COMP Reward Adjustments v2

Sounds good to me, Tyler. How much less COMP is getting sold each day as a result of this adjustment?

Too soon to say.

Does the protocol automatically sell rewards to pay down interest as it accrues?

Nope. Users must claim their rewards, then they can do as they wish with them.

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The above statements I made in my prior proposal still hold. At the time of writing, I advocated for our users - who are also token holders - to continue receiving a share of the protocol. Decentralization of ownership matters.

Nope, decentralization matters not. It’s cool story which easy to sell to crowd, but really nothing was done for decentralization. Actually every step so far was in opposite direction. Initial distribution directead most of the tokens to the hands of venture investors and team, with lesser portion to be distributed for a users over 4 years, but, oh well, that distribution was massively concentrated for big capital holders, and now even that going to stop, effectively stealing user portion of tokens and redirecting it into “trreasury” of protocol. Which in turn is largely controlled by those who got
initial distribution, and now they can vote what they going to do with tokens never actually belonged to them. Users on the other hand will have cool story that for their benefit distribution going to improve :slight_smile:

Since most COMP being distributed by the current rewards program is instantly sold off, existing users and token holders are at a great disservice. Their share of the protocol is being diluted for nothing other than farming COMP for profit.

That can’t be further from truth. Share of the protocol for token holder stays exactly same no matter what happens with COMP being farmed. 1 COMP is always 1/10M share of the protocol. Nothing is diluted as COMP is a fixed supply token. As for market
valuation it have literally nothing to do with share of the protocol. It’s just a speculation which matters not in the long run. The only thing protocol ACTUALLY own is reserves, and recursive farming is in fact benefitial to reserves, as it exchange comp tokens, which bear no value, for mostly stable coins in reserves which DO have a value.

However, it’s true that COMP distribution mechanism isn’t that great. It worked somewhat, and users were actually able to get a little bit of it, though scraps.

As for your plan i don’t have a goot feeling about it, if only for a reason that normally you don’t dismantle anything, which works, to build something which might work better in future (or might not). You build something FIRST, and then you transition from old to a new model.

As for COMP tokenomics, as it was first, it obviously wasn’t ideal. First of all initial distribution had not created treasury of protocol, opting to allocate all COMP supply. And treasury is what should be used for bootstrapping new markets.

Bootstrapping is a good idea by itself.

But treasury isn’t the only thing DeFi discovered through it’s existance. Of course, treasury in protocol tokens isn’t really a treasury just like it also isn’t in traditional finance. Aside of having protocol native tokens for some initiatives treasury should mostly hold actual reserve assets, like stable coins, eth, wbtc maybe several other tokens. Compound protocol actually fits well for having that, as it does naturally collect some reserves from it’s pools, which could be managed by protocol instead of just sitting in the pools for kind of nothing.

And another good discovery made by DeFi on the way, that it’s actually great to have protocol-owned liquidity. Not in kind of scammy way ohm forks did, but as a concept. For example, protocol can and should provide deep liquidity for COMP-ETH pairs
on important chains. Like it’s great to pay for that liquidity in protocol tokens like some dao do, but it’s even better when protocol actually owns it itself and instead of paying for liquidity, recieves trading fees, which slowly grow it’s treasury.

All that things are quite well-known by that point:

  1. Having treasury supply of native tokens (COMP) for incentivize programs

  2. Having deep treasury reserves, nominated in non-protocol tokens like stable-cons, eth, wbtc, possibly some others.

  3. Having deep own liquidity of nativetokens pairs on importand DEXes on important chains. At least on eth, maybe some others, depending on presence/planned presence of protocol.

It’s controversal if protocol tokens should be distributed for locking COMP tokens, there is not much value for protocol when someone just holds tokens, especially if at the same time they neither can use it as collateral, nor even vote in governance. It’s a waste in a long run, incentivising liquidity pairs is by far better spending (and even that is debateful,
as if protocol owns deep enough liquidity itself, there is no need to pay for external suppliers of liquidity, as they will come for trading fees anyway)

There might be some benefit in locking tokens for years and recieving weighted voting power for that, but we all know what it creates. CRV is good example. It’s just going to create another Convex. Which might be not bad.

The biggest question is while COMP model could be improved, should it? Do those VCs actually that useful for community to drag them with their bags, or it’s better to dump them and just use the code? Compound works fine as a protocol, price appreciation of COMP token isn’t really needed for anything and even if it plummet to zero pretty much only VC will be hurt, it’s irrelevant for small users, who hold pretty much nothing in vast majority.

