SUMMARY
This proposal establishes a capped, time-limited Ecosystem Protection and Continuity Fund (“EPCF”) to ensure that the Compound ecosystem can respond rapidly and effectively to events that can challenge the integrity, security, or operational continuity of the protocol or its participants. The EPCF authorizes the Compound Foundation to deploy resources, within defined constraints, to address adverse situations such as critical security incidents, parameter or governance attacks, regulatory or administrative challenges, actions targeting individual ecosystem contributors or service providers, or other material disruptions to ecosystem functioning.
The EPCF will be capitalized with USD 5,000,000 in USDC from the COMP Treasury, held in a Foundation-controlled wallet for a period of 48 months (and any unused funds will be returned to the COMP Treasury automatically at the end of this 48 month period). Disbursements may be made at the Foundation’s discretion, subject to a post-use disclosure obligation that respects overriding legal or regulatory constraints. The EPCF may be replenished only via a new governance action.
MOTIVATION
Compound has reached a stage of maturity where various forms of adversarial activity pose direct risks to ecosystem continuity. These types of risk include:
- External emergencies (e.g. Elixir de-peg).
- Situations in which adversarial or unanticipated interactions with protocol systems or dependencies create time sensitive operational failures that cannot be effectively resolved through standard governance processes alone.
- Actions by external actors (including regulatory bodies, technical and other types of adversaries, or market participants) that materially impair the ecosystem’s ability to function.
- Targeted actions against essential contributors, service providers, or infrastructure nodes whose impairment would create systemic operational risk.
- Circumstances in which rapid response capacity is necessary to avoid broader contagion or compensating losses across protocol participants.
The ecosystem’s history demonstrates that risks like these can and do manifest, and can harm the ecosystem. The ecosystem’s current governance and treasury architecture does not provide a pre-authorized, rapid-deployment capital mechanism for these categories of threats. Without such a mechanism, the ecosystem is exposed to delays, governance gridlock, and information-sensitive bottlenecks at precisely the moments rapid execution is required.
The EPCF resolves this structural deficiency by creating a flexible, time-bounded, and accountable fund that can be deployed by the Foundation to maintain ecosystem resilience.
The USD 5,000,000 fund size has been proposed as a good faith estimate of potential worst-case exposure across multiple concurrent ecosystem threats over the EPCF’s duration.
SPECIFICATION
1. Establishment of the EPCF
- Create the Ecosystem Protection and Continuity Fund (EPCF).
- Capitalization: USD 5,000,000 equivalent denominated in USDC, transferred from COMP Treasury to a Foundation-controlled two-of-three multi-sig wallet (SSP/vCISO (as part of their mandate) as the other signer).
- Duration: 48 months from the date of fund creation. At expiration, unused assets are returned to the COMP Treasury unless governance renews or modifies the Fund.
2. Purpose and Scope of Use
EPCF resources may be used solely for actions that directly protect or preserve the integrity, operational continuity, or security of the Compound ecosystem. Categories (non-exhaustive):
- Technical incident response and mitigation, including emergency work by external security firms or specialized contributors.
- Countermeasures in the event of governance manipulation, concentration attacks, or protocol-level decision-making impairments.
- Response to regulatory, administrative, litigation or other external actions that materially disrupt protocol operations or the functioning of essential ecosystem participants.
- Protection of key contributors, infrastructure providers, or service firms when hostile or coercive action against them endangers broader ecosystem continuity.
- Any other verifiable ecosystem-level threat where rapid intervention materially reduces systemic risk.
This scope is intentionally general. The purpose is protection of the ecosystem’s functioning, not the advancement of any party’s private interests.
3. Asset Management and Governance Participation
Subject always to the EPCF’s primary purpose as an ecosystem protection and continuity mechanism, the Foundation may, in its discretion:
- deploy idle EPCF assets in a manner intended to preserve capital and generate modest yield, including through low-risk on-chain or off-chain strategies;
- convert a portion of EPCF assets into COMP and delegate such COMP for the purposes of participating in Compound governance. Any such delegation shall be undertaken with the objective of supporting protocol integrity, continuity, and effective governance.
- Funds will be always held in the designated multisigs.
Yield-generation activities and governance participation must not impair the Foundation’s ability to deploy EPCF assets rapidly in response to qualifying ecosystem threats.
4. Administration and Discretion
- The Compound Foundation is authorized to manage the EPCF for the benefit of the ecosystem.
- The Foundation may advance or deploy funds at its discretion when, in its judgment, such use is necessary to mitigate or address a qualifying ecosystem threat.
- The Foundation must treat EPCF assets as segregated, special-purpose funds.
5. Transparency and Reporting
- The Foundation must provide the community with a high-level update within a reasonable period after any EPCF deployment.
- Reporting must balance transparency with legal, regulatory, and security constraints.
- If disclosure would prejudice the integrity of ongoing ecosystem protection, the Foundation may defer or redact details; however, it must provide disclosure at the earliest point at which constraints no longer apply.
6. Wallet and Controls
- EPCF assets will be held in a two-of-three multi-sig wallet, with the Foundation nominated two signers and the other signer nominated by ChainSecurity.
- The wallet address will be published upon fund creation.
- The EPCF may not be commingled with general Foundation operational reserves.
7. Replenishment Mechanism
- Governance may, but is not required to, replenish the EPCF up to its USD 5,000,000 cap.
- Any replenishment requires a new governance proposal.
8. Wind-Down
- At the end of 48 months, all unused funds return to the COMP Treasury unless governance renews or revises the EPCF.
- The Foundation must publish a closing report after wind-down, subject to the same legal and security constraints as interim reporting.
RATIONALE
This structure provides:
- Rapid response capacity without requiring governance action during an emergency event.
- Bounded discretion via a capped amount, time limitation, and mandatory disclosure framework.
- Protection of information-sensitive matters that cannot be publicly described at the outset without increasing ecosystem risk.
- Institutional alignment with the Foundation’s mandate to safeguard protocol continuity.
- Clear accountability to governance through mandatory reporting and return of unused assets.
- Minimal surface area for misinterpretation, avoiding explicit mention of legal defense while clearly enabling it under the broader ecosystem protection purpose.
This mirrors the structure used in the creation of the Compound Foundation—governance grants a defined authority, for a defined purpose, with finite capital and clear oversight.
IMPLEMENTATION
- Transfer USD 5,000,000 equivalent from the COMP Treasury to the EPCF wallet.
- Publish wallet address and initialize internal controls.
- Foundation activates reporting schedule.
- Governance tracker updated to reflect EPCF creation and 48-month expiry.
CONCLUSION
The EPCF ensures the Compound ecosystem has a pre-authorized, accountable, and operationally effective mechanism for handling adversarial events. It strengthens resilience, reduces systemic risk, and establishes a governance-aligned model for emergency response.