Deploy Compound V3 on Celo

Proposals
1

Preamble:

Type: Multichain Deployment

Title: Deploy Compound III on Celo

Authors: @Isha from Celo Foundation and @sharp (Compound Growth Program)

Point of Contact: @Isha and @sharp

Overview of Proposal:

This proposal aims to provide general background information on the Celo blockchain and seeks the community’s input on the opportunity to deploy Compound V3 on Celo, a layer 1 blockchain.

Celo is a mobile-first and EVM-compatible blockchain network that’s a layer 1 blockchain and is in the process of transitioning to a L2 on Ethereum. Built for the real world and designed for fast, low-cost payments worldwide. The Celo ecosystem consists of a decentralized, proof-of-stake blockchain technology stack (the Celo Platform), the CELO native token, several Mento stable assets (cUSD, cEUR, cREAL, eXOF) and native USDT and USDC that enable anyone to use digital assets. Launched on Earth Day in 2020, the open-source Celo mainnet supports 1,000+ projects by developers and creators located around the world. For more about Celo, visit https://celo.org/.

The Celo team connected with the Compound Growth Program to understand and receive feedback on the Chain deployment Process. We look forward to getting more feedback from the community to make this deployment a success.

Key Features of Celo:

  1. Fast Transaction Finality: Celo ensures transaction finality in a single block with no risk of reorganizations, ideal for real-time financial transactions.
  2. Low Gas Costs: Transaction fees under $0.01, promoting high-volume, low-value transactions that are competitive with traditional payment networks.
  3. Ultralight Client: Enables a broad range of mobile devices, including low-end models, to sync quickly and seamlessly with the Celo network in a trustless manner.
  4. SocialConnect: Privacy-preserving phone number mapping protocol allows users to send digital assets globally using just a phone number.
  5. Gas Fees in Stablecoins: Unique to Celo, users can pay gas fees in multiple ERC-20 tokens, including native USDT and USDC.

Key Highlights:

  • Native USDT and USDC Launch: Recent launches of native USDT and USDC have boosted liquidity and streamlined transactions within Celo’s ecosystem.
  • Opera MiniPay Wallet Integration: Opera has integrated the MiniPay Stablecoin Wallet, which utilizes the Celo blockchain, within their browser. This browser is accessed by over 100 million monthly active users, primarily in Africa, providing a robust channel for seamless and secure mobile payments across the continent.
  • Diverse Ecosystem of Stablecoins: Celo has positioned itself as a major player in the stablecoin market, particularly focusing on emerging markets where stable digital assets are crucial for economic stability and growth. Mento protocol, supports various regional stablecoins such as cEUR, cREAL, and eXOF, all backed by the Mento Reserve, continues to expand its stablecoin offerings with an active proposal to launch the Kenya shilling. This diversity extends the utility and reach of Celo’s ecosystem and elevates its role as a comprehensive platform for stable digital transactions.

Achievements and Future Directions:

  • Top 10 DAU Chain: Over the last 12 months, Celo’s daily active users have grown exponentially, averaging over 350,000 DAUs in recent weeks, placing Celo among the top 10 blockchains in terms of daily active users (Source: Token Terminal).
  • Celo Migration to Ethereum L2: cLabs is proposing a transition for Celo to an Ethereum Layer 2, utilizing the Optimism (OP) Stack. This migration is designed to enhance interoperability, scalability, and payment processing capabilities, aligning closely with Ethereum’s thriving ecosystem and advancing technological developments to boost the efficiency and global reach of digital payments.
  • Top 5 Chains for RWAs: With the focus on real world use cases Celo has steadily emerged as the chain of choice for RWA projects including Centrifuge, Huma Finance, Jia, Untangled Finance, Zoth etc.

Links

Motivation:

Celo’s partnership with Compound leverages our robust ecosystem, highlighted by successful Curve and Uniswap v3 deployments. This step promises to enhance our capital-efficient DeFi offerings, spotlighting Celo’s innovation in integrating real-world assets.

Deploying Compound on Celo presents potential benefits for both Compound and Celo ecosystems. The Celo ecosystem offers a unique value proposition featuring real-world usage and ReFi. As Compound will be given a prominent role on Celo, this deployment offers differentiated expansion and revenue opportunities including:

  1. A deployment on Celo expands Compound’s utility and user base to a unique population of Celo’s mobile-first community which has grown significantly 2 over the past few months led by key launches that have brought in returning real-world users in emerging markets.
  2. Compound will be heavily utilized for real-world DeFi and ReFi use cases, particularly in emerging markets given Celo’s growing presence in these regions led by protocols like GoodDollar, Impact Market and the Opera Minipay wallet.
  3. The Mento protocol on Celo proposed returning 120M CELO to the Celo Community Fund, which the Celo community has expressed interest in placing in Compound to boost on-chain liquidity for CELO (pending a governance process). More details here 3.
  4. In the long-term, this Celo x Compound deployment has the potential opportunity to expand into RWA tokens, natural capital-backed assets such as tokenized carbon credit and other ReFi assets (conditional upon rigorous liquidity and credit assessments by Chaos Labs and others) etc

Grant Application:

We have not applied to the CGP. But the team is considering the option to seek support from CGP.

