Compound <> Morpho <> Polygon Collaboration

Simple Summary

A proposal to launch Morpho-powered lending vaults on Polygon, with $1.5 million each from Polygon and Compound for incentives. This collaboration would give Compound improved risk controls, faster asset listings, and a path towards sustainability.

Motivation

Since Compound V3 was released in August 2022 by Compound Labs, the protocol has not made meaningful updates to its tech stack. Over the past year, Compound’s market share has declined. Compound V3’s competitiveness will be further pressured with the upcoming versions of Aave V4 and future iterations of Morpho and other protocols. At this time, most of the original Compound Labs team has moved to other projects, including Legend. Existing development work is now one-off and often with open questions. Without a well-capitalized team dedicated to developing the protocol, Compound risks losing market share.


Partnership Solution

As one of the first successful money markets protocols in DeFi summer, Compound benefits from strong brand equity and a robust treasury. Morpho is a trustless lending primitive with permissionless market creation, with Morpho vaults launching in 2024 and growing to $6.1 billion today. Polygon PoS is an EVM-compatible, proof-of-stake sidechain with $1.06 billion TVL as of January 2025.

This proposal is for the Compound DAO to launch its own Morpho Vaults on Polygon. With Aave deprioritizing Polygon, there will be natural product-market fit with Compound vaults. The motivation for the Polygon community is to grow TVL in their ecosystem - once vaults and markets are deployed, they will be immutable. The Compound DAO will be Owner and Gauntlet will serve as the Curator of the vaults to optimize risk-adjusted returns. The Morpho Association will assist in the technical implementation.

The Compound DAO will unlock a new revenue source from the vaults and accrue all revenue generated during the joint incentives trial program. As part of the partnership, Polygon Labs will offer $1.5 million in POL tokens for incentivization with a target deployment timeline over 3-5 months. The Compound DAO will match this with $1.5 million in COMP tokens for incentivization.

Benefits to Compound

  • The benefits of Morpho’s tech stack include faster asset listing (<1 day) and dynamic parameter adjustments (real-time rather than governance overhead). This results in more efficient interest rate optimization and higher capital efficiency, given the stronger risk control mechanisms that curators can leverage
  • Asset listing and parameter adjustments are governance minimized, thus reducing overhead for the Compound community
  • Clear line-of-sight to TVL growth as Aave deprioritizes their Polygon deployment and recently disapproved a Polygon partnership, with $518M TVL looking towards an alternative solution on Polygon
  • Morpho contracts are immutable once deployed, therefore it is technically infeasible for Compound to lose ownership over the vaults without a governance vote
  • The Morpho protocol is extensively audited, and little development resources are required from the Compound DAO to launch vaults
  • Joint incentivization with contributions from Polygon to boost ROI for the Compound DAO
  • Case studies
    • There is no leap of faith required to be confident in Morpho’s ability to supercharge growth
      • Gauntlet vaults have grown to be the largest on Morpho, expanding to $760 million supply across Ethereum and Base after launching from zero in March 2024
      • In a similar fashion to this partnership, Moonwell launched Morpho vaults on Base, growing to $165 million supply over the past several quarters
      • Seamless <> Morpho vaults, curated by Gauntlet, have grown to $12.5 million in deposits in under a week
      • Ionic <> Morpho vaults, curated by Gauntlet, have grown to $40 million in supply in the last several weeks

Benefits to Morpho

  • Greater distribution channel as Morpho aims to serve as an underlying infrastructure for decentralized lending
  • Expansion to Polygon chain following Morpho’s multi-chain vision
  • Collaboration with Compound, a keystone on decentralized lending, will allow both core teams alongside curators to scale Compound into becoming the pillar for lending within Polygon DeFi

Benefits to Polygon

  • Mitigate chain TVL concentration risk following Aave’s move to deprioritize their Polygon deployment
  • Bring Morpho, a faster-growing lending protocol, to the Polygon ecosystem ahead of many chains

