Monad Co-Founder Advocates for Supply Rate Limits in Lending Protocols

On April 19, Monad co-founder Keone Hon expressed the need for lending protocols to implement rate limits on asset supply used as collateral. According to BlockBeats, Hon suggested that if the current supply is 100 million with a cap of 300 million, the supply should only increase to 110 million within the next ten minutes, rather than allowing a full 200 million deposit at once. This approach is crucial as the impact of attacks on certain 'exotic assets' depends on the 'exit channel size.' In cases of 'infinite minting vulnerabilities,' the scale of possible exits determines the attack's loss ceiling. Lending protocols often serve as the largest exit channels. Introducing a 'smart cap,' which starts slightly above the current supply and adjusts to the actual cap over several hours, could be highly effective. Such a mechanism could have prevented a loss of approximately 200 million dollars for rsETH depositors. This highlights the importance of asset issuers supporting such mechanisms. If issuing tokens with redemption delays, issuers should minimize external exit paths without affecting regular users. High supply caps should be viewed as a risk rather than a strength. For instance, the Hyperbridge DOT attack did not result in a 100 million dollar loss due to limited exit paths, and the Resolv attack's loss was capped at 24 million dollars instead of 200 million due to exit path limitations. This principle is evident, yet actionable steps remain: auditing supply caps for all assets and reducing them when unnecessary.