That’s the thing: wide distribution of tokens is needed more for major bag holders, rather than for small guys. And yet they not even were able to push airdrop through governance.

It’s scientifically interesting to see what will happen when distribution will stop, but it’s not a big deal. Liquidity for COMP tokens provided by speculators, farming is done by speculators. There is nothing fundamental there, just one traders try to benefit at the expense of other traders. And VC mostly sit on their tokens and only marginally care about price at least mid-term. To have something more solid, Compound should be more of a DAO, which owns value, manages it, and is profitable in growing protocol-owned funds. Then shares in such enterprise will grow naturally.

Using reserves to provide COMP-ETH liquidity is a great idea.

Bancor is an good DEX for providing protocol owned liquidity. You can provide one-sided liquidity and you are the Bancor protocol protects you from impermanent loss.
See blog post below.

Passing proposal simulation for step 2: https://github.com/TylerEther/compound-protocol/blob/halve-comp-rewards/spec/sim/0013-cut-comp-rewards/hypothetical_proposal.sim

Proposal actions

Comptroller._setCompSpeeds(
  [0x4Ddc2D193948926D02f9B1fE9e1daa0718270ED5, 0x39AA39c021dfbaE8faC545936693aC917d5E7563, 0x5d3a536E4D6DbD6114cc1Ead35777bAB948E3643, 0xccF4429DB6322D5C611ee964527D42E5d685DD6a, 0xf650C3d88D12dB855b8bf7D11Be6C55A4e07dCC9, 0x35a18000230da775cac24873d00ff85bccded550, 0xface851a4921ce59e912d19329929ce6da6eb0c7, 0xB3319f5D18Bc0D84dD1b4825Dcde5d5f7266d407, 0x6C8c6b02E7b2BE14d4fA6022Dfd6d75921D90E4E, 0x70e36f6bf80a52b3b46b3af8e106cc0ed743e8e4],
  [0, 0, 0, 0, 0, 0, 0, 0, 0, 0],
  [0, 0, 0, 0, 0, 0, 0, 0, 0, 0]
)
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Sorry for being late to the discussion, but I believe there is a lot to unpack here. Let me start by saying thank you to Tyler and the team for working on these proposals and trying to move the community forward. I generally try to stay to the side-lines on these types of conversations, but I think there are some aspects worth clarifying for this proposal.

First, Proposal 092 was executed less than a month ago. There simply has not been enough time for community members to analyze the effects of that proposal, and thus I believe it is too soon to make another significant change like this to the Protocol. For a proposal of this magnitude, I would expect significant analysis on the effects of that proposal, on the market health, etc. I see many thoughts on the genesis for making this change, but little on the analysis of the change, or a clear action plan on the future replacement.

To follow up on that, there is insufficient conversations from the community on this greater plan (discussed originally in this thread and now here). We should spend more effort bringing in a larger set of voices from the community (e.g. suppliers, borrowers, liquidators), and not mistake a limited response for tacit agreement. This forum post, and its precessor, have garnered less conversation than many less signficant proposals. I do not believe that the community has been given sufficient time to grasp the change and contribute to the conversation. As far as I can tell, there is no reason to push this change now, as opposed to after more time with more people contributing their own thoughts and ideas.

Finally, there are a lot of thoughts here that address fundamental questions for the existence of COMP and the distribution. From my personal view, I want to be very clear: decentralization of the Protocol has been, and should continue to be, the primary target of governance. I can understand the arguments raised by Tyler in the beginning of this conversation, but I do not see a concrete plan to achieve similar means of decentralization. Thus, until a future plan is hashed out and built, this proposal may actively work against continued decentralization. We should take more time to discuss and review these concepts, and I would suggest we table this proposal until after those conversations occur.

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Thanks for sharing this perspective @hayesgm . I am also planning to vote against proposal 100. My rationale was the practical issue that removing the first 50% of rewards and removing the second 50% of rewards is a far more asymmetrical proposition than it sounds. A regular schedule of slowing COMP emissions seems more likely to support healthy liquidity in the markets than a sudden curtailment (even though 50% of rewards have already been cut).

I also think that the point about decentralization is an underappreciated one. Compound Labs’ deployment of COMP as a valueless governance token distributed pro rata to users is at the center of its identity as a non-security. I appreciate @TylerEther and others’ push to maximize the development and community-building work that the community can secure with its remaining COMP, but pro rata emissions to users is doing a different kind of work, call it political or legal, that still has value to the protocol. Retaining some pro rata distribution to users ensures that no one can claim control of the protocol isn’t being incrementally handed over to users (even if they farm and dump; we have no control over secondary markets).

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Thank you @hayesgm and @allthecolors for sharing your views.

