Deploy Compound III on Unichain

Preamble:

Type: Multichain Deployment

Title: Deploy Compound III on Unichain

Authors: Ross Gates, Uniswap Foundation

Point of Contact: Erin Koen (@eek637)

Overview

We are requesting the launch of Compound on Unichain, which will go live in the coming weeks. This would be the first early (as close to day 0 as possible) launch of Compound on any chain.

Unichain is an OP-stack optimistic rollup and a member of the Superchain. It will ship as a standard implementation of the stack, but will soon see feature upgrades to enable 250ms block times and the UNI Validation Network. These upgrades will occur outside of the core OP stack, and will be rigorously audited per Uniswap’s exacting standards.

The Uniswap Foundation (UF) is working with Gauntlet on a DEX liquidity incentivization campaign; with that in mind, we anticipate sufficient liquidity to support the $50m+ of Compound utilization that will align this deployment with the requirements defined by their New Chains Team here.

Links

Motivation

We are excited to have a list of premier DeFi protocols that are planning early deployments on Unichain, and believe that we are well on the way to creating an ecosystem where inter-protocol collaboration can be a rising tide that lifts all boats. A battle-tested lending protocol is a key part of the ecosystem we are working to build, and believe there are many opportunities for Compound to explore new use cases and market expansion strategies in concert with both Uniswap v4 and the larger ecosystem. For example, Compound could:

  1. Allow liquidity providers to use their LP tokens as collateral (link to post).
  2. Build delta neutral vaults that combine liquidity provision on Uniswap Protocol with borrowing on Compound to earn LP fees without price exposure.
  3. Build Protocol Owned Liquidity strategies for Unichain-native DeFi protocols
  4. Support money markets for long tail assets on Unichain through Compound Sandbox
  5. Deploy Compound-owned cUSD into stablecoin liquidity positions
  6. Be a home for out of range liquidity deployed on Uniswap v4 using a hook

Et cetera. v4 hooks, in particular, provide fertile ground for experimentation and market expansion. We are excited to see how people and protocols use them to create new products and services for users.

Grant Application

We have not applied for the Grants Program. The Compound Growth Program @alphagrowth has agreed to cover the cost of development via their development partners at WOOF! @woof.

Additionally, the UF has committed to fund two $450k grants for lending protocols to grow their TVL on Unichain. Which protocols receive grants will be decided by a futarchy-based protocol built by another one of its grantees, Butter. The application for this program can be found here. This is an exciting opportunity for the Compound protocol to participate in a first-of-its kind experiment that leverages the wisdom of the crowds to identify the best available option for a given task. In this case, the task will be “increase lending protocol TVL on Unichain” and the available options will be any lending protocol that applies. The market will identify which two protocols it believes to be the most likely to accomplish the task, and the UF will make a grant to each.

Non-Technical Evaluation

Typically chains are evaluated on their TVL and activity. Because this is a Day0 deployment, those statistics are not available. That said, the UF plans to work with Gauntlet to incentivize DEX liquidity to grow Unichain’s TVL and transaction volume. We anticipate that program to start shortly after Unichain’s mainnet launch and are targeting a TVL that puts Unichain in the top 5 L2s by that ranking within six months.

Rationale

The UF is committed to the growth of a large, positive-sum DeFi ecosystem on Unichain. We are building for long-term, sticky growth by providing DeFi builders access to deep liquidity and useful financial primitives provided by battle-hardened protocols. Compound is a key player in the ecosystem we are working to build, and we are looking forward to collaborating on making this deployment a success.

Proposed Markets

Day0 Unichain will support USDC, wETH, and wstETH. Initial markets will be the following.

  • ETH
    • wstETH
  • USDC
    • wstETH

As Unichain onboards additional assets, we would like to extend the Compound deployment by including the following assets in Compound markets over time.

ETH Market

  • weETH
  • ezETH
  • rsETH
  • wstETH
  • rETH
  • COMP
  • UNI

USDC Market

  • WBTC
  • wstETH
  • weETH
  • ezETH
  • ETH
  • USDE
  • sUSDe
  • USDM

Security Considerations

Unichain will be the first Day0 implementation of Compound on a chain. As such, Gauntlet will give directional recommendations for markets, but nothing concrete until the chain is live. Compound’s “Alternative Governance” will be prioritized for Unichain which will enable collateral cap updates in 3 days rather than 8. This will allow fast response times as the ecosystem grows quickly after launch.

Because Unichain is an Optimistic Superchain and Compound is deployed on other chains using the same stack, technical auditing should be quite similar.

Currently Unichain supports Redstone Oracles which have been previously audited and approved by Compound.

Copyright Waiver

Copyright and related rights waived via CC0 2

8 Likes

The Compound Growth Program is supportive of deploying Compound V3 on Unichain. Internally, AlphaGrowth categorizes the chains with an ICE framework

Impact

Unichain is one of the First deployments that we have noticed that will have a Native version of USDC supported from Day 0. Most chains when deploying have a bridged version of USDC, which causes Liquidity fragmentation issues once native USDC comes to the chain (Compound markets on Arbitrum and Polygon face this issue).

