Compound Polygon v3 USDC - Gauntlet Recommendations (4/28/23)

Simple Summary

Gauntlet recommends the following changes to the Polygon Compound v3 USDC comet:

  • Increase daily USDC supply COMP rewards from 0 to 34.73 ($1,433/day)
  • Increase WBTC supply cap from 400 ($12M) to 1,000 ($30M)
  • Increase WETH supply cap from 11k ($22M) to 20k ($40M)
  • Increase MATIC supply cap from 10M ($10M) to 20M ($20M)

Our analysis indicates the supply rewards allocation will increase USDC supply and decrease USDC utilization, which will incentivize larger USDC borrowers to join the protocol in its early stages.

The increased supply caps will ensure new USDC borrowers’ collateral supplies won’t be restricted.


As mentioned in our Compound Migration and Polygon Comet Update (4/21/23), the high USDC utilization combined with the low TVL in the Polygon comet seems to be dissuading large borrowers from joining the protocol, despite the appealing positive Net Borrow APR.

Specifically, total USDC supply is $6.43M and total USDC borrows are $5.42M, resulting in 84.2% utilization, and only $1.01M USDC available to be borrowed. Therefore, users are deciding not to borrow USDC, despite the (9.44% Borrow Distribution) - (5.34% Borrow APR) = (+4.11% Net Borrow APR), as shown below.

By adding 34.73 daily supply COMP rewards (matching the 34.73 rewards on the borrow side), USDC suppliers would immediately receive an 8.13% Earn Distribution. New USDC suppliers will immediately be incentivized to supply USDC at a (4.27% Earn APR) + (8.13% Earn Distribution) = (12.40% Net Earn APR).

Holding the $5.42M borrows constant, $10M of total USDC supply with these incentives would result in 54.2% utilization, and a resulting (1.76% Earn APR) + (5.23% Earn Distribution) = (6.99% Net Earn APR), still greatly incentivizing supply and unlocking > $4M USDC for borrowers. The resulting Net Borrow APR as a result of the lower utilization would be +6.26%, so both USDC suppliers and borrowers would be incentivized to join the comet, gaining greater momentum for growth.

Predicting how exactly the new equilibrium is reestablished as a result of this reward allocation is pure speculation, but an equilibrium of $25M USDC supplied and $18M USDC borrowed is feasible, as shown in the comparison below.

Current Equilibrium Possible Post-Proposal Equilibrium
USDC supply $6.43M $25M
USDC borrows $5.42M $18M
Utilization 84.2% 72%
Earn APR 4.27% 2.34%
Earn Distribution 0% 2.09%
Net Earn APR 4.27% 4.43%
Borrow APR 5.34% 4.02%
Borrow Distribution 9.44% 2.91%
Net Borrow APR +4.10% -1.11%

Next Steps

This proposal doubles the current Polygon COMP rewards. As Kevin mentioned in this post, the Polygon rewards contract now has about 19 days of COMP rewards left to distribute. Our proposal would half the number of days of COMP rewards left to distribute. So we support increasing the Polygon COMP rewards, and can wait until after the rewards have been replenished to create an on-chain proposal with our proposed changes.

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Thanks @nlord for starting the discussion on optimizing COMP distributions. I think the proposal looks good and is a great way to start experimenting with different incentive strategies on these newer deployments where bootstrapping growth is important.

Something that would be nice to have is a rough plan of when and how we can analyze the impact of this distribution change. That way, the community has a better idea of when we should revisit the Polygon distribution for the next round of updates (either to decrease, further increase, or rebalance the distributions).

Managing COMP distributions becomes more difficult to do overtime as Comet is launched on more chains since there is only a limited amount of COMP to distribute across all these nascent markets. Having some early structure on how we approach this problem would be beneficial IMO.


Thanks @kevin for your thoughts and feedback.

As a heads up, we plan on putting up this proposal on 5/9/2023.

As an update, the on-chain proposal has been published below. Voting begins in 2 days. We thank the community for their participation.

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