Deploy Compound III on Mantle Network

[0xGabe]

Deploy Compound III on Mantle Network

Preamble:

Type: Multichain Deployment

Title: Deploy Compound III on Mantle Network

Authors: @0xGabe, DeFi Growth Lead at Mantle Network

Point of Contact: 0xGabe_

Overview of Proposal

• Mantle Network is an optimistic Ethereum layer-2 (L2) solution with an EVM-compatible execution environment.
• The Mantle Core Contributor Team proposes the deployment of Compound III onto Mantle Network with Ethena’s USDe as its base market, with mETH, wETH, and FBTC as proposed collateral assets.
• This proposal describes the current state of Mantle and the potential benefits for Compound and its community.

Links

• Website: https://www.mantle.xyz/
• Twitter: x.com
• Audits: Audits | Network
• CoinmarketCap: Mantle price today, MNT to USD live price, marketcap and chart | CoinMarketCap
• Coingecko: https://www.coingecko.com/en/coins/mantle

Motivation

Mantle Network is an optimistic Ethereum layer-2 (L2) solution with an EVM-compatible execution environment. Mantle is DAO-governed and employs a modular approach to execution, consensus, settlement, and data availability. Mantle Network Mainnet Alpha v1 was launched on July 17, 2023. Mantle Network Mainnet v2 Tectonic was launched on March 15, 2024.

Mantle Network distinguishes itself through a modular chain design by separating transaction, execution, consensus, settlement, and storage into different modules. In Mantle Network’s architecture:

• The execution layer is EVM-compatible and responsible for transaction execution. A sequencer produces L2 blocks and sends state root data to layer 1 (L1).
• Consensus and settlement are conducted on Ethereum’s L1.
• Data availability is ensured through Mantle DA, leveraging EigenDA technology to store callback data, which in conventional rollups would be published directly to L1.

This modular approach allows for greater flexibility and optimization across different functionalities of the network.

Source: Mantle Docs

Mantle Ecosystem comprises of:

• Mantle Network - A modular Ethereum L2.
• Mantle Governance - A decentralized autonomous organization (DAO).
• Mantle Treasury - One of the largest on-chain treasuries in the industry.
• mETH Protocol - A permissionless, non-custodial ETH liquid staking protocol deployed on Ethereum L1 and governed by Mantle.

Mantle Network is governed by the Mantle token (MNT), which serves as the central element in the Mantle Ecosystem, fulfilling multiple roles including being the native gas token for transaction fees and fueling ecosystem growth. It’s also the governance token that empowers the community to make decisions about the ecosystem’s future directions.

In an effort to spur innovation and development, Mantle also has financial initiatives like the Mantle Grants Program and Mantle EcoFund, the latter boasting a sizable $200 million catalyzed capital pool, more on this below. All future products under the Mantle banner will be community-driven and initiated through voting by Mantle (MNT) token holders.

Launching Compound III on Mantle Network represents a strategic move to leverage the benefits of Mantle’s widespread ecosystem. Compound stands to be a part of a young, cohesive and synergistic ecosystem primed for hypergrowth and widespread adoption. Inversely, Mantle’s users will gain access to one of the oldest and most secure DeFi protocols in the industry, at significantly increased efficiency and minimal network transaction fees.

This integration with Mantle Network demonstrates Compound’s commitment to scaling Ethereum by pushing the boundaries and limitations of decentralized finance in addressing network congestion and high transaction costs. Deploying Compound III on Mantle Network would open numerous new avenues for mutually-beneficial growth and innovation within the Mantle ecosystem and beyond.

Non-Technical Evaluation

The following statistics were recorded on Sept 25th, 2024.

1. TVL on the Chain: $1.29B according to L2Beat, $457M according to DeFiLlama
2. Number of protocols on the chain: 87 according to DeFiLlama,
3. (#) of unique addresses on the chain: 5.2M according to Mantlescan.xyz (built by Etherscan)
4. Active Addresses: Artemis

• 1 Day: 36.9K
• 7 Day: 36.9K
• 30 Day: 62.8K

Rationale - Benefits to Compound

Mantle Network

Since its launch, Mantle has seen more than 146 million transactions and over 8.9 million unique addresses transact on the network. At its peak, it reached 240,231 active addresses. To date, over 6,000 developers have deployed more than 1.32 million contracts.

As of the time of writing, Mantle has approximately ~$846 million total value bridged (TVB) and over ~$457 million in total value locked (TVL) across 86 different DeFi protocols, according to DefiLlama. According to L2Beat, Mantle is currently the 5th highest TVL among other L2 ecosystems at ~$1.29 billion. These metrics indicate a thriving ecosystem that Compound could benefit from by tapping into an existing active user base.

Source: DefiLlama (as of September 25, 2024)

Bybit

As a close ecosystem partner and sponsor, Bybit works hand-in-hand with Mantle to develop new technologies that let people work, engage, and transact together in new ways. Bybit is committed to supporting the Mantle Ecosystem, which would in turn power and grow the Bybit ecosystem. Bybit aims to act as a seamless gateway for its users to access decentralized applications built on Mantle Network, enabling users access to web3 trading experiences powered by advanced blockchain technology.