The Grants program from Unichain will also help Compound in getting added incentives to boost the User behaviour on Compound Markets on Unichain.

Being developed by the team behind Uniswap, we predict that Unichain will have a well developed DEX environment as it is being developed by the team behind Uniswap. DEX liquidity is a key consideration for adding collaterals and assets on Compound markets. The recent deployment of UniswapV4 cements this point, beyond that all these opportunities are actively being pursued by the Growth Program

Confidence

In our calls with most of the top Dapps, assets and projects in the Defi ecosystem, a common denominator for their roadmap was deploying on Unichain. Deploying early on Unichain will help Compound capture a greater share of Lending space within Unichain from early on.

Most of the Top assets present on Compound markets are moving to Unichain including the top LSTs and LRTs.

Effort

The growth Program has experience in deploying to Optimistic Superchains with our deployment of Compound on Optimism. With Unichain having a similar architecture, we predict lesser Development and audit efforts required for deploying Compound on Unichain. Additionally many structured products who have supported Compound on Optimism will be able to easily deploy on Unichain.

With our familiarity and experience in Growing Compound on other SuperChains, We are confident in Growing Compound on the Unichain.

We look forward to Risk recommendations from the Community and with Community consensus, will move forward to deploying Compound on Unichain.

5 Likes

Acknowledging the request for risk recommendations for Unichain. We will provide the community with initial recommendations soon.

5 Likes

Being delegates for Uniswap and Compound, we’re excited to see this future collaboration and integration happen! Pretty straightforward and it will be exciting to see Compound on Unichain on launch!

4 Likes

ether.fi is supportive of the deployment of Compound onto Unichain and are eager to drive borrow/lend demand across BTC/ETH/Stable markets.

3 Likes

As a delegate on both Uniswap and Compound, we’re very happy to see this proposal and believe it makes plenty of sense based on the reasons outlined in the post. No real objections assuming Gauntlet’s analysis comes back with a green light (can’t see why it wouldn’t).

Can only echo @PGov’s sentiment, will be great to see Compound launch on Unchain!

2 Likes

Hello community. WOOF! is working on the deployment of Compound to Unichain. Here we created a testnet deployment PR to help OpenZeppelin understand the scope of work for audit. This PR reflects exactly the scope and is purely reviewed. The mainnet PR will be realized with the community shortly.

3 Likes

I support this deployment. Unichain will be one of the larger chains coming out this year (from what I know of).

[Gauntlet] - Unichain Recommendations

Simple Summary

If the community wishes to deploy on Unichain, we recommend the following initial parameter recommendations for the Unichain v3 USDC comet below.

Furthermore, we recommend postponing the deployment of the WETH Comet due to the current lack of verified token instances on Unichain. Gauntlet will provide recommendations as soon as contract addresses for LSTs and LRTs are deployed and verified.

Gauntlet will monitor markets to follow-up with further recommendations for supply caps, COMP rewards, new assets and comets.

Risk Parameters

USDC Comet

Asset Collateral Factor Liquidation Factor Liquidation Penalty Supply Cap
UNI 68% 74% 17% 7000 UNI
WETH 83% 90% 5% 50 WETH

Rationale

Supply Caps and Liquidation Penalty

USDC Comet

Reviewing the liquidity pathways from the collateral assets to USDC, Gauntlet recommends aligning the LP to that of WETH, and UNI on the Mainnet USDC comets.

Asset Liquidation Penalty
WETH 5%
UNI 17%

Gauntlet recommends setting the supply caps to the levels suggested below for the following assets on USDC Comet:

Asset Supply Cap
WETH 50
UNI 150K

WETH-USDC DEX Slippage

UNI-USDC DEX Slippage

Collateral Factors (CF) and Liquidation Factors (LF)

USDC Comet

Gauntlet recommends aligning the Collateral Factor and Liquidation Factor to those set on Mainnet USDC comets for both WETH and UNI.

Asset Collateral Factor Liquidation Factor
WETH 83% 90%
UNI 68% 74%

For USDC Comet
Targetted Reserves: 20M USDC
Storefront price factor: 60%
Seed reserves: $50k

IR Curve Parameters

Gauntlet recommends aligning the IR parameters to those comets on Mainnet :

USDC Comet

Recommended Parameter Adjustments

Parameter Recommended Value
Annual Borrow Interest Rate Base 0.015
Annual Borrow Interest Rate Slope Low 0.05
Borrow Kink 0.9
Annual Borrow Interest Rate Slope High 3.4
Annual Supply Interest Rate Base 0
Annual Supply Interest Rate Slope Low 0.054
Supply Kink 0.9
Annual Supply Interest Rate Slope High 3.034

Utilization vs APRs & Reserve Factor

Incentive Parameters

For USDC Comet

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
1 1

With the above utilization and the present Interest Rate curve, for Stablecoin comets:

  • Supply APR: 6%
  • Borrow APR: 4.8%

Given the current COMP price of $50 at 90% utilization:

  • Supply Distribution APR: 22.8%
  • Borrow Distribution APR: 25.34%

This results in the following Net APRs:

  • Net Supply APR: 27.66%
  • Net Borrow APR: -19.34%