cCOMP Fix (With Solutions)

Hello, so I have found some issues with cCOMP and its COMP distribution, and I have an easy solution, so no worries.

cCOMP Dashboard
COMP Speeds
Latest COMP speeds recalibration

Regarding the COMP speeds and distribution:
Lets look at the data:

Interest Paid/Day=$10,597.82
10,597.82/474 = 22.35 Comp/day

(Speeds) COMP Per Day=65.70
To Borrowers (daily) =32.85

Supply APY 1.91%
Distribution APY=3.94%
Net Rate= 5.85%

Borrow APY=8.97%
Distribution APY=14.11%
Net Rate= -5.14%
Number of Borrowers=91

Borrowers are getting paid more comp than they pay in interest, meaning that they have no reason to ever pay it back, and are currently “locked” into farming and making a lot of leveraged comp. They are not participating in governance, they sold it/lent it.

If you do the math brought up in the recursive borrowing piece, and use the:

  • cCOMP Collateral Factor=60%
  • Iteration Sum:(1/(1-cfactor))
  • 1/(1-.6)

Then:

  • Lending size is leveraged 2.5 times and 1.5 borrow with a net borrow rate of 5.85%, and -5.14% respectively
  • The original borrower can make 27.475% from borrowing and lending comp recursively

(Check the bottom of this post for accounts, take a look)

Another Issue arises when you look at the borrow caps.
This is the reason the borrowers are “locked”

borrow Caps

We have a borrow CAP on COMP,as is it stated in
Compound Chapter 2: Verse 27: Detail 5
(plz laugh, or chuckle; it was cute)

“A borrowing cap of 50k COMP is set as well.”
EDIT UPDATE: The borrow cap is under control of the community multisig, but with a limit at 100k (its at around 91k ATM)

A proposal is needed to up the comp the borrow cap, or lower the comp speeds.

Market liquidity:
In business, economics or investment, market liquidity is a market’s feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset’s price

Utilization for cCOMP: Percentage of supplied funds that are borrowed, calculated as supply/borrow

But utilization is “the action of making practical and effective use of something.”

If you cant borrow any more because all of the allowed funds are being borrowed, then there’s effectively no liquidity and 100% Utilization.

So what?
Well, the liquidation system is THEORETICALLY tainted.
Lets say these accounts get margin called, someone’s gonna buy COMP on a DEX, and liquidate the portfolio.
Another way, in a self sustained enjoinment would be for another account to borrow comp on their own account, with no slippage, pay back the debt and close the account.

But… There’s no liquidity in this situation, even though the UI says there’s liquidity, on a closed end system (testnet, compound cash, extreme market conditions,Black Thursday), there could be a slight issue.

Again, this angle shouldn’t be too much of a concern, its mostly theoretical and to prove a point.

So, what’s the Solution?

For starters, we need to lower comp speeds on cCOMP to fix this imbalance.
Because we cant just yet change it from 50:50- Borrowers : Suppliers , cutting cCOMP speeds by 80% will make cCOMPS balance sheet make economic sense. From there we work on allowing different speeds other than 50:50.

Because hopefully soon we will have a grants committee up and sunning soon, I want to take half the COMP grant and attempt to fund this development, in a transparent, socially conscious and equitable way.

If you have any ideas about community development and equal opportunity in tech, PM me to help out.

So the changes:
From this:

Comptroller
._setCompSpeed(“cCOMP”, 5000000000000000)

To this:

Comptroller
._setCompSpeed(“cCOMP”, 1000000000000000)

Comptroller
._grantComp(“0x8fC1151dD92aB093EF0EB7cb144D573592510cAA”, 31000000000000000000)

Comptroller
._grantComp(“0xdF2D2F76E8E8827f92814E49e7D95Fc1e33E4148”, 31000000000000000000)


APENDEX

Last two addresses are large

https://etherscan.io/tx/0x20d61a9f251e3ff6f5e4251fa34e778c09d412a241f3d51723420b5489e70e7c
https://etherscan.io/tx/0x1f251bc7168ff22f78f7c8dd6149cf7a364434d5552931383729868410701bad
https://etherscan.io/tx/0x769d3a98b1b7064234fb30516517b3ab95743e3d16dbc670d7ed772a061fdab4
https://etherscan.io/tx/0x4cd129dc2edd4ccde766003812cc3a5b798491bec97da3bd579341eb7333cdb2
https://etherscan.io/tx/0x19d7147d6a6dd43b4be050c8d4ad099d1af3b8c436e28d851e115e83af828db3
https://etherscan.io/tx/0xe7354239a37e71ecf66f0653d084448e900346a41db475604d5f854077f27e48
https://etherscan.io/tx/0xc4fc3098072b4f9727ac704df0a651eb569a3465a99f76a886bb7a79293f922e
https://etherscan.io/tx/0x5e2a86b573ac0a15dc8a1af894808c3086daa55d9e75fb5d5143738c2423a07d
https://etherscan.io/tx/0xb4a798954bf3862bbe8551def8aa6b98dd21bbb29b2b50c4ce3cc9ac98689896

