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.
