Coinbase was off-market relative to other exchanges? In this case, every other exchange. I’d like to know how this oracle failure happened. I’d also like a full disclosure of how many accounts participated in driving the price of DAI to $1.30 and keeping it there. Please disclose whether there was anything suspicious or any patterns amongst these accounts.