https://blog.kaiko.com/crypto-black-thursday-under-the-microscope-a86770df5c29

6 Likes

great suggestion

cutting cCOMP speeds and ratio reduction on borrowing side (<50%) will improve economics.
In general, I think the 50:50 COMP distribution does more harm than good when it comes to all supported assets. I don’t understand the effect of incentivising borrowing to that extent.

1 Like

It’s quite the opposite actually. Nothing great in that suggestion, while it’s still a possible solution.

There’s absolutely no reason to touch comp distribution for COMP market, it isn’t anything great in number, and there was a reason for setting it where it is now, as it was done to provide additional rewards for COMP holders.

Current imbalance is a result of existing Borrowing CAP, which was expected to be raised, but was not. And as soon as it will be adjusted to where it should, market will likely come back to balance where it should be.

Why community multisig took no action, i have no idea, nobody shared reasoning at forum. But if the CAP is going to stay where is, then indeed another way to fix imbalance is to lower COMP distribution for COMP market.

2 Likes

I just want to clear up some confusion here. Back when the cCOMP market was added, there was concern about governance manipulation though borrowing upwards of 100k COMP, as such, it was decided that setting the borrow cap above 100k is a significant action which should only be done by governance. The community multisig is following expectations, and raised the borrow cap multiple times until reaching this point.

I would like to see governance have the ability to fine-tune COMP distribution beyond the 50:50 allocation.

This issue goes much beyond the 50:50 COMP allocation though. While COMP holders definitely should receive special rewards from the protocol, I don’t believe that cCOMP is the means of distributing it. A long term staking process for COMP is needed, and personally, I don’t think this involves cCOMP. I don’t understand the drive to give the cCOMP market excess rewards, as this goes against the COMP agenda. Users who deposit to cCOMP are not participating in governance and forfeiting their voting power for monetary collateral and interest. The cCOMP market is needed, but I don’t it think should be manipulated with excess COMP rewards—an alternative for COMP staking with a different structure is needed. There is an argument to allow cCOMP holders to vote, but this comes with its own list of issues.

To fix this current situation, we need a new type of interest rate model which would be cognizant of the borrow cap. Treating the cap as 100% utilization would quickly “fix” the market. It is quite clear that there is significant excess demand at the borrow cap, and the interest rate should be higher. This in conjunction with lowering the cCOMP COMP distribution to be inline with other small-cap collateral assets (1950000000000000) makes sense.

5 Likes

So this proposal is in two parts

  1. Band aid (quick lower of comp speeds)
  1. Fund research and development of said permanent fix

Including but not limited to

dynamic interest rates cognizant of borrow caps, ccomp staking and voter participation, non 50:50 comp speeds.

I Think Arr00 is a perfect example of who should lead the charge with development, hence the reward I suggested to him/her. It doesn’t have to be them specifically, but i think it is important to set this future/forward thinking developmentally focused precedent.

Your ideas are exemplary and I think governance should enchorage this type of forward thinking compound community citizenship.

Do you feel like the the 30 comp would help with this? Could it be utilized well in a transparent manner for the implementation of this idea?

If the user borrows a COMP token is it a holder or shorter? He is obviously a holder by the very fact that he owns COMP. However I am interested in what is the positive implication of equal distribution (50:50) of COMP tokens to someone who is a long-term believer and to someone who play short on COMP?
Why is borrow cap a better solution than reducing COMP speed / ratio distribution?

If you have already commented on this somewhere and you do not want to repeat it, feel free to put a link. Tnx

1 Like

Thank you for these questions.

“Traditional” Financially speaking, a user who borrows COMP is short the asset, because they owe it.
However, COMP being a governance token, there seems to be the idea that borrowed funds will be used for that, therefore they must have a strong belief in the underlying. However, if you look at the numbers, the borrower would benefit if COMP goes down. BUT… There’s comp speeds, and just like other markets, users, both on the long and the short side get compensated in COMP for their position.
This works perfectly for DAI, ETH, USDC, etc, but ccomp is spoecial because the “boost” is in kind.

