Deploy Compound v3 on Optimism

Proposals
1

Deploy Compound v3 on Optimism

Preamble

Type: Meta Process
Title: Deploy Compound v3 on Optimism
Author: FranklinDAO Governance (prev. Penn Blockchain)

Proposal Introduction

Point of contact: @pennblockchain & @t-op (OP Labs)
Description: We propose the deployment of Compound III onto Optimism for the community.
Grant Application: Yes, approved under Multichain Track (Live on Questbook)

Abstract

FranklinDAO Governance proposes the deployment of Compound V3 on the Optimism Network. We believe that by integrating Compound V3 into the Optimism ecosystem, both platforms can derive mutual benefits from working with each otherā€™s innovative environments. This proposal will outline the Optimism L2 blockchain, its features, and demonstrate why integration with Optimism will be beneficial to the Compound community. We welcome feedback from the community on the proposal, including suggestions on how it can be improved.

About Optimism

Optimism is a L2 blockchain on Ethereum that provides optimistic rollup services for transactions. Optimistic rollups combine multiple transactions that occur on the Optimism L2 blockchain and secures their validity through Ethereumā€™s L1 consensus mechanism. It is able to achieve this seamless integration between L1 and L2 through its implementation of EVM equivalence, allowing for rapid transaction finality and full compatibility with Ethereum development tools. Optimism addresses the primary issue preventing the growth of protocols built on Ethereum by improving transaction throughput while maintaining network security.

Optimism operates with a public goods funding mechanism, which allows for protocols deployed on Optimism to receive funding based on their contribution to the network. A portion of profits generated from operating centralized sequencers are allocated to projects that the Optimism DAO retroactively determines provide value to the Optimism ecosystem. This public goods system creates an economic feedback loop that funds the operations and innovation occurring within the Optimism ecosystem.

The Optimism Foundation has recently announced its OP Stack, a modular blockchain development environment that provides a framework for all protocols that operate within the Optimism network. Sets of open-source modules can be utilized to build new L2 and L3 ā€œop-chainsā€ that can be adjusted for any DeFi use case. Developers that use OP Stack are not restricted to a specific consensus mechanism or security technique and can instead access different modules similar to switching across APIs. OP Stack will essentially operate as a ā€œSuperchainā€ that is capable of supporting a wide variety of different blockchains capable of interchain interaction. The first stage of OP Stack will be launched in Optimismā€™s next network upgrade titled ā€œBedrockā€.

Optimism is currently focused on launching its ā€œBedrockā€ update, which will simplify many aspects of the system to reduce both complexity and costs. Specifically, Optimism developers are focused on reducing code complexity while mtainiting EVM equivalence to keep the seamless integration between Optimism and the Ethereum mainnet. EVM equivalence is also needed to promote continued innovation in Optimismā€™s ecosystem since it allows development on Optimism to occur seamlessly. However, the primary focus of Bedrock is incorporating the foundations of modularity through the early stages of OP Stack. The flexibility of this OP Stack network infrastructure will be critical to the continued growth of the network.

Non-Technical Evaluation

  1. TVL on the Chain: $800M+: Optimism TVL - DefiLlama
  2. Number of protocols on chain: 100+ protocols: Optimism TVL - DefiLlama
  3. Average number of transactions per day: 400,000k+ transactions: Arbitrum Unique Addresses Chart | Arbiscan
  4. Number of unique addresses: 2.8m+ addresses: Arbitrum Unique Addresses Chart | Arbiscan
    Number of unique active users: https://pro.nansen.ai/multichain/arbitrum
    1 day: 80,000
    7 days: 310,000
    30 days: 670,000

Proposal Motivation

Deploying Compound III on Optimism would be immensely beneficial to the community, allowing Compound to become a core pillar of Optimismā€™s rapidly growing presence in the DeFi space. Optimismā€™s technical developments in transaction scalability and security would contribute significantly to the newly launched Compound III and its user base. Integrating with Optimism will also expand the Compound ecosystem to include the high volume of users and protocols that currently operate within the Optimism ecosystem. Partnering with one of the leading Ethereum rollup solutions will allow Compound to establish itself as the flagship leader among competing lending protocols. Below are some critical improvements that Compound deployment on Optimism would bring.

Proposal Rationale

  1. Significant Improvements to Transactions: Optimism rollups are responsible for $1B+ in gas fee savings across all transactions conducted on its chain. Protocol fees for performing transactions on Optimism range between 1% and 10% of the typical Ethereum mainnet. These fee reductions combined with near-instant transaction finality makes Optimism a market leader in rollup technology. Compound would significantly benefit from these improvements in transaction time, allowing for COMP to be traded at higher frequency and cheaper costs. Gaining this advantage in transaction speed and security would contribute significantly to the momentum of Compound IIIā€™s launch.
  2. Early Entrant to OP Stack System: The OP Stack is highly disruptive DeFi technology that is currently in early development stages by the Optimism development team. OP Stack is a set of open-source modules that allow for the simplified development of L2 and L3 blockchains by switching across these modules. Unlike other L2 systems that are limited by their specific technical consensus and validation models, OP Stack provides versatility to any blockchain use-case created on the OP Stack ā€œSuperchainā€. The opportunity to become an early entrant in this networked collective of modular blockchains would cement Compound as a thought leader in the DeFi space.
  3. Participation in Public Goods Mechanism: Optimism incorporates a public goods funding mechanism that helps retroactively fund work done by Optimism community users to improve the network. This economic feedback helps fund the critical network infrastructure and innovation of protocol developers that allows for Optimism to continuously innovate. Compound deployment on Optimism would support the funding of open-source projects on Optimism, creating positive momentary feedback that funds users in both the Compound and Optimism communities.

