If COMP distribution a process of transferring Compound protocol to decentralised governance than we should abstract from current price valuation, which is just temporary noise. In that perspective, decreasing emission is just a way to preserve current status-quo, delay transition to community governance and hold voting power by initial voters, who probably should vote yes.
This is not strictly about the price and/or valuation but rather about the distribution of the token, especially as there is no vesting period. Without a vesting period, as say Proof of Stake networks have with epoch and withdrawal windows, most of the assets accrete to a small number of market makers and exchanges who have no interest in voting. The Nansen data directly illustrates this. Moreover, spending the entire budget of the protocol on liquidity provision also does not make sense. The protocol has to spend on more than liquidity — it needs to spend on security and adding new features to stay competitive in the evolving DeFi market.
Proposal title suggest decreasing emission by 20%, while proposal itself suggest to decrease from current 0.44 COMP/block to 0.176 COMP/block, which is more like 60%, isnt it? How to understand that?
Currently, the implementation of COMP distribution stores a value equal to half of the COMP issued (e.g.
compRate is equal to
2.2e17 in the deployed Comptroller contract). The reason for this is to save gas. Currently, 0.44 COMP / block is distributed with 0.22 COMP / block to suppliers and 0.22 COMP / block to borrowers. Note that 0.176 = 80% of 0.22. The reason for this is that the COMP issuance is computed via two operations,
totalSupplied * compRate and
totalBorrows * compRate. If the contract stored
0.44, then we would have to compute
totalSupplier * compRate / 2, incurring an extra division step.
I want to remind everybody, that current price valuation of COMP is fueled by yeild farming hype and big bubble. It’s hardly real and hardly sustainable long term, regardless of what would be done with emission. At the same time COMP and Compound itself is one of the few actual products with long-standing and proven value , sitting at the core of it. Extreme care should be taken, as any radical change can be the pin which blow that bubble.
COMP, in many ways, started this bubble as an extension and modification of the pioneering work done by Synthetix. The Compound governance contracts have been used in a large number of yield farming protocols and the safety and convenience that they provide has been assessed by the developer market as a Schelling Point for governance. However, just as the release of COMP caused this bubble, it must also protect itself in the future. If all of the token is spent on liquidity with no vesting and/or lock-up, then the protocol will be bankrupt in the future in terms of a development budget, a security budget, and an insurance budget. The current farming craze has led to most COMP accruing to high-time preference, non-governance participants. While the current distribution isn’t ideal and protocol parameters (e.g. minimum amount of COMP to make a proposal) can be improved, one needs to remember that COMP was the first DeFi token to launch fully automated governance after product-market fit. And mistakes will be made if you are the first! One of the mistakes is the lack of vesting, which leads to the concentration that we see today. And the goal of reduction is to reduce the treasury and short-term behavior now, add in vesting and/or lock-ups, and then increase issuance again, albeit with longer-term lock-ups that encourage governance participation.
I don’t really getting argument about centralised exchanges having big portion of COMP. Centralised exchanges are not the owners, but custodians of the COMP, which is likely in hands of many small owners, who (for reason of point 1) can basically benefit from COMP holding only by price speculation, as votes of single-double-triple digit COMP owners are largely irrelevant in decision making process (and holding COMP isn’t incentivesed in any other way either) , not even talking about those who have less than 1 COMP. Besides, do we know that holdings of centralised exchanges are from COMP distribution and not from initial seeded Uniswap liquidity leaked to that exchanges overtime?
Some of the analysis that Will Price of Flipside has done on COMP distribution at exchanges has shown that the transfers are not really from small holders. For instance, this effective data visualization depicts that a small number of large holders (and presumably market makers) ended up providing most of the liquidity on Coinbase. Compare this distribution to that of the fair YFI launch, where holders are incentivized to hold the asset for cash flows. In the long run, COMP can be the vehicle for redistributing cash flows earned from the protocol (currently in the reserve), but only if there are enough long-term holders who participate in governance.