That’s the problem with the ccomp market AS OF NOW, there is no good use case as of now for borrowing, besides for gaming the system. We do have some ideas in the works, like @arr00 said, like ccomp voting, VESTING and others.

As of now, the mechanics are as follows,
There is a multisig that allows to raise the borrow cap
-It was put in to make sure that there was no large borrows to avoid vote manipulation
-100k Limit, for whatever reason, (I wasn’t the decision maker, I don’t hate it or disagree, it just is) before something new comes up to a proposal.

There are 91 Borrowers GETTING PAID 5.85% to BORROW Comp.
These accounts, see above, are simply recursively borrowing/farming it.

the last time on discord The cap was raised publicly, it was to 85k, where the cap is now at like 91k.

Because there is no precedence for announcing new borrow limits in any other markets, only select accounts with this “inside information” (its viewable on etherscan its not a secret) have the ability to take advantage of this glitch.

The second the cap is updated, one tx can be made to borrow, supply, borrow supply, etc., to make 28% APY with zero risk on 4 times the total position (borrow+supply).
Its a pointless game and it makes it seem like supplying comp is a good idea, but no one is really borrowing because the borrowers being funded entirely by comp distribution and are taking on no risk.
Someone who is borrowing comp is clearly gaming the system and therefore does not belive in COMP’s long term success, because they would be open and honest about the problem.

Similar to the “free money glitch” robinhood had, it was patched quickly and individuals were barred from taking advantage.

Borrow cap raising will work, but doesn’t solve the issue, people will still game the system the second the cap is raised and the comp distrobution will foot the bill.

Right now the unrealized loss is over 30 COMP/day for the system as a whole (two separate contracts, ccomp and comptroller/unitroller?)

But if you look at both contracts from a zoomed out veiw, you can see the loss.

So Raising the cap will NOT solve the problem, because with comp speeds like this it is still a game (also we have almost reached the 100k limit)
-But raising the cap will SEEM like it will help, more borrow demand will allow the “natural rate” to increase, but again, the borrow interest is paid by comp speeds.

Lowering comp speeds on ccomp will stop this little leverage/free money game, stopping select individuals with technical skills with intention to profit from the system.

-lowering comp speeds doesn’t make it perfect either, we still dont have a great use case for CCOMP, but we have some in the works.
To speed up this process, i suggested using some of the money we save (30/Comp a day, or $5.5 million a YEAR) to help fund and speed up community development.

For more details on that check here.

Hope I answered some stuff, LMK.

2 Likes

For holders COMP token utility is trade-off between capitalization and governance. If somebody borrow (short) COMP what is reason for that action? If with leverage take capital gains then borrower doesnt have trade-off and use both utility features.
Maybe I am wrong but protocol token inside its protocol needs more utility, especially if it is offered as other assets

1 Like

The precedent within the Compound ecosystem is for payment to come after work. We don’t bundle proposals—for a grants committee to exist, that must be its own proposal. As of now, if I decide to implement a different method to distribute COMP, I will get paid after completion.

3 Likes

In the past, when a contributor wanted to claim a bounty, they would have to put the grant within the governance proposition itself. Some examples are,

“The last two calls withdraw from the cSAI reserves about $5000 worth of SAI and sends it to Arr00 as a bounty for organizing and implementing this proposal.”, source

“The last two actions take 622 Sai (currently valued at $1200) from reserves and transfer them to Arr00 as a bounty for his work on this proposal.” source

“1. Award ourselves a COMP grant (1000 COMP) to offset development and audit costs.” _grantcomp in Action

By precedence, do you mean what you have done? You say “we” don’t bundle proposal, yet you were the first to transfer SAI to yourself.

Compound Finance is a community and while you have certainly been a trailblazer in many respects.

However, on a personal level, it shocks me to rely on precedent, or status quo, as a way of governance.

Imagine if someone told you before your first time spending dozens of hours, unpaid, to improve a community project, for a friend to come up and say, “we don’t do this here”. Just because it was, does not mean it is, and certainly does not mean it will be.

Regarding the payment after completion, sometimes its not fully clear,

“So far it has been me and a few anonymous donors, but I’m hoping that it will be funded by the protocol eventually”

There is no precedence here, and even if there were, I don’t see it a a reason to continue down this way.

This is a clear example of survivorship bias, Imagine how many proposals could have gotten passed with payment upfront or along the way, because as of now you are the only pure example of successful community development within governance.

This post and hopefully CAP is not about the grants committee, rather I am exploring the affects that having a committee will have on community governance.

I would love to get some feedback on the following questions:

Do you feel like the the 30 comp would help with this?
Could it be utilized well in a transparent manner for the implementation of this idea?