Geoffrey has highlighted a larger issue - it’s very challenging to get input from the various groups of stakeholders, and this has a big impact on decision-making and execution. @getty has been my biggest resource in planning this set of proposals as well as other proposals. Some Discord channels specifically for each stakeholder group would be a great first step at tackling this issue.

I agree that there should be more focus on decentralization of the protocol. So far, most tokens have gone to LPs with a few very large accounts with recursive positions harvesting and selling their rewards, which doesn’t exactly lead to a higher level of decentralization. We must not let the reservoir dwindle while we come up with new decentralized distribution plans.

We need to put the tokens in the hands of people who provide value to the protocol, those who’ll hold the token, and those who’ll participate in governance. Rewards for community members, for those who add to discussion, rewards for those providing help to new users, rewards for data analysis, rewards for innovative ideas, rewards for development, rewards for business development, etc.

The community has been neglected as far as rewards go, and we lost some good people after the temperature check for retroactive COMP distributions was shut down. I cannot stress enough how important a community is in the longetivity of any project. This is one area I think we should focus on.

As for the effect of this proposal will have on the markets, we do have Block Analitica’s impact analysis. I’d be surprised if market utilizations or interest rates change significantly.

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I see no reason for pushing this either. I don’t believe even first part with 50% slash was great idea, as i believe that first new plan should be introduced and THEN old system might be deprecated.

But what is done is done. It expected much higher impact for TVL of stable coin markets, but so far they kind of holding relatively well. However as for second part i want to point one specific thing. After 50% slash there is now plenty of COMP released for presenting to community new and improved Kickstart rewards.

And until they surface i see no reason for slashing current rewards further. Actually since most distribution was concentrated in stable coin markets we very possibly could have same or better results with leaving distributions for all markets intact and slash 50% only stable coins markets.

Anyway i believe that phase two should be presentation of new rewards rather than removing remaining ones.

Also i don’t like potential collapse of TVL of stable coin markets, as these markes are pretty much sole actual contributors for protocol reserves with all other markets combined not contributing even 1/3 of reserves created by usdc and dai markets.


One month is enough. Why hasn’t the community discussed in depth about removing the last 50%?

What do you think the community means? COMP holders? VCs? The person who spammed in Discord? The community you imagined is leaving Compound.

The community has been silent for a long time. Many people realized that the rewards have been reduced after the first 50% were deleted.There doesn’t seem to be more attention paid to Compound’s governance, including media and Defi users, competitors.

Governance is still consuming a lot of COMP for third-party services. Large institutions control Compound, and they decide the direction of governance. Is this decentralization? .

But there are divergent interests among the institutions, and mutual restraint rather than cooperation.

The community is not a shield, and the proposal may fail, but TylerEther has worked hard.

@ClairvoyantLabs Since inception, Compound has been based around high-quality work that builds trust- even if that takes time. I cannot disagree more with sentiments such as “one month is enough.” No change in Compound, or any project, should go just based on the sheer fact that it was written. Every change should be applied only after there has been consensus that it is the right change, that it is likely to achieve its goals, and that everyone has had a chance to “speak now or forever hold your peace.” The community is everyone who puts their tokens into the Protocol, every single borrower, and everyone who is involved in the project’s code or ecosystem. This thread has exactly 10 participants and 21 comments. We should strive to do better.

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The compound community will only continue to exist if the token is valuable. Nothing stays the same, it either grows or it’s dying. The roadmap is robust and being kept secure for COMP led by community members who’re doing a great job. My suggestion is pass this right away. Then introduce further rewards that make sense and increase the value and attractiveness of owning COMP. COMP has started appreciating nicely versus BTC and ETH since the first 50% cut. The market and the analysis thus far is telling us that the impact of this is good.

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How to do better?

Publishing Compound Treasury data / NO
Updating Medium / NO
Improve the transparency of Compound /NO
Boost market confidence /NO
Return to a dominant market position GFX LABS /NO
Sends two tweets a month? / YES

Most users don’t know the existence of this proposal, and most projects in the Defi ecosystem don’t even know about it. There is almost no twitter space discussing the reduction in Comp rewards.This is due to low-frequency marketing.

For institutions with a lot of COMP, isn’t one month long enough for them to make a decision? but they didn’t speak up, maybe they would vote.

Other protocols relying on Compound will change their strategy. (like:Notional、Yearn、GRO)

"Aave polygon rewards have ended. Aave mainnet rewards end next month. "

Tyler has prepared kickstart rewards to replace unpurposed incentives, and we can discuss new incentive distributions at a longer time.

