I’ve been thinking about a method for COMP staking for a while now and have drafted up a possible implementation, but there are many design decisions that need to be made before a concrete path can be chosen. I am at a point where I need to decide if staked COMP should be usable as collateral.
A COMP staking system will be a method for distributing fees and possibly COMP to users who have a staked interest in the success of the protocol. Staked COMP will be staked for a chosen timeframe and earn “dividends” during this time. Users maintain full delegation rights of their COMP. The idea is somewhat modeled after vCRV.
We as a community need to decide if this staked COMP should have a collateral factor. The type of implementation hinges on this decision, and I can’t go forward with the project until a decision is made. We as a community should discuss this and decide how we would like to move forward.
I say no collateralization of COMP while staking. If you want to collateralize COMP, as a holder, use the protocol. If you want to be able to earn on your COMP, while maintaining your right to vote, stake it.
Why not just set a % on how much COMP is earned through staking and then have the emissions decline after “x” timeframe. COMP emissions should also be reduced from user’s use of the protocol. More emissions are needed at the beginning of a cryptocurrency. Every cryptocurrency project that has succeeded have lowered emissions in some sort of fashion along the way.
I believe that we always should aim for the maximum utility when introducing new features. Staking by itself not really creates that much value. Basically it’s just promise not to sell for a certain time at the core. That could be rewarded, sure, like 5% APY or something like that might sound reasonable. But if someone thinks that timelocking tokens should be massively rewarded he should come down to earth. Vast majority of COMP tokens already is vested or in treasury, small amount of free floating tokens isn’t really a big deal, so holding or selling for that portion of tokens is quite irrelevant in big picture.
However, if staked COMP is usable as collateral, that is quite a product offering which simply doesn’t exist currently. And i’m not talking about dust holders like single or double digit COMP holders, who while obviously would benefit from that as well, but since usd value is relatively small, not that much. But for holders who have 4 digit and above it’s a solid proposal: lock your COMP for a certain period, have your voting rights intact, use it as collateral to put your money to work. Basically contract risk aside, you have the only risk that in case of becoming undercollateralised some or all your COMP could be liquidated. There’s no liquidity risk or anything else associated with borrowing.
Frankly speaking its actually a better deal for VC than vesting. Like much better. Should be there from beginning, but late better than never.
As for rewards it’s not even necessary for such solution, certanly you can fairly easy earn with borrowed money. (which would actually benefit both protocol and wider ecosystem of defi more) I’d say weighted voting power would be a better reward. Depending on a duration of “stake”, voting power could count as 1 for two votes or whatever multiplication is appropriate.
I’d say while we could leave staking rewards as possible opportunity, it certanly could be better spend in other way. For example, COMP rewards could be distributed for liquidity providers in COMP/ETH markets or other pairs on important DEXes. It actually doesn’t even need to be developed in-house, there easily could be collaboration with like sushiswap to distribute COMP rewards on their platform.
What is point of timelock?
In my opinion it would serve as a prevention of dumping (because centralize holder structure) or slowing down token velocity, maybe.
I agree with you that higher rate for longer timelock lead to more centralized protocol structure.
My opinion is that staked COMP should have a collateral factor. The reason for this is that Comp will have a value in the staking pool, and if that value will be further used to protect user resources on the protocol (in the event of a black swan or oracle error) - I see it as an additional utility.
By additional utility I mean “defensive collateral” and not “collateral for further leverage”. Is it possible to separate these two concepts in practice?
What are the possible side effects in case a staked COMP token is used as collateral?
I don’t know if this would classify as staking but I think a great intermediary step would be to get a way for COMP holders to post COMP as collateral and be able to participate in governance. I know a number of very large COMP holders that would be interested in voting but the benefits of using it as collateral are more valuable for them.
I need to do some research in Governor Bravo bc idk what is and isn’t possible. Very rough idea would be to follow the ctoken schematic but strip out the borrow ability and add another token to voting like gCOMP that you receive when you deposit COMP.
I agree with the general sentiment here that COMP should be allowed to be used as collateral while being staked and serve in governance. Stripping away features should only be the case if theres a security concern.
The additional point I’d like to bring up is that aside from (collateralization for) lending, it might be good to consider mechanisms for boosting liquidity in assets for Compound’s money markets as a means of stabilising the system. This would mean creating pools of liquidity to participate in market-making and ensuring an additional form of dividends + a different route towards incentive alignment. I’m generally in favour of enabling a form of a backstop (as seen in traditional banking equity tier guidelines) as a way to start providing a means of additional utility/alignment to long-term holders.
On this thread, it’d be good to understand where the fees to staked COMP holders will accrue from - and if this is intended to be a backstop for covering deficits in money markets. Also wonder what the community might think to imposing additional coverage fees on existing money markets that could be covered by staked COMP.
A sidenote: It might be a good time to start thinking about associating some form of additional control over the protocol reserves’ allocation (maybe in the form of using a portion of reserves towards optimising yields - through allocation to existing AMM’s to deepen liquidity for these assets and earn yield + potential BAL rewards). Would be helpful to take a leaf out of Aave’s safety module construction and enable the creation of deeper markets for COMP as well as the assets that Compound supports + align incentives from a financial standpoint as well.