Gauntlet recommends a temporary emergency pause in the following comets: Ethereum USDC, Ethereum USDS, Ethereum USDT.
Rationale
Due to concerns surrounding Elixir, Gauntlet has observed a liquidity crunch in both deUSD and sdeUSD. Both tokens are listed as collateral on Ethereum USDC, Ethereum USDS, and Ethereum USDT. Gauntlet has already recommended risk parameter updates (Tally). However, these have yet to pass through Governance. Until this proposal passes, Gauntlet recommends pausing withdraw on the affected comets. What this means is no liquidity can be taken out of the system i.e. no new borrow positions or withdraw liquidity will be possible in Ethereum USDS, USDC, and USDT Comets.
What can be done while these comets are in Withdraw Pause mode:
User Action
withdrawPaused
Supply new Liquidity
Can Do
Withdraw existing Liquidity
Paused
Supply new collateral
Can Do
Borrow new loans
Paused
Repay existing loans
Can Do
Withdraw existing collateral supply
Paused
Additionally, we have observed the price of sdeUSD fall to $0.86, but the Oracle price is still showing $1.06, meaning users can borrow against sdeUSD at 1.06*88 % LTV i.e $0.93, which is much above the current market rate and is considered a vulnerability.
Gauntlet will provide more updates as the situation evolves.
Next Steps
Monitor the situation around deUSD/sdeUSD and recommend unpause markets once supply caps have been adjusted
Appreciate your work and that of the community multisig members to follow through despite the failure of the renewal proposal (and associated remuneration for the on-call nature of this work).
That said, I’m chiming in to voice the opinion that no matter how justifiable the circumstances, withdrawal downtime must be kept to a minimum. The longer these Comets are paused, the easier it is for lenders to second-guess the expected redeemability of deposits, for misinformation to spread, and for loss of confidence to take root.
Proposal 491, which locks down the risks addressed in the interim by this pause, should be executable in about 36 hours. I encourage signers to treat unpausing of these Comets with the same level of diligence and urgency that was applied to the pause.
As one of the two Against votes for listing deUSD and sdeUSD as collateral on mainnet USDC and USDT Comets, I think users would be justifiably upset to see that these listings have come to necessitate a pause on some of Compound’s most important markets within months of listing. The pause should force delegates to redouble their commitment to researching asset safety, liquidity, and oracle considerations for new collateral, especially on major Comets like mainnet stablecoin Comets.
I believe this action has unintended and unfair consequences for users who are not exposed to deUSD or sdeUSD.
Many participants rely on their supplied liquidity in these Comets to maintain healthy positions in other protocols. By freezing withdrawals across the entire market, the pause effectively locks up capital for users who have no exposure to the affected collateral assets.
This can create secondary liquidation risks elsewhere in DeFi, as users are unable to move funds or rebalance positions to meet margin requirements.
I would strongly urge Gauntlet and Compound Governance to consider a more targeted approach — for example, limiting only the affected collateral types (deUSD/sdeUSD) rather than imposing a blanket pause.
The current approach protects against a narrow risk vector but does so at the cost of broad user solvency and trust in the system.
An update from the SSPs: We reviewed the execution transactions and confirmed that the pause helps mitigate bad debt build up with minimal possible effect on the protocol. Only the withdrawal and borrow functionalities were paused. Users can still add collateral or repay loans. These Comets will be unpaused as soon as proposal 491 is executed, and we have the unpause transactions ready to go on when they are.
Hi @kosh. As of now, there is no way to isolate individual collaterals with the Pause Guardian. Pausing withdrawals for these comets was the minimally impactful method to safeguard user funds and overall impact to Compound from risks stemming from deUSD/sdeUSD. There is ongoing work from DAO service providers that should provide more granular pause functionality in the near future.
Hi @defire. The supplied assets are not subject to meaningful market risk at this time during pause. Once Proposal 491 passes in roughly 24 hours, the pause will be lifted and withdrawals will be available as usual.
It’d be good to have more granular control over to specific tokens and addresses who speculate on certain scenarios and act consequentially.
Regarding price fluctuations, I think that, under certain conditions, the market price should prevail over the oracle’s or at least weight the prices by volume.
Hi @dochithanh. Proposal 491 should pass around 2PM EST tomorrow. After that proposal passes, the pause will be lifted and withdrawals will proceed as usual.
@dochithanh The proposal timing is not deterministic, so we cannot give an exact time. However, the Compound Governor should execute the proposal around 2 PM EST or shortly thereafter. The Community Guardian should lift the pause on withdrawals shortly after this.
I remain quite reserved about the decision to implement a blanket pause on withdrawals, particularly as it affects many users like myself who maintain significant positions. Portfolio management is a dynamic process, and there are times when we must adjust or rebalance our strategies accordingly.
I sincerely hope this pause will be lifted soon, as a prolonged disruption could have serious consequences for a substantial number of your users.