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Compound Labs has stated numerous times that they’re not the owners nor the sole leaders of the protocol. They’re allowing other members to come in and lead protocol development and management with them.

The most important thing in increasing the decentralization of the protocol is in decentralizing the governance, management, and development. The protocol isn’t going to become more decentralized if the majority of work is centralized around Compound Labs. We need more contributors… but contributors can’t be expected to work for free. This is where I think the majority of the remaining COMP should go.

@JacobPPhillips @jamico care to comment? Your votes are needed to get anything done.

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Hey guys, I would like to put in my two cents. I made this argument on twitter, but I thought I would repeat it here for good measure.

I’m the co-founder of Notional Finance - we are a fixed rate lending protocol that’s built on top of Compound. We are integrated tightly with the Compound protocol - every dollar that is deposited on Notional is in turn deposited on Compound. Today, we contribute ~$400M in TVL to Compound and any future growth will directly feed through to increased supply on Compound’s lending markets.

I think Notional represents a core constituency for Compound’s strategy. Compound wants to be base-layer tech that contributors build on - Notional is one of the single largest such contributors.

I am very worried about the effect that this proposal would have. We built our protocol on Compound for two reasons:

  1. It was the largest and most secure money market, and it was growing.

  2. It didn’t make big changes quickly.

The passage of this proposal would violate these two assertions. I believe that passing this proposal risks a substantial decrease in Compound’s usage and would threaten its competitive position. Additionally, passing such an important proposal so abruptly, and with so little time to consider and measure the consequences, makes me question the ultimate reliability of the protocol as base layer technological infrastructure.

I am against this proposal, and I think that it’s important that the community present in this forum hear the perspective of an integrating protocol - one of Compound’s key user constituencies.

If the community is set on cutting liquidity incentives to 0, I would suggest doing so gradually over a longer period of time and closely monitoring the consequences. By cutting down to 0 in one fell swoop you lose all flexibility for questionable upside (in my opinion) vs. taking a more measured and gradual approach.

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I agree with Tyler, and agree to this proposal. Comp has been on a continual decline. When BTC is halved, you see inflation. Let’s try something new and remove farming rewards that Bitcoin can only dream of in many many years. Respectfully, I agree on coming up with rewards for token holders as my self, but let’s cut the bleeding now. It will be interesting to see what happens in 3 months of no rewards. As Comp has expanded to new markets recently, how many more individual investors have we seen? Let’s not lose them. Stock markets don’t have farming that decreases value, and they increase more than comp.

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GFX will be voting in favor of proposal 100.

image

The protocol is currently set to spend $57m over the next year on COMP incentives which amounts to about 6% inflation when compared to the circulating supply (Coingecko). While the initial idea behind COMP rewards was to reward users for using the protocol with governance rights, that never caught on. There is significant evidence of users depositing funds, earning COMP, and selling COMP. Most incentives have been distributed to recursive positions, sometimes referred to as loopers, who deposit and borrow the same asset to inflate their position to earn more rewards. These users are seeking the best return for their capital.

The best available rate has decreased substantially from the beginning year, but the capital shift has not been as one might expect. Rates for dollars across DeFi have reduced, and for substantiated protocols, like Compound, it is time to end blanket subsidies. Aave ended Polygon rewards on the 13th and is set to end rewards on mainnet on May 22nd.

Protocols need to get back to focusing on their core utility and look internally to improve capital efficiency. As Tyler and GFX have mentioned, this isn’t the end of COMP rewards. They can still play a role in bootstrapping new markets, but it needs to be refined and planned out.

We have put together a Google Sheet for those who want to see how the protocol has changed since the beginning of the year, to the first reward cut, and compare it to the current market.

The proposal’s potential downside is a lower TVL and lower supplier rates. The upside of the proposal is eliminating the inflation of the COMP circulating supply and lower borrower rates. The data to date has indicated lenders on Compound are either rate insensitive or that Compound has consistently offered a good risk/reward for capital in the sea of DeFi.

Worst-case scenario (unlikely given the data available), governance can always vote to turn COMP rewards back on.

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Inflation rate above 31%

Active Addresses Count % change from 1 year ago -73.00%

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To me, it’s quite impressive how diverse the stakeholder group here is — users, tokenholders, the core team, and contributors are all part of the discussion.

Having said that, it seems to me that this very same feature — namely, the diversity of the stakeholders — is what complicates the discussion. That’s because the incentives of each group are quite different. Below, I’ve done my best to highlight the incentives of each party.

  • Users. Users benefit from COMP-denominated incentives. Why would they ever vote for less money to their pocket?