Partnership structure

  • Incentive share
    • $3.0 million distributed over a target of approximately 120 days to bootstrap growth
    • Split equally between Compound DAO and Polygon, with token pricing at the time of the on-chain proposal
  • Revenue share
    • The Compound DAO will be the sole Owner of the vaults and will accrue all revenue generated during the joint incentives trial program. The Performance Fee will be set initially at 10% (roughly equivalent to a 10% “reserve factor” in Compound terminology).
    • At some future point, Gauntlet may introduce a fee-splitter contract as revenue share for the work Gauntlet performs as the vaults’ Curator. An example fee splitter contract between Moonwell and Block Analitica is here. This revenue split cannot be implemented without permission from Compound DAO, given the DAO will be the Owner of the vault. For now, Gauntlet will not charge any fees for the Curation work.
    • Morpho’s fee switch is currently off (0%). The Morpho DAO may turn on the fee switch at some point in the future, though so far, it has never been activated and has no plans to do so soon. The fee recipient address and the fee rate are the only parameters that the Morpho DAO can operate in Morpho markets.
  • Onchain partnership structure
    • Owner: Compound DAO
    • Curator: Gauntlet
    • Allocator: Gauntlet
    • Guardian: Compound DAO
    • For more details on Morpho Vault roles, see here
  • Front-end and user interface for vaults
    • The user interface for supplying and borrowing is intended to be supported on the Compound user interface following community approval. We also invite external third-party providers to build their own interface to increase the distribution of the vaults
  • Timeline
    • Pre-launch requirements
      • Initial vaults and markets launched on Polygon
      • Morpho rewards contract deployed
      • COMP tokens bridged to Polygon and deposited into the Morpho rewards contract
      • Gauntlet’s internal curation risk management systems to be built and then deployed for Polygon
      • MVP user interface developed for users to deposit, withdraw, and borrow
    • Launch phases
      • Phase 1: Bootstrapping Markets (Weeks ~1-4)
        • Determine initial supply assets and respective collateral markets
        • Launch vaults with targeted risk levels
        • Begin incentives distribution to vaults and markets
        • Prioritize supply growth while building organic borrowing demand
      • Phase 2: Drive Market Equilibrium (Weeks ~4-8)
        • Fine-tune rewards distributions and allocations to optimize for utilization levels and ensure sticky TVL
      • Phase 3: Expand Integrations (Weeks ~8-12)
        • Continuously identify and implement new collateral markets for addition and launch any separate vaults as needed
        • Partner with integration providers to broaden distribution
      • Phase 4: Taper Incentives (Weeks ~12-16)
        • Gradually reduce incentives iteratively, informed by Gauntlet’s simulation models, to minimize market shock and maximize ROI
      • Phase 5: Retrospective (Weeks ~16-20)
        • Conduct analysis on incentives spend ROI, market growth, and risk management to inform future iterations of similar programs
    • Success metrics
      • 30 days: vault TVL, insolvency risk
      • 60 days: vault TVL, utilization levels, insolvency risk
      • 90 days: vault TVL, utilization levels, insolvency risk, incentive spend efficiency

Mechanism Improvements

Newer lending infrastructure such as Morpho offers benefits to Compound’s mechanisms. Below, we outline key features in Compound V3 across critical areas such as liquidation mechanisms, interest rate curves, reward distribution, development speed, and governance risks.

1) Liquidation Mechanism

The liquidation mechanism in Compound V3 has fundamental drawbacks, which increase the tail risk to the protocol. We posted a more in-depth analysis of this liquidation mechanism in the forums in January 2024. In short:

Unlike other lending protocols that use a collateral factor and liquidation threshold to provide a buffer against insolvency, Compound V3’s mechanism relies entirely on liquidation penalties and the storefront price factor as the buffer.

In Compound V3:

  • When a user gets liquidated, their entire position is absorbed by the protocol.
  • The protocol takes ownership of the user’s collateral and repays the liquidated user in the base asset minus a liquidation penalty.
  • As a result, the liquidation penalty becomes the primary insolvency buffer—which is a substantial risk.