Incentivised Adoption

This project will qualify under Optimismā€™s realm of incentivized project adoption. Given the scope and magnitude of such a deployment, similar projects in the past have received millions in protocol incentives. Compound will be treated similarly and will be eligible to qualify for these incentives as well to spur adoption in the ecosystem. Pending expected adoption and volume, up to, and if not more, ~$2m of incentives can be allocated in the form of OP and given directly to borrowers and lenders, distributed by OP Labs. This number is subject to change, and will be distributed over multiple years.

Security Considerations

Optimismā€™s optimistic rollups are one the most secure scalability solutions available today as they rely purely on proofs to inherit the security of Ethereum. There is a general L1<>L2 communication bridge which will support arbitrary message passing and secured by optimistic proofs and Ethereum consensus.

Importantly, the OP Labs team will be building out additional safety functionality and monitoring off & on-chain activity. Security is a top priority for Optimism and they have currently worked with many tier-1 auditors in the past, especially in the review process for the bridge code. Audits will be conducted before each major upgrade. Besides audits, the team offers a substantial bug bounty program.

Some risks to consider with Optimism itself:

  • Optimismā€™s sequencer is centralized
  • The next version of the fraud proof system is still under development
  • Further risks an analysis can be found here: Optimism ā€“ L2BEAT

License Exemption

We are requesting an exemption that will allow Optimism to obtain a Compound Business Source License (BSL) to use the Licensed Work, update compound-community-licenses.eth, and deploy it on the Optimism Network, provided that the deployment is subject to Ethereum Layer 1 Compound Protocol governance and control.

Copyright Waiver

Copyright and related rights waived via CC0.

7 Likes
2

Thanks for the proposal @pennblockchain!

We are in full support and think this is a win for both Compound and Optimism. Assuming this vote passes, do you expect to deploy this before or after the Bedrock upgrade?

Do you also plan to post the OP grant nomination on behalf of Compound?

Thanks

3 Likes
3

Thanks for the comments @WintermuteGovernance! Seeing how fast the Optimism team is working to get bedrock deployed and as to not set unreasonable deployment time parameters, we expect this to most likely be deployed after bedrock, subject to developer bandwidth.

Once deployed, yes, we are in contact with the OP Labs team and plan to post the OP grant nomination as we believe it would attract beneficial yields and liquidity for both parties!

5 Likes
4

Hope everything goes well and we support this proposal!

3 Likes
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@pennblockchain Thanks for posting this proposal. I know that Compound Labs has a PR for Optimism and weā€™ve already done some audit work in anticipation.

FYI @Bobbay_StableNode - Iā€™m curious if you think this proposals lines up with your Multichain Deployment Process CIP.

3 Likes
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I reviewed this proposal before it went live and since the Multichain Deployment Process CIP hasnā€™t been officially adopted, it follows a majority of it and I think it is suitable in its current state.

I would add this section to it @pennblockchain

Proposal Introduction

Point of contact(POC):
This will be the POC through which Compound Community will request further information.
Overview of Proposal:
Description of the proposal, including timeline, team, and benefits to Compound
Grant Application:
Did you apply for a Compound Grant? (Approved/ Rejected/ Did not apply)

For transparency, they have been approved for a compound grant which can be seen on Questbook.

3 Likes
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@cylon Thanks for the commments. @Bobbay_StableNode added in the section! Adapted a small bit to make it not redundant, but will be sure to have this in future. Thank you.

2 Likes
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Compound Labs has been doing the work publicly for a deploy on Optimism. I think the process for cross-chain grants should be re-examined, I donā€™t think this makes much sense.

1 Like
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Gauntlet Initial Asset Recommendations - Compound v3 Optimism USDC Comet

Summary

We provide two options to the community below. Option 1 is very conservative for the purpose of testing out Compound V3 mechanics. As such, the conservatism is less so derived from market risk (which is Gauntletā€™s focus) but more so on the smart contract and other technical risks. Option 2 is less conservative and assumes that the community does not need to test Compound V3 mechanics on a new chain.

Option 1: Very Conservative (Test out Mechanics)

WETH WBTC OP
Supply cap 3k ($4.97M) 50 ($1.22M) 700k ($1.70M)
Liquidation Factor 50% 45% 40%
Collateral Factor 45% 40% 35%
Liquidation Bonus 5% 5% 7%

Storefront price factor: 80%

IR Curve: Same as Ethereum and Polygon USDC comets

Option 2: Conservative (Assume mechanics are working, then gradually increase aggressiveness of parameters)

WETH WBTC OP
Supply cap 15k ($24.86M) 90 ($2.20M) 1.5M ($3.64M)
Liquidation Factor 82.5% 75% 50%
Collateral Factor 80% 70% 45%
Liquidation Bonus 5% 5% 7%

Storefront price factor: 80%

IR Curve: Same as Ethereum and Polygon USDC comets

The supply caps are set as a function of on-chain liquidity and can be increased after the initial launch. The proposed LFs for the initial listing are set conservatively while still being capital efficient enough for usability.

By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.

3 Likes
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Hi @Bobbay_StableNode, hope youā€™re doing well.

Wanted to follow up on this thread. It seems pretty important and that it would be helpful to get this done asap. Would you happen to know the progress and what we can do to move it along? Thanks.

13

Hi Jared, would you please provide an update for the deploy on Optimism? Thanks.

14

The Bedrock update is currently scheduled to take place on the 6th of June. Hopefully we can look forward to Compound v3 on Optimism relatively soon after this date.

1 Like
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looking forward to have the OG lender platform on Optimism. I want to put my LSTs to work there.

16

is there something blocking this?

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No, this was deprioritized due to the bedrock upgrade blocker, which was released recently. It might be some time before it reaches the top of the queue. You can follow along with progress in the github repository pull request draft.

1 Like