Background
If Compound Protocol is a financial technology startup working to become a sustainable business. Also, if the protocol is thought of as a startup that has raised money, the protocol has raised about $100 million (per the treasuries’ contents) and its main expenses include:
- The risk auditors who monitor and update the lending market’s parameters (Gauntlet)
- The code auditors who mitigate security risks (Open Zeppelin)
- The incentive program that attracts capital to Compound Markets (COMP Rewards)
- The Growth Program that creates new avenues for TVL growth on Compound (AlphaGrowth)
Compound Protocol currently only makes revenue through fees and liquidations in proportion to the amount of TVL deposited in the Protocol. As can be seen from last year’s graph, Compound had an average of $2B in TVL and generated roughly $12M in revenue which accumulated in the Compound reserves (DAO controlled wallets corresponding to each market).
In order to make Profit, Compound Protocol must accumulate more revenue in reserves than it pays out to service providers and through the COMP rewards program. One way to do so is through expanding to new chains to attract TVL onto the protocol from a larger number of communities.
Thesis
When a canonical (official) version of Compound is deployed to a new blockchain, its maintenance and profits fall to the Compound DAO. Deployment of a blockchain currently costs around $400K.
- $150K Growth Program operations ($615K/year / goal of adding 4 chains per year)
- $50K Contract development
- $150K Open Zeppelin 2 weeks of auditing at $75K per week
and maintenance currently costs around $1M per year
- ~$500K COMP Rewards program (this amount can be reduced over time as the markets mature)
- ~$333K Gauntlet updating & monitoring market rates (really by market not by chain)
- ~$100K New Assets Team
- ~$100K Incentive Distribution Team
The fixed and variable costs of adding a new blockchain come down to ~$400K initially and ~$1M in each subsequent year. This means that Compound can sustainably deploy on any chain where it can grow to more than $100M in TVL as the protocol will generate revenue in excess of the Maintenance cost.
Additionally, it can be noted that the $10M distributed each year through the Compound Rewards program is the largest ongoing cost of maintaining a Compound blockchain deployment. And because Compound is already more capital efficient than its competitors, if COMP reward distributions can be reduced, the protocol can be profitable potentially on a blockchain that only has $50M in TVL. Another possible avenue toward profitability are deals where blockchains pay Compound to deploy, for example a $2M payment to deploy would give the protocol 2-3 years in which to become sustainable by reaching $100M in TVL on that chain without losing money. These types of deals would make it viable for Compound to deploy on blockchains that are newer with nascent DeFi ecosystems that have impressive growth trajectories.
Constitution
The New Chains Business Unit is a business development & operations team dedicated to researching blockchains on which Compound can launch. The team then designs and negotiates sustainable deals through which Compound can deploy with the support of chosen blockchain foundations and their ecosystem partners.
Members
The initial team lead will be Ross Gates, who will work to hire a new Chains Protege and impart his knowledge from running the New Chains team for the last year. Then Ross will transition into a higher level role supporting collaboration between all teams comprising the Compound Growth Program. Our 5 person team currently supports the New Chains initiative and will be involved before breaking out to their respective specialties for their assigned teams.
Standard Offers
When we deploy on a new chain we provide the chain a standard offer. Deposit $10M into the new Compound deployment as a liquidity loan that users can borrow, and provide the growth program $1M of Token to be distributed on the Compound deployment as APR incentive campaigns that serve to market the new opportunity. With these tools we’ve perfected how to grow awareness of the Compound deployment and its TVL subsequently to $50-$100M in TVL. The graphic below shows this standard offer. We shield the exact strategies we use to keep a competitive advantage, though if you’re interested you can research how we brought $215M to Compound on Arbitrum by deploying around 1.8M ARB worth about $800K at the time of deployment.
Some ecosystems don’t have treasuries that can lend funds or provide APR incentives, in these situations the New Chains team must work with ecosystem projects on the blockchain to understand who would be interested in lending and borrowing assets on the chain were Compound deployed. The below is a visualization of how the New Chains team stacks commitments to lower the risk of deploying on a new chain by knowing the Compound market will be used to an extent that the fees generated pay for its deployment and maintenance.
We currently have 4 blockchains in the pipeline for Compound deployment with multiple standard offers in play. Even with these offers on the table it still takes time to vet blockchain ecosystems, come up with great use cases for Compound on new blockchains to ensure long term success. Multiple blockchains that have agreed to the Growth program’s standard offer are also still under review as their DeFi ecosystems don’t contain enough TVL and even if all existing TVL shifted to deposit on Compound it would not reach our $50M minimum. In these cases the team works to nurture blockchains and introduce them to the DeFi Deal team or DeFi Operations team to find other equitable partnership solutions for profitable deployments.
Many initial successes from the Compound Growth Program were a result oexisting relationships with Chains and their representatives. By dedicating a team to developing and maintaining the enterprise relationships that enable constant sales of our standard offer, Compound is able to maintain an active userbase.
Cross Collaboration
As outlined at the bottom of the Growth Program Organizational Structure Article, every chain deployment requires help from every other SubDAO comprising the 2025 Growth Program. The largest notable handoffs are that;
- The $1M of incentives collected by the New Chains team is handed off to the Incentive Campaigns team for efficient campaign execution.
- After the chain is launched, the New Chain’s team stays involved while it hands control off to the New Assets & Markets team who will lead expanding the new chain’s ecosystem over time.
- The Community team will work with Incentives & Markets teams to communicate new participation opportunities to Compound users.
These three teams that effectively run the new chain deployment work in a synchronized manner with extensive cross collaboration.
Supporting Materials
If you’re interested, a list of the 65 steps to onboard Compound to a new blockchain were listed in the 2024 growth program renewal at the very bottom under “Operational Launch Process”. This process starts
Past Successes
The growth program has led Compound’s deployment on Optimism and Mantle, both of whom have agreed to Compound’s standard offer with which incentive campaigns will help them grow to sustainable markets.
Roadmap
Currently four chains are in the New Chain team’s roadmap. The top four are Linea, Uni-chain, Ronin and Sonic. While these are already public on the forum, research on dozens of other chains is in the process of being completed in private in order to maintain competitive advantage against other lending protocols who may be considering the same territorial expansions.
We have reason to believe each deployment will generate net positive returns to the DAO. Those reasons are also private as there’s a fine line in a DAO between transparency and giving away hard researched insights to competitors. Anyone who’d like to discuss these initiatives with the team is welcome to comment below and ask for a meeting.
Questions?
This document is intended to educate community members on the value generated by and general activities of a New Chain’s business unit. If there are additional questions you’d like to know please ask them below, we’re happy to answer, though some answers may be during office hours to protect strategies that are more valuable if they cannot be easily copied by our competitors.