Potential Risks:

  1. Lower Liquidation Penalties = Lower Buffer

To remain competitive, protocols must offer low liquidation penalties, as users won’t engage if the penalties are too high. However, low penalties drastically reduce the buffer against insolvency. Per our analysis, in Compound V2, a 70% liquidation threshold and a 5% penalty provided a significant post-liquidation insolvency buffer, allowing for a 42.9% collateral price drop until the protocol faces insolvency. In V3, that same setup is far riskier because the liquidation penalty alone determines the buffer, allowing for only a 2.06% collateral price drop until the protocol faces insolvency.

  1. No Partial Liquidations = Inconvenient UX

Compound V3 does not allow partial liquidations. Instead, it removes the entire user from the protocol. This creates an inconvenient user experience and increases the protocol’s risk of insolvency when absorbing large positions.

  1. Collateral Risk After Absorption

Once collateral is absorbed, the protocol takes on the risk of selling that collateral at a stable price. If the collateral’s value decreases post-liquidation, the protocol can suffer significant losses. We’ve already seen instances of this risk materializing on Arbitrum and Base Comets, where liquidated collateral wasn’t repaid by liquidators for over 10 hours, leaving the protocol vulnerable.

In contrast, Morpho’s liquidation mechanism allows for a greater insolvency buffer by avoiding the absorption mechanism. It offers more traditional partial liquidations that minimize the variance in risk and better protect both users and the protocol.

2) Interest Rate Curves: Dynamic Reserve Factor

Unlike Compound V2, which uses a linear kink model with a static reserve factor, Compound V3 introduces independent borrow and supply curves that create complexity.

Potential Drawbacks:

  1. Dynamic Reserve Factor = Unpredictable Outcomes

In Compound V3, the implied reserve factor changes dynamically based on utilization. This makes it difficult to maintain a positive reserve growth at lower utilizations without setting a high borrow APR intercept. The result is either:

  • Negative reserve growth at low utilization, cutting into protocol reserves.
  • Poor UX, as users are discouraged by strange interest rate curves.
  1. Higher Governance Maintenance

The dynamic reserve factor also requires frequent governance updates to fine-tune interest rate curves, especially during periods of low utilization. This introduces more opportunities for errors and risks to reserves.

In contrast, Morpho’s adaptive interest rate curve:

  • Dynamically updates based on market conditions.
  • Incorporates a Reserve Factor, ensuring consistent positive reserve growth.

Morpho’s design significantly reduces governance overhead and risk to reserves.

3) Reward Distribution: Inefficiencies and Overhead

The reward distribution mechanism in Compound V3 requires constant maintenance.

Complications:

  1. Separate Reward Contracts for Each Chain

Compound V3 requires a separate rewards contract deployment on each chain. These contracts must be topped up through governance to ensure users can claim their COMP rewards. This process is inefficient and creates maintenance burdens for governance.

  1. Unused COMP Tokens Locked in Contracts

Once COMP is allocated to a rewards contract, it cannot be withdrawn. If rewards are reduced or cut, any remaining COMP in the contract is effectively stuck and can no longer be used.

  1. Lack of Visibility for Other Rewards

For example, during the ARB rewards campaign in the Arbitrum USDC comet, users were unaware of these additional rewards because they weren’t visible in the front end. This further highlights the UX complexities in Compound V3’s reward distribution.

Morpho’s reward distribution system is more efficient and requires less maintenance, making it easier to manage rewards across multiple chains.

4) Development Speed

Development speed on Compound V3 is structurally limited, with weeks or months of development time and auditing needed to deploy new comets, including USDT, DAI, and USDS mainnet comets, which could have unlocked greater TVL potential had they been deployed sooner.

In contrast, Morpho’s architecture allows users to create markets on demand. These markets are immutable and can be deployed quickly without requiring constant governance intervention.

5) Governance Risks: Mutable Parameters

Governance risks in Compound V3 are higher due to mutable risk parameters such as liquidation bonuses and thresholds.

Key Risks:

  1. Proposals Are More Prone to Errors

Because the protocol requires more frequent governance updates (e.g., for interest rate curves and reward contracts), the risk of errors in proposals increases.

