Co-Authors: @AranaDigital, @PGov, @Doo_StableLab
The Compound Governance Support Working Group (GSWG) is proposing to launch its first initiative for increasing the robustness of Compound DAO’s delegate base. Since one of our main goals is to reinvigorate governance participation, we have been discussing with community members the various options for effectively accomplishing this goal. From our group’s participation in other DAOs, we hope to bring best practices from those ecosystems to Compound.
Despite Compound being one of the most prominent DeFi protocols, this stature unfortunately does not translate into active governance participation. Many top delegates with considerable voting power have less than 50% vote participation rate–and many even sit under 10%. In healthy governance environments, proactive delegates wield significant voting power, ensuring malicious votes are prevented and quorum requirements are met. This is especially vital for lending markets with a high degree of reliance on governance, requiring delegates to be consistently available, often voting on numerous proposals over the course of a single week.
Source of voting power:
There are two primary ways of aggregating voting power for delegates:
Option 1: Allocating a portion of the Compound treasury to facilitate delegation
Most DAOs have dormant native tokens present in their treasury. If these native tokens aren’t already being allocated to active initiatives, they can be put to good use elsewhere. There is minimal risk to setting aside a pocket of these dormant funds to ensure better governance participation in a manner where governance can recall the tokens back to the community treasury. The most straightforward means by which these tokens can be mobilized is by delegating a portion of them to either existing or new delegates.
As for Compound, we can reference Compound’s Comptroller as the source of funds
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Address: 0x3d9819210A31b4961b30EF54bE2aeD79B9c9Cd3B
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As of July 10, 2024 the address held ~1,595,830 COMP tokens, which at $51.83 amounts to $82,711,916.89
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Dormant capital from this address can be mobilized for delegation
It is important to establish a structure that will enable the DAO to sustain control and ownership of these funds, however. In other words, if the DAO would like to clawback funds at any point, either to use the tokens for alternative purposes, or to rescind a particular wallet’s voting power, it should be able to do so seamlessly. The advantage of this setup is that the DAO’s COMP tokens never leave the community’s control and can be relocated when needed at any time. We are currently devising a way to operationally implement this setup. Please see the “Next Steps” section for more information.
Option 2: Call existing token holders to delegate their voting power to reliable delegates
One could argue that attaining voting power from token holders is the most organic way to increase delegates’ voting power. In fact, almost all of the current COMP delegations have been attained from this setup. The active cohort of COMP delegates primarily received their voting power from investors with large amounts of stake in Compound. These delegators primarily gave entities ~50k COMP, hence why the most common allocation among active delegates is the stated amount. Delegation from general token holders, however, is relatively trivial.
The lack of smaller delegators is a concern throughout most DeFi protocols, especially for protocols that launched prior to the maturation of governance infrastructure like Tally. Protocols that launch today are able to effectively bootstrap a robust set of delegates by prompting token holders who attain airdrops to immediately delegate their voting power to a list of qualified delegates. This, of course, was not the case with Compound. We have to therefore backtrack and run a retroactive call for delegation. Uniswap, for example, ran a successful delegate race in 2023.
This strategy is harder to execute and comes with a higher degree of uncertainty than simply utilizing the treasury’s COMP. Since DeFi summer, the active address count has significantly fallen for Compound. The year over year address count has also tapered. In 2024, there has only been a 0.92% increase in the number of addresses holding COMP, reising from 217k to 219k. This simultaneously indicates that there’s a lack of activity with COMP holders–but the tapered nature of the address count also means that numerous addresses have the potential to still delegate their tokens. Currently, 353 addresses own over 1k COMP, and 129 addresses hold over 10k COMP.
Roadmap
Due to the difficulties surrounding Opinion 2, along with the urgency to help current proposals reach quorum, we are proposing to implement Option 1 as soon as possible. Option 2 will be addressed later on.
Future Proposals:
- Delegate reward/incentives conversation
- Call for new delegates (Option 2)
Administering the Delegation Event (Option 1)
Outline of program:
- 250k compound from the treasury will be set aside to be delegated to various applicants
- Delegates will apply and receive a score based on prior set criteria (more below)
- Up to 50k comp delegation for each delegate, up until 80k Comp total delegation per delegate, until the total 250k runs out.
- Note: 50k Comp will be delegated to AlphaGrowth, as previously passed in their renewal vote
The points criteria will be as follows:
Voting Participation: Considering one of the primary roles of the delegate is to receive voting power from their delegators to vote on behalf for the best of Compound, voting participation is crucial to ensure quorums are met and malicious proposals are prevented. The Full point from this category is 6. Although Compound does have capacity for offchain vote such as via snapshot, as it’s rarely used, therefore, this metric is only based on the onchain voting, as its importance that its votes directly can dictate code changes or treasury. The voting rate is based on the past 3 months.
Onchain Voting:
- Greater than or equal to 90%: 6
- 80% to 90%: 5
- 70% to 80%: 4
- 60% to 70%: 3
- 50% to 60%: 2
- greater than 0% to 50%: 1
- 0% : 0
Proposal Authorship: Helping to write proposals for Compound DAO is important. However, we also want to prevent low-quality or malicious proposals. Therefore, only passed onchain proposals would count. The full point for this category is 2. Additionally, because Compound DAO requires 25,000 COMP to initiate the onchain voting, it would not be fair to accommodate smaller COMP voters if the point was only based on such. Therefore, in this category, there are two ways to get the full points.
Posted a RFC that passed onchain vote before (only the sole author or co-authors explicitly mentioned on the proposal who posted on the forum will get this point)
- Yes: 2
- No: 0
OR
Initiated/Sponsored an onchain vote that passed onchain vote before
- 3+ Votes: 2
- 1-2 Votes: 0
Other Governance Participation: The full point for this category is 2. This category is to recognize other ways one could contribute to discussion regarding Compound Governance. This can be achieved by:
Joined Compound Dev Call Before?:
- Yes and presented: 2
- Yes: 1
- No: 0
Tie Breaker: Ties will be decided by the date of the first on chain vote these applicants casted in order to reward those delegates that have been contributing to Compound governance for an extended period.
Upon the deadline of submissions, all the applicants will be ranked and allocated up to 50k COMP each, up to 80k COMP delegated until the total 250k total is reached.
In the future:
- Forum post in next weeks after request for comment from the community
- Information regarding technical implementation
Next Steps
Please review the points system that we have outlined above. We would love to hear the community’s thoughts regarding how fair this setup is and if the DAO is keen on exploring this delegation event from the treasury in general.
While this discussion transpires and we agree on the specific parameters and points for this proposal, we are collaborating with AlphaGrowth to outline the technical implementation of this proposal. As a prelude, our team is exploring the same model that Uniswap has implemented for running this type of delegation event. An outline of the Uniswap proposal can be found here. In total, 10M UNI was delegated to 7 members of the DAO. A FranchiserFactory contract was deployed for the DAO (we will reference the same Github repo–it has been audited by Trail of Bits), which was then given ownership to by the protocol’s timelock contract. Our goal is to do the same. Once this contract is deployed, a governance vote will be conducted to deploy an individual Franchiser contract for each delegate elected as a result of this proposal, along with the assignment of their decided COMP voting power. These individual contracts will be owned by the DAO, so voting power can be recalled from any of the elected delegates through an onchain vote at any time.
More information regarding the implementation will be provided soon–we look forward to hearing community feedback!