We are looking for transparency in this process, with open documentation and financing along the way. How would you react/work with these new hypothetical implementations?

50/50 distribution is just how protocol works currently, we can’t do uneven split at the moment. However to answer your question why i think raising a CAP is better solution, is because CAP itself is creating market imbalance.

You see, people are complaining that someone is getting paid to borrow COMP and then they can use it to supply it back, leveraging their position. It’s true, but that’s because no new borrowers can enter. By allowing, like another 50k borrowers to borrow, borrow rate will quickly become negative, and on COMP market rates are quite high, so ALL borrowers are going to pay for borrowing, instead of now none of the borrowers are paying for borrowing. COMP market CAP is just creating artificial non-market condition which makes that an issue.

I’m not really that much opposing decreasing COMP speed, the thing is it was hard enough to introduce even a little bit more inclusion of all markets in COMP distribution instead of dropping 80% of distribution to stable coins exclusevly. And now we discussing about taking it back and what? Put it back to stable coins? Or just decrease overall daily distribution if putting it nowhere? It’s not out of the table, but how it’s better than just letting COMP market to reach balance naturally. If it wouldn’t be able to do it with raising CAP, than sure, cutting distribution is logical next step.

I used to think that way also, but looking at developments in DeFi, i adjusted my opinion. I now don’t think holding COMP or, locking it in staking contract, or vesting should be really that much incentivised. Is extremelly capital-inefficient and just create dead capital.

cComp on the other hand is a sort of a wrapped COMP. It doesn’t itself take away capital from defi financial system, as it’s continie to work as collateral. I believe cCOMP probably should be upgraded to be used as primary location for COMP for long term holders and voters. It might be not the best solution, but it’s surely better than plain COMP and vested COMP. Staked COMP might be different, depending on what is actually done with that staked COMP, but since it’s not exist, cCOMP is the only thing what we have.

I understand concerns that some people have about borrowing COMP to be used in governance, even if personally don’t see it as an issue, so far nobody showed interest in borrowing COMP to propose something and i doubt it will happen in future, as even with 200k CAP it will easily be outvoted.

But that being said, while i was very much FOR COMP market, my main idea was to let COMP holders use it as collateral, to allow them use their capital, or at least portion of it, borrowing side excluded.

@arr00 Since you are active participant in Compound development side, here is another concept to think about. It might be relatively long-shot solution, but relatively simple to implement as it based on already existing code.

Introduction of cCOMP2 market. Why and for what:

Primary difference of cCOMP2 market from cCOMP market would be zero borrowing side, done with 0 borrow CAP. So COMP placed there would be able to used as collateral to borrow other tokens but not allowed to be lend. That would allow long term holders to place their COMP there and not to be exposed to any risks from the borrow side.

Second, since cCOMP2 pool couldn’t be lend and just sit there in the same amount, then vote delegation could be introduced, so the Supplier to cCOMP2 could delegate his votes either to himsef, or to other address he choose. That would achieve second goal of letting Supplier to preserve it’s voting power.

As a future options, there could be done a sort of timelock, for example on ability to withdraw tokens from pool. As well as some additional rewards could be distributed to Suppliers (“Stakers”). “Stakers” could potentially also have a bigger voting weight in future or something like that. That would be logical step in evolution of governance for Compound from what it is currently.

2 Likes

Yes. Perfect Situation

I think borrowing should be barred from ccomp (or at least reexamined) and comp speeds taken to near zero. As @rleshner says, we need to find the levers that can incentivice user and capital behavior and the ccomp market is just the place to allow for a “federal reserve” or a hub of economic policy.

1 Like

For this idea, just ccomp comp speeds will be adjusted, nothing else.

I think we should try and keep one unified market, since the contracts are changeable, whereas cETH and cUSDC (I think) are immutable.

I understand your arguments and I think they are reasonable, however my opinion is that the COMP token itself does not have enough incentives on their native protocol (Compound). Given the “utility trade-off,” what is the capitalization advantage of COMP tokens over ETH or WBTC? Due to the smaller collateral factor (75% vs 60%) and the very low interest rate on the capitalization of the COMP token, there is a lack of economic incentives.
Maybe my point of view is wrong because I look at things from a user perspective?

1 Like

In my opinion, increase the borrow CAP on COMP will help a lot.

1 Like

After reading the replies to this proposal, I’m beginning to wonder who are the owners of the addresses holding cCOMP? They are just making money on money! If any of them happen to be part of the Compound team, we have a lot more to do than just creating a proposal.

It will, but at this moment it is not the most realistic because the multisig wont go above 100k

Its not those who hold ccomp, but those who are borrowing COMP

1 Like