  1. Governance Attacks

Compound V3’s mutable parameters make the protocol more vulnerable to governance attacks. For example, an attacker could manipulate liquidation penalties or thresholds to trigger large-scale liquidations.

In contrast, Morpho’s immutable markets are not susceptible to governance attacks on risk parameters. Once a market is deployed, its parameters cannot be changed, reducing the risk of harmful governance proposals.

Summary of mechanism improvements

Morpho’s architecture can benefit Compound when it comes to the liquidation mechanism, interest rate curves, reward distribution, development speed, and governance risks. Morpho’s design offers:

  • Safer liquidation mechanisms.
  • Adaptive interest rate curves with reserve factors.
  • Efficient reward distribution across chains.
  • Faster market deployment.
  • Immutable markets that reduce governance risks.

Scope of Work

Gauntlet agrees and undertakes to:

  1. Flagship Vaults. Develop, design, implement, and launch a range of flagship Vaults that allocate deposited assets to widely-used collateral and strategies, including USDC, ETH, BTC, USDT, and other relevant assets.
  2. Allocator and Curator Responsibilities. Fulfill all relevant Allocator and Curator duties for each applicable vault, such as defining the boundaries and market parameters of each vault, adjusting supply caps, performing risk analysis and due diligence on vault assets to ensure security and sustainability, providing regular updates to the Compound community, and monitoring market conditions to adjust allocations as needed.
  3. Marketing. Market and promote the use and adoption of vaults
    1. Content creation and circulation (such as blog posts and how-to guides);
    2. Pitching press announcements to tier 1 crypto outlets and marketing agencies
      on information such as launch, caps reached, high demand, and growth
    3. Hosting Twitter spaces/discord/office hours/panels, tweets and Telegram messages
      to integrate communities with the vaults
    4. Work together for proper distribution among popular information channels for DeFi
      users (like DeFiLlama, vaults.fyi, etc); and
  4. Ecosystem Development. Provide introductions and facilitate solution architecting to various partners in the ecosystem, including relevant partners and liquidators for the vaults

Performance

Gauntlet shall use its best efforts with regard to:

  1. Parameters. On a real-time basis, optimize risk and vault parameters, including, but not limited to, supply caps, vault liquidity, and market allocations
  2. Vault Set-up. Provide support for new Supply Vault (and associated borrow market spin-up) for key assets, including advising on parameters
  3. Risk Monitoring. Monitoring and tracking key risk actors like liquidity, price swings, whale activity, concentration risks, and parameter deviations, including developing and maintaining an alerting system to notify about critical risks

Next Steps

  • On-chain vote details and timelines
    • In the coming weeks, Gauntlet will spin up the relevant vaults and markets prior to the on-chain vote
    • The on-chain vote will:
      • Grant Compound DAO ownership of the vaults
      • Transfer $1.5 million in COMP tokens to a rewards contract to begin distribution
  • Community engagement plans
    • Gauntlet will present this proposal on community calls, including Compound community calls as well as Polygon and Morpho spaces if there is interest
  • Monitoring and reporting commitments
    • Following the vault launch, data around market usage, interest rates, collateralization, and risk levels will surface across various venues, including but not limited to the Gauntlet App and Compound User Interface. The development will be iterative, and we welcome feedback from the community to inform feature iteration

Useful Links

12 Likes

This proposal is intresting as it allows Compound to experiment with Morpho and later assess the results to determine if continuing is worthwhile. If Polygon matches the $1.5 million incentive, it provides a strong enough incentive to utilize the Polygon Network.

Regarding the downsides, we recognize that Morpho is a competitor in the lending market, and this proposal would strengthen their position while Compound could instead use the incentives to bootstrap its own markets. However, we believe it’s worth testing this approach and evaluating the outcomes.

What fee will Gauntlet charge if these vaults are successful? Will it be 50% of the performance fee? Also, when do you plan to activate the fee-splitter if the strategy proves successful?

3 Likes

As Argonaut stated, the risk is that Morpho in the near term turns on a fee switch and then gets a sizable chunk out of this project. But at the same time, with so many protocols launching Morpho in the backend in order to compete for TVL, Compound should as well.

