Compound III Supply Caps

Compound III USDC was launched ~one month ago. The initial collateral supply caps were set conservatively, as a security measure to protect users and the protocol from:

  • The technical risk of new smart contracts
  • A new risk engine
  • The market risk of individual collateral assets

Since then, the protocol has had time to prove itself in a production environment without bugs, losses, or disruptions, and usage has been steadily increasing.

During today’s community call, it was noted that WBTC spent multiple days limited by its supply cap, and three collateral assets (ETH, WBTC, COMP) are utilizing most of their supply caps (see green line on meters below or markets page). Further, the price of collateral assets has declined since launch, lowering the total quantity of USDC borrowable by users (supply caps use a quantity of tokens, not a dollar value).

Now is a prudent time to begin carefully raising collateral supply caps, so that the protocol can continue expanding past its trial phase.

For discussion, below are proposed collateral supply caps, focused on the three assets potentially constrained by supply caps. Everyone’s feedback and suggestions are encouraged, prior to a formal proposal.

Collateral Asset Supply Cap (Tokens) Proposed Cap
ETH 27,000 75,000
WBTC 2,100 6,000
LINK 1,250,000 1,250,000
UNI 1,250,000 1,250,000
COMP 200,000 600,000

Thanks, @rleshner. We are conducting analysis on the market risk implications for these supply cap increases and aim to return to the forums next week. We’d note that we are continuing to integrate our simulation platform with Compound III, so this analysis will be more manual in nature. Once our simulations are stood up, the quantification and analysis of market risk will be more robust.

1 Like

Raising supply caps could result in more collateral being liquidated (from increased usage) and sold by liquidators on the exchange, thus increasing slippage and the chances of cascading liquidations. That being said, the proposed supply caps for ETH ($99m) and WBTC ($115m) compare with the liquidity of each token-pair on trading platforms:

  • Uniswap v3:
    • USDC-WETH: $210m in liquidity, $75m in volume
    • USDC-WETH (a separate pool): $167m in liquidity, $420m in volume
    • USDC-WBTC: $31m in liquidity, $21m in volume
  • Uniswap v2:
    • USDC-WETH: $101m in liquidity, $9.9m in volume

While COMP presents more risk relative to ETH and BTC given its trading volume, we note the proposed supply caps for all three tokens are relatively low when compared to ADV:

  • ETH: $16.4b
  • BTC: $52.4b
  • COMP: $62.9m
1 Like

Proposal 127 did not reach quorum. Gauntlet targets re-publishing the proposal on Friday, 9/30.

From a market risk perspective, we support the proposed supply caps for the following reasons:

  • ETH and WBTC show relatively low slippage (3.57% and 4.47%, respectively) in a scenario where 50% of their proposed supply caps are liquidated.
  • For COMP, given that its ADV is $52m, the market is likely to absorb the proposed supply of $37m of COMP in a severe liquidation scenario.


Proposal published below - voting begins in 2 days.

1 Like