Compound V3 USDC Comet: Risk Parameter Updates (2023-01-19)

Simple Summary

Increase the supply cap of COMP on the Comet USDC market from 600,000 COMP to 900,000 COMP.


Supply caps protect against price manipulation attacks (among other risks) on illiquid tokens that involve supplying the manipulatable token as collateral. In this framework, it is prudent to have tighter supply caps for less liquid tokens. On the other hand, as the use case for v3 grows, the community may wish to increase supply caps to accommodate greater usage. Current market data, including COMP’s +2% market depth at $1.7M, support an increase to the supply cap to allow for organic growth in the market without adding outsized market risk. Should the new supply cap get hit, the current liquidation bonus setting is likely to absorb the expected increase in VaR (1.5x), given the +2% market depth. Gauntlet recommends increasing the COMP supply cap to 900,000.

In the meantime, Gauntlet is continuing to formulate a formal borrow and supply cap process for Compound V3 to streamline these cap adjustments.

Next Steps

  • Welcome feedback from the community.
  • Targeting on-chain vote on 1/23/2023.

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How does the +2% market depth (1.7MM) relate to increasing 30,000 $COMP (approximately $15MM)?

It relates to the estimates of VaR (Value at Risk). Our current VaR estimate on COMP is $2-5M daily, and assuming the new cap gets hit and borrowers are opening positions similar to now, we would see a $1-2.5M increase. This is tolerable given the +2% market depth of $1.7M (relative to the $1-2.5M increase), and given the current liquidation bonus parameterization, it is likely that the additional risk is absorbed.

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On-Chain proposal has been published:

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