Non-Technical Evaluation

TVL on the Chain: $190M

Daily Transactions: 576K

Active Addresses: 375K

Proposed Markets

  • CELO
  • USDC
  • USDT

Collaterals

  • cUSD
  • cEUR
  • WETH
  • WBTC

Security Considerations

Some of the risks that should be taken into consideration:

  • Celo is an EVM-compatible L1, the chain consensus is Proof of Stake with validators taking delegation.
  • There is no multisignature contract that can change the network. On-chain governance proposals and hard-forks are the only ways to make changes to the network.
  • The smart contract was audited by OpenZeppelin and a security audit was conducted by Trailofbits. There is also a formal verification of Celo governance protocols by Certora.
  • The specific timeline for L2 migration and possible security considerations of the chain after it are still to be defined.

Copyright Waiver

Copyright and related rights waived via CC0 2

3 Likes
2

Franklin DAO has managed to grow a strong relationship with Celo via our governance initiatives. The team certainly seems prepared to deliver on their commitments and we are here to support! We believe that the emerging markets supported by Celo as well as their mobile first initiatives are an important next step to growing DeFi. They’ve had success with deployments from other incumbents and at the moment, compound could be the first mover to deploy and capture this market.

2 Likes
3

Gauntlet’s Celo Recommendations

Simple Summary

Gauntlet advises against deploying to Celo unless approved by the community via voting. The current liquidity on CELO is insufficient to support the creation of a capital-efficient Comet. If the community supports the deployment, we propose the following initial parameter recommendations for USDC Comet on Celo.

USDC Comet

Asset Collateral Factor Liquidation Factor Liquidation Penalty Supply Cap
CELO 50% 55% 25% 165k ($100k)
cUSD 60% 65% 25% 4M ($4M)

Supporting Data

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Celo has coalesced a TVL of $109M as of writing, with this value trending downards comparable to market-wide drawdowns since peaks in March. Given the above, the daily DEX liquidity has also been following similar pattern as seen in the visualization below.

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The current on-chain liquidity showcases high slippage for USDC pairs.

CELO and cUSD Supply Caps, LP and LF Recommendations

CELO Log Returns

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It is to be noted that Celo’s maximum 1-day drawdown is -31.3% with the 30D Log Volatility at 45%. Based on the above 30D Log Vol and considering a Liquidation Penalty of 25%, we arrive at an LF of 30%. However, we recommend setting the LF based on maximum 1-day drawdown of Celo to enhance capital efficiency and recommend LF to 55% and CF to 50%. To maintain the supply cap < LP, Gauntlet recommends setting the supply cap that would cause 20% slippage against USDC, implying a cap of 165k CELO.

cUSD Log Returns

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61% of Mento stables are backed by Celo. cUSD forms ~57% of all USD-stable liquidity on Celo discounting Mento reserves. The below illustrates the current cUSD Reserve Ratio vs cUSD Reserve Ratio with maximum 1-day drawdown for CELO vs cUSD Reserve Ratio where all assets experiencing their maximum 1-day drawdown since 2021:

Current cUSD Reserve Ratio cUSD Ratio Reserve with max 1-day Celo Drawdown cUSD Ratio Reserve with all collateralized assets’ max 1-day drawdown since 2021
3.98 2.59 2.12

At the worst case scenario as per maximum 1-day drawdown of collateralized assets since 2021, cUSD is sufficiently collateralized. For cUSD itself the maximum 1D drawdown is -3.5% and Daily Log Vol is 8.3%. Gauntlet recommends more conservative parameter recommendations for cUSD considering the need for deeper DEX liquidity and Volume. We recommend setting LF to 67% (1-(LP+Vol)) and CF to 65% based on an LP of 25%. We recommend setting a supply cap of 4M, based on 0.5x of Curve’s USDC composition of cUSD-USDC pool.

Storefront price factor: 60%

Targetted Reserves: 5M

IR Curve Parameters

Same as Base USDbC

R Parameter Value
borrow per year interest rate base 0.015
borrow per year interest rate slope low 0.053
borrow kink 0.85
borrow per year interest rate slope high 1.8
supply per year interest rate base 0
supply per year interest rate slope low 0.048
supply kink 0.85
supply per year interest rate slope high 1.6

Next Steps

We welcome community feedback.

2 Likes
4

Thanks to the Gauntlet team for adding insights here. A few remarks, especially since the points on the collateral of cUSD are not represented correctly:

  1. “61% of Mento stables are backed by Celo” - that is not correct. All Mento stables are >=100% collateralized by other stablecoins, e.g. USDt, USDC and DAI. In addition the Mento stablecoins are backed by other assets, e.g. BTC, ETH & CELO. All this is transparently shown and updated in real time on https://reserve.mento.org/.

  2. You mentioned the DEX volume: Mento infrastructure includes an on-chain DEX, that always allows any user to 1:1 swap cUSD with USDt and USDC. Via Mento smart contraction integrations like in https://v2.app.squidrouter.com/, one can for example trade 1M cUSD to USDC or USDt (and another way around) at zero spread with zero slippage. Combined with the 100% backing with these stables, cUSD actually diversifies credit risk over USDt or USDC, therefore the discount based on DEX liquidity should be adjusted.

1 Like