The zero cost is nice from Gauntlet and the incentives would be great! This would help boost Compound’s market share in Polygon, given the Aave chan fiasco.

Individually supportive.

5 Likes

Polygon Labs is supportive of this proposal and confirms its willingness to provide $1.5M of POL in incentives as outlined in Gauntlet’s proposal.

I’m excited to see Gauntlet as a flag bearer for the Compound DAO to continue to create value for it even when using another tech stack.

Marc Boiron
CEO, Polygon Labs

5 Likes

With AAVE deciding to move on from Polygon, this seems like a good opportunity especially with matching incentives. I like the innovative approach and seems like a win!

2 Likes

Hi @Gauntlet,

Thanks for this proposal. There are many great ideas in it and I believe its potential is high.

How is it fair to say this considering AlphaGrowth’s and WOOF!'s contributions?

Please can you justify the necessity of this proposal considering the Compound Sandbox initiative, which was pitched specifically as an answer to Morpho’s recent success in permissionless listings?

Tasty incentives. Looks good :eyes:

3 Likes

This comment is representative of the Event Horizon team and does not represent the entirety of the Event Horizon community nor can it reflect any certainty of how the Event Horizon community may meta-govern this proposal should it come to a vote:

The Event Horizon team appreciates Guantlet’s efficiency and tact in pulling this proposal and partnership together in fairly short order. The opportunity to create a beachhead within Polygon is a particularly tactful landing point and green pasture opportunity. We have high confidence in Guantlet’s capacity to execute this initiative well.

Candidly, our only reservation (which does not exceed the opportunity value of pursuing this avenue) is the seeming stagnation of the Polygon ecosystem broadly in recent months. In fairness, we are not highly familiar with Polygon and would love for this to be proven otherwise. However, a fall from grace seems to have occurred. Though, in this right, perhaps this partnership is an opportunity to benefit Polygon as well.

3 Likes

Why isn’t Morpho putting up incentives?

  • Compound DAO has 90M in its treasury
  • Polygon has 200M
  • Morpho has 120M

[Source: Deepdao.io]

One of these things is not like the other. It feels like someone having a free lunch at Compound’s expense.

It seems unfair for Compound to put up 1.6% of it’s treasury, Polygon is putting up 0.75% while Morpho puts on 0% in incentives. Compound supplying 1.6% of its treasury to a single 3-5 month incentive program for a single project on a single chain seems expensive, especially considering Polygon is only willing to risk 0.75% (almost half) of it’s treasury on the same initiative.

You haven’t even modeled the ROI so I’m very concerned there’s not going to be ROI, fast enough, to justify it. The proposer needs to run the numbers and get back with better justification that spending this much will deliver a better return than just putting $1.5M Aave, taking their lead on no investing into a potentially dieing chain. I mean, have you even see the Polygon TVL chart on DeFi Llama? Maybe you thought this could be skipped and no one would notice. I hypothesize the ROI will be NEVER. Please, prove me wrong with a model, I’ve heard that’s the proposers thing so it shouldn’t be a problem for them to provide this before we all greenlight spending so much on a single proposal.

I’d like to hear more about the future monetary benefit Morpho will get. I’m unsure that all the benefits to Morpho have been laid out. While theres a massive dump of benefits for compound, there’s very little about how Morpho benefits. I’d like to understand the longterm monetary benefits Morpho is receiving. Seems like they’re taking 0 risk for undisclosed rewards. I think if we look at how the ROI looks for Morpho, it’s infinity instantly while the ROI for Compound is decades if ever. My concern is that they’re hiding how massively beneficial this is for them while costing them virtually nothing out of their treasury.

I strongly recommend this proposal is revised and ROI analysis added to prove this is going to be worth it. The incentives put up by all three partners must be much closer to equal relative to their treasuries before I’m willing to support this. IMO, There’s absolutely no reason why the smallest treasury should be provided 50% of the incentives while partners see the same benefit while supply proportionally less skin.

Everyone should be concerned such a large proposal completely lacks anything resembling an estimated Return on Investment (ROI). No one should endorse a plan to spend 1.6% of the treasury without a clear ROI calculations. if $1.5M leaves the treasury, I want to know when will Compound see $1.5M coming back? And, how much over the next 1 to 3 years this investment will return.

