Gauntlet Initial Parameter Recommendations - Compound V3 USDC and WETH Comets on Base (7/28/23)
BASE is currently in Goerli testnet. Testnet liquidity, users, and TVL may not necessarily transfer over to mainnet, which means any parameters we recommend right now are based on assumed TVL and liquidity and MUST be revisited once mainnet is launched and liquidity flows in.
Summary
We provide two options to the community below. Option 1 is very conservative to test out Compound V3 mechanics. As such, the conservatism is less so derived from market risk (which is Gauntlet’s focus) but more so from the smart contract and other technical risks. Option 2 is aggressive and assumes that the community does not need to test Compound V3 mechanics on a new chain.
Option 1: Very Conservative (Test out Mechanics)
USDC Comet
Risk Parameters
| Parameter | WETH | WBTC | cbETH |
|---|---|---|---|
| Liquidation Factor | 50% | 45% | 45% |
| Collateral Factor | 45% | 40% | 40% |
| Liquidation Bonus | 5% | 5% | 7% |
| Supply cap | 5500 ($10M) | 175 ($5M) | 3750 ($7.5M) |
Storefront Price Factor: 60%
Incentive Parameters
IR Curve: Same as Polygon USDC
| Supply COMP Rewards | Borrow COMP Rewards |
|---|---|
| 10 | 5 |
WETH Comet
Risk Parameters
| Parameter | cbETH |
|---|---|
| Liquidation Factor | 85% |
| Collateral Factor | 88% |
| Liquidation Bonus | 5% |
| Supply cap | 3750 ($7.5M) |
Storefront Price Factor: 50%
Incentive Parameters
IR Curve: Same as Ethereum WETH
| Supply COMP Rewards | Borrow COMP Rewards |
|---|---|
| 5 | 0 |
Option 2: Aggressive (Assume mechanics are working, then increase the aggressiveness of parameters after inflow)
USDC Comet
Risk Parameters
| Parameter | WETH | WBTC | cbETH |
|---|---|---|---|
| Liquidation Factor | 84% | 76% | 80% |
| Collateral Factor | 79% | 70% | 75% |
| Liquidation Bonus | 5% | 5% | 7% |
| Supply cap | 11000 ($20M) | 350 ($10M) | 7500 ($15M) |
Storefront Price Factor: 60%
We give supply cap recommendations based on assumed BASE TVL upon Compound deployment. Given it is unknown what the ratio of asset market cap proportions to total BASE TVL will be, the parameter values recommended here are an estimation based on assumptions, including cbETH having a higher circulating supply than wstETH on BASE, due to the Coinbase relationship. Again, these numbers depend on BASE TVL upon launch and may change.
Incentive Parameters
IR Curve: Same as Polygon USDC
| Daily COMP Supply Rewards | Daily COMP Borrow Rewards |
|---|---|
| 30 | 15 |
Our COMP rewards recommendations are designed to offer appealing distribution APRs when the comet is first launched, and also when supply caps are highly utilized.
The relatively higher supply rewards incentivize a greater inflow of supply tokens into the protocol. This is important in the early stages of protocol growth since USDC supply is required before borrowers can join. Daily COMP rewards are subject to change as TVL rises and the markets evolve.
Given the recommended supply caps and liquidation factors, users can borrow at most $36.4M USDC. If users max out supply caps with an average borrow usage of 67% (current Polygon USDC borrow usage), then $24.6M USDC will be borrowed. If the protocol has $24.4M USDC borrows and distributes 15 daily COMP Borrow Rewards, the Borrow Distribution APR will be 1.61%. Now, assuming a 70% USDC utilization, the total supply required would be $34.8M USDC. If the protocol has $34.8M USDC supply and distributes 30 daily COMP Supply Rewards, the Supply Distribution APR will be 2.25%.
Note that it will take time for the Base ecosystem to grow and Compound TVL to grow to this end state. In the meantime, this reward distribution amounts to a daily cost of $3,225 and $1.1M annually given the current COMP price. The table below shows an example of how distribution and net APRs could evolve based on the protocol’s TVL.
| USDC Supply | USDC Borrows | Utilization | Supply APR | Supply Distribution | Net Supply APR | Borrow APR | Borrow Distribution | Net Borrow APR |
|---|---|---|---|---|---|---|---|---|
| $5,000,000.00 | $1,000,000.00 | 20.00% | 0.65% | 15.70% | 16.35% | 2.20% | 39.24% | 37.04% |
| $10,000,000.00 | $3,000,000.00 | 30.00% | 0.98% | 7.85% | 8.82% | 2.55% | 13.08% | 10.53% |
| $20,000,000.00 | $10,000,000.00 | 50.00% | 1.63% | 3.92% | 5.55% | 3.25% | 3.92% | 0.67% |
| $34,840,000.00 | $24,388,000.00 | 70.00% | 2.28% | 2.25% | 4.53% | 3.95% | 1.61% | -2.34% |
WETH Comet
Risk Parameters
| Parameter | cbETH |
|---|---|
| Liquidation Factor | 93% |
| Collateral Factor | 90% |
| Liquidation Bonus | 5% |
| Supply cap | 7500 ($15M) |
Storefront Price Factor: 50%
Incentive Parameters
IR Curve: Same as Ethereum WETH
| Supply COMP Rewards | Borrow COMP Rewards |
|---|---|
| 20 | 0 |
Given the recommended supply cap and liquidation factor, users can borrow at most $14M WETH. If users max out supply caps with an average borrow usage of 85% (current Ethereum WETH borrow usage), then $11.8M WETH will be borrowed. Now, assuming a 85% WETH utilization, the total supply required would be $27.5M WETH. A daily COMP supply reward distribution of 20 would yield a 1.90% Supply APR.
Note that it may take for the Base ecosystem to grow and Compound TVL to grow to this end state. In the meantime, this reward distribution amounts to a daily cost of $1,433 and $523,191 annually given the current COMP price. The table below shows how distribution and net APRs evolve based on the protocol’s TVL.
| WETH Supply | WETH Borrows | Utilization | Supply APR | Supply Distribution | Net Supply APR | Borrow APR | Borrow Distribution | Net Borrow APR |
|---|---|---|---|---|---|---|---|---|
| $5,000,000.00 | $1,000,000.00 | 20.00% | 0.57% | 10.46% | 11.03% | 2.03% | 0.00% | -2.03% |
| $10,000,000.00 | $4,000,000.00 | 40.00% | 1.14% | 5.23% | 6.37% | 3.06% | 0.00% | -3.06% |
| $19,000,000.00 | $8,000,000.00 | 42.11% | 1.19% | 2.75% | 3.95% | 3.17% | 0.00% | -3.17% |
| $27,575,581.40 | $11,857,500.00 | 43.00% | 1.22% | 1.90% | 3.12% | 3.22% | 0.00% | -3.22% |
Next Steps
We welcome the community’s feedback and will create a poll below to gauge the community’s preferences.