Source: Coinmarketcap (as of September 25, 2024)

Bybit, currently ranked as the 4th top spot exchange and 2nd top derivatives exchange by Coinmarketcap, offers direct access to Mantle Network. The exchange’s global user base has surged by 300% in a little more than a year, from 10 million users in Q3 2022 to over 30 million as of now. Compound’s deployment on Mantle Network would provide immediate access to this extensive and growing user base due to Bybit’s native support for Mantle Network deposits and withdrawals.

Mantle Treasury

Mantle Treasury is unmatched in terms of size. The treasury holds more than $837.5 million in assets excluding its own tokens (MNT) — the largest of any other DAO — which means ample runway to weather multiple market cycles. It also has around $1.859 billion worth of MNT tokens, which provides a significant war chest to incentivize and bootstrap ecosystem growth.

Source: Mantle (as of September 25, 2024)

Two proposals, MIP-24, and MIP-25, have since been passed to establish two key authorities that will carry out ecosystem funding and bootstrapping activities.

Mantle EcoFund

Mantle EcoFund is a strategic initiative designed to inject $200 million into Mantle Ecosystem over the next three years. Comprising $100 million from Mantle’s own Treasury and an additional $100 million matched by Strategic Venture Partners, the EcoFund serves multiple key objectives. These include supporting entrepreneurs and technologies within Mantle Ecosystem, accelerating adoption among developers and dApps, and incentivizing strategic partnerships. The fund will act as a seed investor in high-potential, early-stage projects and has the flexibility to provide additional liquidity or follow-on investments to successful ventures.

Mantle Economics Committee

The Mantle Economics Committee (EC) is a specialized sub-governance body operating under Mantle Governance. It will focus primarily on making informed, risk-averse decisions about the allocation of Mantle Treasury assets, without directly holding custody of these assets.

The Committee is authorized to manage mETH Protocol and ETH staking strategies, with allowances up to 250K ETH, and has the flexibility to enter and exit these strategies based on commercial negotiations and risk evaluations. The Committee adopts a highly conservative risk management approach and operates within governance rules that prioritize caution in strategy entries while allowing quicker exits. Its diverse membership will include representatives from Mantle Governance, the Mantle community, and Mantle Core Contributor teams.

As of the time of writing, the EC has since tabled their 3rd proposal (MIP-28) for the DAO to allocate up to:

• A combined allowance of $300 million USDx, 250,000 ETH, 2,000 BTC, and 400 million MNT in liquidity support for applications.
• A combined allowance of $250 million in USDx seed liquidity for RWA-backed stablecoins.
• A combined allowance of $100 million equivalents for market-neutral liquid fund subscriptions.

mETH Protocol & Mantle Staked Ether (mETH)

mETH Protocol is the second core product of Mantle Ecosystem. mETH Protocol is a permissionless, non-custodial ETH liquid staking protocol deployed on Ethereum L1 and governed by Mantle. Mantle Staked Ether (mETH) serves as the value-accumulating receipt token for mETH Protocol.

Since its launch in December 2023, mETH Protocol had achieved over 500,000 ETH staked and an all-time-high TVL of over $2.195 billion on 12 March 2024, only ~3 months from its initial launch. According to DeFiLlama, mETH is currently ranked 4th among industry-leading Ethereum liquid staking protocols at $1.322 billion TVL.

Source: DeFiLlama (as of September 25, 2024)

This rapid success could be attributed to the employed mETH Double-Dose Drive program, in which Mantle Treasury subsidized the mETH native yield through its treasury assets to achieve ~7.2% APY for 2 months, double that of the market reference rate for ETH liquid staking protocols.

Proposed Markets

• Ethena USDe (53.7 million USDe TVL on Mantle)

For collateral assets, we propose Mantle Staked ETH (mETH), Wrapped ETH (wETH) and Ignition FBTC (FBTC). We will be looking to the Compound community to provide additional feedback on this proposal.

Security Considerations

Some of the risks that should be taken into consideration:

• Mantle Network’s sequencer is centralized. There are future plans to decentralize the sequencer which are actively being explored. However, a core security goal of Mantle is that despite the current centralization, the Sequencer should not be able to prevent users from submitting transactions to the L2 chain. Users of Mantle can always bypass the sequencer and include transactions in the L2 chain by sending their L2 transactions directly to the OptimismPortal contract on L1.
• The fault proof system is not live. Mantle Network aims to implement the fraud proof model implemented by Cannon, an on-chain MIPS instruction simulator developed by Optimism. More information about fraud proofs on Mantle Network can be found here.
• Further risk analysis can be found here: Mantle - L2BEAT

Copyright Waiver

Copyright and related rights waived via CC0 1

[sharp]

Thank you for the proposal @0xGabe. The AlphaGrowth team is excited to explore this Strategic opportunity of expanding Compound to Mantle. We believe that Compound’s expansion on Mantle will be a win-win for the communities of both projects.

We look forward to recommendations from @Gauntlet on this proposal.