5 Likes

I guess you dont follow Morpho closely.

Morpho already stated they arent deploying Morpho incentives on new chains but they are deploying smart contracts for people to build upon (ex: Moonwell proposal in the Morpho forum and the recent Morphoo tweet about chain expansion).

I see this as a win win. Polygon’s recent spat with Aave leaves room for opportunity that Compound should take advantage of.

The fact that Polygon put up a Snapshot with an incentive budget is big, signals a willingness to groww. I dont know how people could vote against this proposal considering Sandbox is 6 months or more out per Woof’s estimate , I mean it is still getting scoped out in the last Woof update. No other group is really building much for Compound. Regardless of the ROI, something new is needed to make Compound relevant again (no offense to the DAO but it is losing market share & Morpho is growing insanely fast). Match the incentives, try it out. Seems like a no brainer to drive growth on Compound while trying something new. Gauntlet makes a good case in their proposal.

The only thing I am concerned about is when the fee splitter gets implemented. Probably shouldnt do it in the first half of the proposed timeline to drive maximum growth in my opinion. Alsoo, it makes sense for the DAO to earn revenue since it is approving the initiative.

6 Likes

“At some future point, Gauntlet may introduce a fee-splitter contract as revenue share” is not really close to “driving growth on Compound”. It seems like an opportunity to finance the Morpho ecosystem at the expense of current and future users. It effectively does the opposite of “driving growth on Compound”, but I applaud Gauntlet and the others involved for bringing such deal to the table. Sincerely

3 Likes

Tell me you didnt read my post without telling me you didnt read my post

1 Like

Hello Compound community, I’m Kirk, the governance lead at Morpho Labs.

A few clarifying points in response to comments here, and other notes that may be helpful in evaluating this decision:

  1. Please note that while I find the proposal very exciting, it was not authored by the Morpho team.
  2. Several DAOs, including Spark, Moonwell, Ionic, and Seamless, own vaults with hundreds of millions of dollars in total deposits on Morpho. Morpho does not take any fees from this capital, while the DAOs building on the Morpho stack are earning substantial revenues.
  3. The Morpho codebase turns open source the moment the fee switch is activated. This provides a credible guarantee that the DAO will not activate fees in a way that exceeds the value of the network effect provided by using the canonical Morpho deployments. The goal of Morpho is to empower builders to create great lending products on a permissionless base infrastructure. To this end, it’s very important that everyone building on Morpho, including curators, DAOs, and recently Coinbase, receive a much greater value from building on the protocol than any fees that may be charged in the future.

On a personal level, Compound was one of the projects that originally drew me to work on DeFi lending, along with MakerDAO, so I’m excited by the prospect of collaboration. The support of Polygon Labs for this proposal represents a big opportunity for Compound to take market share on the Polygon proof of stake network – becoming the dominant lending market on Polygon PoS could result in hundreds of millions of dollars in new TVL for Compound.

Should this proposal pass, I suspect there will be further opportunities for Compound to leverage the Morpho stack to drive protocol growth, doubling down on its strong brand and track record of conservative risk management while minimizing development costs.

4 Likes

I quoted it, so it’s right there.

There are indeed a lot of Morpho fans around here anyway.

2 Likes

Hey all,

Thanks, @mexilc, @compensator, and cmrn, for this valuable input in this exciting proposal. 0xloth chiming from Morpho’s Growth team. It’s very exciting to see initiatives such as this one, where the Morpho stack is used to serve Compound’s existing use cases in a novel way, propelled by POL and COMP incentives.

