COMP Reward Adjustments v2

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.

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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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We will be voting for COMP100. The arguments about how the current token distribution mechanism is not effectively decentralising governance power or incentivising organic usage of the protocol have already been made in the thread above and we largely agree.

Despite the many references to finding a better way to spend these COMP, one thing that hasn’t yet been mentioned is the work the Labs team has done on Compound III and its imminent launch. This is an exciting new product, and one that we as a community should thoroughly evaluate as an opportunity to continue to decentralise our governance, whether through new token incentives or otherwise.

We see the end of the COMP distribution as a forcing function and are excited to help craft, vet, and pass proposals from any interested party that can grow the value of the protocol. The space available for hard work and creativity is large, and we believe the protocol has the resources and talent available to make the best of it.

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@TylerEther what do you think the rest of the undistributed COMP would be best used for? How should we address the issue that there isn’t a great way to get COMP into the hands of users without giving them as rewards to suppliers and borrow. We want to avoid a situation where someone who wants to participate in Compound governance has to buy COMP or ask for delegations

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Apologies for only jumping into this discussion now, after prop 100 has already been submitted.

I will be voting against, reasoning below:

  • Removing incentives completely is likely to significantly reduce Compound’s liquidity and revenue
  • While lower dilution rate should have positive impact on COMP performance, I fear that loss of tvl/revenue could outweigh this and lead to net negative impact on COMP value
  • If COMP is worth less, payments to contributors will tend to increase dilution over time
  • It is generally more costly to acquire users/liquidity than to retain them, so I disagree that this is a risk free experiment; if liquidity leaves and Compound community decides that removing rewards is not working as intended, we’re unlikely to gain back all of the lost liquidity be reinstating the previous rewards rate

I’d be more willing to support a slimmed down / targeted rewards reduction (example with arbitrary numbers below):

  • Remove borrow side incentives for all non-stablecoin assets
  • Reduce supply side incentives for non-core assets (LINK, UNI, ZRX, BAT) by 80%
  • Reduce supply side incentives for core assets (ETH, WBTC, COMP) by 50%
  • Reduce supply and borrow incentives for stablecoins (DAI, USDC, USDT) by 30%

(above example would reduce COMP incentive spending by ~37%)

This would reduce or remove incentives that bring the least value to Compound, while preserving the incentives that are most important for usability and subsidizing organic usage.

It may also be fruitful to coordinate further rewards reductions / removal with Aave - both protocols likely have an interest in reducing rewards, but face a prisoner’s dilemma about being the first mover.

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I’m with OUSD - a yield earning stablecoin. We deposit funds to Compound, among other places. At one time we were one of the largest USDT lenders in Compound.

We allocate funds roughly by the expected yield, as long as the risk looks acceptably low. This means that our funds can move from AAVE to Compound to Curve/Convex, to follow the yield.

I’ve been closely watching the discussion, votes, and outcomes on these two proposals. I firmly believe that the COMP holders have the right to vote and act in their best interest. I’ve just been sitting here with popcorn, waiting to see what happens.

I’ve personaly been surprised that the funds draw down on moving from 100% down to 50% has been as small as it was. Maybe people don’t pay attention? Maybe they were just going wait until it went to zero, and then move out?

From personal experience, we did ten week liquidity campaign late last year on our project that resulted in a 10x increase in our supply, and it took weeks after it ended for capital to begin leaving, and then another few months to get down to 3.5x our starting amount. I was surprised with the stickiness there too.

I think chopping reward rates for either lenders or for borrowers to zero makes a lot of sense. Recursive borrowing purely exists to extract rewards from the protocol. Though it does provide some protocol “income” in the form increases to the pool reserves, this is less efficient than if the protocol just sold COMP for cash and sent it to the pool.

In the long run, from a theoretic perspective, lenders will lend where they good rates, and borrowers will borrow where they can can get good rates. In the long run, even a small edge matters a lot.

Since lending rates determine borrow rates, and borrow rates determine lending rates, incentivizing either side should be equivalent. However, it feels like the stablecoin lending side is able to react much quicker to changes in incentives since many rewards there are immediately sold by the protocols, (making the gas expense of selling them minimal), whereas individuals selling reward tokens can be cost prohibitive to do. (Though this could be an argument for either side of incentivizing lending or borrowing, depending on if the overall system responding to incentives is more important, or people not selling is more important.)

In the short term though, I think capital is surprisingly sticky.

If the current proposal was voted in, I don’t think we’d see immediate massive changes outside of the unwinding of some recursive positions. It’s the long term I would be concerned about.

We really don’t know the full outcome of the 50% cut that happened. We have learned that’s it’s not immediately catastrophic, which is a nice learning, but we don’t know much about the long term effects. I would say that four-six months would be a more appropriate test period of time.

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Voting No on Proposal 100 on behalf of Pantera Capital.

We think the proposal is directionally correct, but doesn’t need to be rushed.

The initial adjustment to COMP rewards provides enough breathing room for the protocol to begin introducing and testing kickstart rewards as an alternative destination for COMP incentives, as well as measuring the impact of the initial adjustment (Steps 3 and 4 in @TylerEther’s proposed plan). More progress is needed on these before we move towards a complete removal of the current program.

The impact of moving to 0% rewards is likely to be non-linear, in terms of:

  • impact to Compound’s supply side in core assets, which negatively impacts third-party contributors / partners in the COMP ecosystem
  • market impact to COMP value, which significantly reduces the protocol’s ability to compete in the near / medium-term or to effectively test new incentive programs.

It’s clear from the minimal impact from the initial 50% adjustment that Compound has room to adjust its incentive program downwards, relative to how the market sees the risk-reward of supplying assets to the protocol. In other words, we’ve been over-compensating and the market "trusts’ Compound more than we thought. This is why I believe the proposal is directionally correct in guiding us towards a more targeted, more productive use of COMP emissions, but needs to be adjusted in terms of timing and sequencing.

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I agree with much of @monet-supply’s post. But just going to point out that coordinating with AAVE would be almost certainly be illegal in the US.

This is the deciding factor for me as well, just voted no.

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