[rossgates]

Thank you @0xGabe it’s been a pleasure working with the Mantle team to put forward this proposal. I look forward to the prospect of a USDe market on Mantle and a reason to involve Mantle, Ethena, Bybit and others in Compound’s growth trajectory.

[PGov]

This makes logical sense to us; there’s a large market and possible incentive collaborations in the future. If there any specifics about the level of rewards that Compound may be able to receive?

[0xGabe]

As per discussion with the Mantle Economics Committee and Foundation, Mantle is ready to support Compound III on Mantle Network with:

• $10M in supply-side Treasury liquidity support on USDe markets.
• $1M worth of MNT incentives to bootstrap user adoption.

[Gauntlet]

[Gauntlet] - Mantle USDe Comet Recommendations

Simple Summary

We recommend the following initial parameter recommendations for the Mantle v3 USDe comet:

Risk Parameters

Asset	Collateral Factor	Liquidation Factor	Liquidation Penalty	Supply Cap
mETH	80%	85%	10%	3000 mETH
WETH	82%	87%	7%	2800 WETH
FBTC	78%	83%	12%	120 FBTC

Rationale

Mantle has been witnessing growing TVL on its chain with over $420M locked. The TVL is up 236% YTD.

The DEX volumes have shown strong growth peaking in August this year and inching back to >$40M as of today.

Bridging of assets to Mantle has been providing tailwinds for the TVL on chain, with over $1bn bridged to Mantle in the past 12 months.

USDe

Ethena has experienced exponential growth in Total Value Locked (TVL), surpassing $2.8 billion in the protocol. The current daily volume exceeds $164 million. Ethena’s USDe serves as a synthetic dollar, tokenizing delta-neutral derivative positions involving ETH and BTC. Meanwhile, sUSDe is a staked version that captures yields from staked Ethereum, along with funding rates and spreads from delta-hedged positions. The staking of USDe into sUSDe enables yield arbitrage opportunities. The current comet structure can allow users to borrow USDe and stake for additional yield. Given the lower prevalence of sUSDe on Mantle, Gauntlet advises to add sUSDe as a collateral asset given the prevailing market liquidity.

Supply Caps and Liquidation Penalty

Reviewing the liquidity pathways from the proposed collateral assets (FBTC, mETH, WETH) to USDe, Gauntlet recommends adding an additional 2% buffer to the Liquidation Penalties of like assets on the USDC Comet.

Asset	Liquidation Penalty
mETH	10%
WETH	7%
FBTC	12%

The additional 2% in LP buffer stems from the Annualized Daily Log Vol of USDe/USDC. Gauntlet recommends keeping this to 2x of annualized log vol when assessing liquidation penalties to that of the USDC Comet.

Although we recently recommended an increase in LP for WBTC due to the speculation around the custodial process, the current FBTC liquidity warrants higher LP and the recommended level is suitable to balance risk and capital efficiency. Gauntlet will monitor liquidity conditions and adjust Liquidation Penalty as suitable.

Gauntlet recommends setting the supply caps to the following:

Asset	Supply Cap
mETH	3000
WETH	2800
FBTC	120

FBTC Slippage

mETH Slippage

WETH Slippage

Collateral Factors (CF) and Liquidation Factors (LF)

Gauntlet recommends adjusting the CF and LFs with respect to the recommended Liquidation Penalties (LP). The recommended values are as follows

Asset	Collateral Factor	Liquidation Factor
mETH	80%	85%
WETH	82%	87%
FBTC	78%	83%

Risks associated with Ethena

For detailed risk vectors pertaining to Ethena please refer to those outlined in this post.

Storefront price factor: 60%

Targetted Reserves: 5M

IR Curve Parameters

Gauntlet recommends aligning the IR parameters to those of stablecoin comets :

Parameter	Recommended Value
Annual Borrow Interest Rate Base	0.015
Annual Borrow Interest Rate Slope Low	0.0333
Borrow Kink	0.9
Annual Borrow Interest Rate Slope High	4.0
Annual Supply Interest Rate Base	0
Annual Supply Interest Rate Slope Low	0.039
Supply Kink	0.9
Annual Supply Interest Rate Slope High	3.6

Utilization vs APRs & Reserve Factor

At 90% kink, the Borrow APR is 4.5% and Supply APR is 3.51%, the comet will have positive reserve growth when the utilization is >72%

Incentive Parameters

Our COMP rewards recommendations are designed to offer appealing distribution APRs when the comets are first launched and when supply caps are highly utilized.

Gauntlet is recommending supply rewards to incentivize a more significant inflow of supply tokens into the protocol. This is important in the early stages of protocol growth before borrowers can join. Daily COMP rewards are subject to change as TVL rises and the markets evolve.

Daily COMP Supply Rewards	Daily COMP Borrow Rewards
4	4

With the above utilization and the present Interest Rate curve:

• Supply APR: 3.51%
• Borrow APR: 4.5%

Given the current COMP price of $45 at 90% utilization:

• Supply Distribution APR: 0.65%
• Borrow Distribution APR: 0.72%

This results in the following Net APRs:

• Net Supply APR: 4.16%
• Net Borrow APR: 3.77%