From a pure growth perspective, it seems like Polygon’s $1bn liquidity (including $600m in money markets) represents quite an opportunity for Compound:

  1. Some napkin maths on revenue potential: 50%(Fee sharing) * $600m (lending TAM on Polygon) * 5% APY (Average lending APY) * 22% (Compound v3 average fees) = $2.75m. These are recurring revenues, not just one-off fees that can be extrapolated to the near future (2-3 years at the very least)
  2. In this scenario, Polygon effectively subsidizes 50% of the cost of this liquidity migration. This provides a rather efficient and socialized way for Compound to attract capital
  3. Should this migration happen, Compound would 10x its lending market share on Polygon

On the incentive front, as OneTrueKirk outlined, the Morpho DAO only provides incentives to full-support deployments that are Morpho-branded instances. In this situation, Compound would leverage Morpho code seamlessly from its existing UI at no cost while retaining full ownership of the fees and risks. This appears like an aligned situation.

When “feature parity” (that is, the same lending experience to Compound powered by Morpho) is achieved, the Morpho customizable stack could also enable Compound DAO to augment its current offering. Some of the top-of-mind ideas are new asset/Polygon-specific collaterals and higher LLTVs to improve borrowers’ capital efficiency. All this can happen without adding any risk to the Compound’s existing experience due to Morpho’s isolated lending pool nature.

I’m excited to see how the above could drive new growth to the Compound ecosystem on Polygon.

1 Like

Morpho is gaining market share, Compound is not. Why would you not pay attention to protocols that are growing? I’ve been using Compound since it came out, I just want it to try something new at this point.

I guess Compound could forgo this opportunity and wait six months for Sandbox, seems crazy to wait that long but if that is what you want…

1 Like

Compound has always moved conservatively. Morpho is super, super exciting… But…

$COMP, from my best understanding, was created to be distributed to lenders and borrowers of Compound Protocol specifically, not to incentivize competitive protocols. It takes guts to put a proposal up like this, which is respectable. If still the DAO makes an exception, which is fully within its right, we (Torque) would like to participate as an interface and have an onchain reward contract that is battle-tested if the community wants to utilize a version of it.

(and maybe Enzyme, VaultCraft, etc. want to participate too)

1 Like

Hi @0xloth_Morpho - quick question on the math here. If I recall correctly, v3 contracts don’t charge any kind of fees, neither does the interface. The only way a deployed comet earns any fees is through liquidations (which only happen during market downfalls).

What would the adjusted ROI look like in that case? Liquidations are one-off fees that occur sparingly on only a handful of borrowed positions. Plus, only a small % of the sold collateral value is earned by the protocol.

2 Likes

We at @vaultsfyi will be excited to explore supporting this for supplying, claiming, and withdrawing.

We already support many Compound V3 vaults for deposit: Vaults | Discover opportunities

Working to add all Morpho vaults for the chains we support with some already live. We don’t yet have transaction support for Polygon (though we do have data), but this might be a good reason to get it added :slight_smile:

4 Likes

Would appreciate if @gauntlet responded to the community’s questions and concerns brought in this thread in a more timely fashion

3 Likes

Any potential fee-splitter contract must be approved by a DAO vote before implementation is possible, with specific details to be determined at a later date. At that point in time, the DAO may decide on a revenue split that best matches their preferences.

We appreciate Polygon’s commitment to this initiative and its collaboration with the DAO to further Compound’s development and growth.

As other commenters like @mexilc have mentioned, Sandbox is still half a year away from being fully functioning yet we have an immediate opportunity now to increase Compound’s market share in the Lending space by leveraging proven infrastructure from a growing protocol (Morpho) on chain willing to provide incentives (Polygon - $1.5m over 120 days).

Referencing the Compound V3 documentation on reserves: Reserves accumulate through two primary mechanisms. First, the spread between interest paid by borrowers and earned by suppliers of the base asset contributes to reserves. Secondly, the protocol can grow its reserves by capturing the remaining portion of the Storefront price factor when absorbed collateral is sold to liquidators. This mechanism remains in effect until reserves reach the TargetReserves set by governance.

Summary:
This proposal leverages emerging infrastructure (Morpho) on a network actively seeking a premier lending protocol that is willing to support growth through an incentive matching program. Without a dedicated development team building on V3’s foundation, Compound risks continued market share erosion. With Aave deprioritizing Polygon, Compound has a timely opportunity to move decisively and capture new growth.

We appreciate the community’s feedback and look forward to further discussion on this trial program.

6 Likes