  • Tokenholders. I believe it’s safe to say that tokenholders do not benefit from prolonged liquidity mining programs. Liquidity mining is “profitable” when the lifetime value of the user exceeds the cost of liquidity mining. For Compound, this calculation requires estimating the lifetime value of the user, discounting that value by Compound’s cost of capital, and finally, subtracting the cost of liquidity mining from the discounted lifetime value of the user. Given the unfaithful nature of liquidity on money market protocols, users aren’t sticky, leading the lifetime value for user to go down (contrast this to “sticky” products with large barriers to exit, e.g., operating systems). Due to this dynamic, liquidity mining programs for un-sticky protocols are unprofitable for tokenholders: it costs more to acquire users than the money the protocol makes from the user. As a result, tokenholders should generally be against COMP incentives.

  • Core team. This one is tricky. On the one hand, members of the core team are tokenholders and have the same incentive as tokenholders. On the other hand, as a core team member, you are judged by your protocols’ usage, and usage of a money market is typically measured by outstanding borrow. Reducing COMP incentives will reduce outstanding borrow, which may reduce the stature of the protocol, and as a result, the core team.

  • Contributors. In my experience, Compound’s active contributors are some of the best in the game: they are loyal to Compound, fiercely independent, and to top it all off, smart as hell. We are lucky to have them (they know who they are, so I’ll prevent the blushing by not tagging them). Generally, they are tokenholders that have a significant percentage of their net worth in COMP. For this reason, their incentives are typically that of a tokenholder.

Unfortunately, these often directly-opposing incentives lead to factions, and factions lead to governance challenges.

As far as my personal bias goes, I believe tokenholders deserve the victory on this proposal.

If we all agree liquidity is “hot” and will chase the greatest yields, then the risk of turning off COMP incentives is liquidity will leave quickly. But the inverse of that is also true: if we decide to run this experiment, we can always change our minds and turn COMP incentives back on; since liquidity is hot, it will run back to Compound.

In short, the “cost” of running this experiment are the foregone profits from liquidity that leaves Compound on the margin. (It’s worth noting that since hot liquidity is unprofitable, having it leave may actually improve the profitability of the protocol on the whole)!

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I quoted that as a widespread opinion.

As a user myself, i can call myself somewhat holder, though quite small. So in that logic i should in theory be supportive for actions potentially leading to price appreciation.

But i strongly believe that as a protocol Compound should not care for price of the tokens whatsowever. Even if they go to zero tomorrow it doesn’t really impact protocol that much. They never costed anything to begin with, and while speculators are very welcome to play with price as much as they want, price really doesn’t matter still… Governance influence does. Ideally protocol shouldn’t really have token holders, who interested in price, rather than parties interested in development of protocol be those actual code writers, or big users or whatever…

There was a time when i was thinking that maybe Compound should evolve in some sort of DAO, aiming to increase the value for its participants. But now i think it’s unnecessary complication. DAO, even multiply ones, could be very well build on top of Compound protocol. And protocol itself could remain as it is, a protocol. Instrument, using which other entities, aimed to money creation could be created. Protocol itself doesn’t need to be burdened with money making. It might rather stay a tool, preferrably with many parties working to make sure it stays functional, safe, and useful for everybody.

It’s hard task to achieve somewhat “fair” distribution of governance. And even me myself, pointed many times at how Compound distribution isn’t optimal. But it works somewhat. I still think that users in vast majority getting scraps fronm distributions, which mostly still collected by big capital indeed.

Opinions of small users never really mattered for governance decisions in Compound, sometimes i even wonder why i still bother voicing mine from time to time. Maybe because Compound was and still is useful tool for me and i want it to be better. Or maybe because i don’t like when people claim that they know what would be better for others and yet present nothing new, aside of claims that some big players constantly making money from COMP distributions and we should stop that.

Yet again i want to remind everybody that Compound protocol doesn’t really spend money at all with it’s distributions. COMP tokens are not money, they hold no value by themselves. The only reason some people making money is because other speculators made pools with comp pairs to eth. So the only money farmers getting are money originated from liquidity providers for COMP pairs. No actual money is coming from Compound protocol.

And for that reason it is very bad for protocol to keep a lot of native tokens for itself. Because their value could literally evaporate overnight. Protocol should have treasury of reserve assets, aka eth, wbtc, stable coins. And pay for audits/development/bug bounties from that. It’s much more safe in the long run.

As for distribution stopping, i’m against it. We don’t really have any better mechanism for dispersing COMP tokens to users. I’m all ears to see actual suggestions how it could be done better. Kickstart rewars is all cool name, but no real numbers were presented.

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