Simple Summary
Gauntlet would like to recommend adjustments to COMP rewards for both supply and borrow side across comets mentioned below.
| Comet | Current COMP Supply Rewards | Recommended COMP Supply Rewards | Current COMP Borrow Rewards | Recommended COMP Borrow Rewards |
|---|---|---|---|---|
| Base AERO | 30 | 5 | 30 | 10 |
| Mantle USDe | 4 | 0 | 8 | No change |
| Mainnet USDS | 25 | 12.5 | 5 | No Change |
| Mainnet wstETH | 8 | 6 | 4 | No Change |
| Optimism USDC | 5 | 2.5 | 5 | 4 |
| Base WETH | 6 | 3 | 0 | 3 |
| Base USDC | 13 | No Change | 5 | 7 |
| Base USDS | 15 | 5 | 15 | No Change |
| Arbitrum USDC | 20 | No Change | 10 | 15 |
| Arbitrum USDT | 15 | No Change | 10 | 15 |
Total COMP incentives across all listed Comets
| Supply side | Borrow side | Total | |
|---|---|---|---|
| Current COMP/day | 141 COMP | 92 COMP | 233 COMP |
| Recommended COMP/day | 82 COMP | 86 COMP | 168 COMP |
The above recommendations would reduce COMP emissions from 233 COMP/day to 168 COMP/day translating to ~$2800/day or $1.02M/yr in savings based on current COMP prices.
Rationale
Previous adjustments to the interest rate (IR) curves have significantly mitigated under-utilization. However, utilization for certain comets continues to deviate below from the kink. To address this and prevent negative reserve growth, Gauntlet recommends using an additional lever via COMP rewards.
Base AERO
Base AERO Utilization
Following the recent IR curve update, utilization on Base AERO has exhibited an upward trend. However, it remains structurally below the kink, indicating that borrow demand is insufficient to exhaust the available liquidity even in the presence of elevated COMP incentives. As shown in the utilization chart, the market is still experiencing an inefficient capital allocation where the borrow-side remains underutilized despite a 60 COMP/day incentive.
Base AERO IR
The IR curve above further reveals that borrowers are not reacting to the subsidized rates, likely due to limited productive opportunities for AERO or lower external demand. Concurrently, the supply-side continues to benefit from disproportionately high rewards, which is not justified by current utilization or deposit volatility.
The persistence of low demand in a heavily subsidized environment suggests diminishing marginal returns on COMP rewards. A dual adjustment i.e halving borrow-side emissions and reducing supply-side emissions by one-sixths will optimize reward efficiency and utilization.
Mantle USDe
The Mantle USDe market displays classic signs of supplier inelasticity. The yield convergence trend in the chart below shows that despite rate variations, supply volumes have remained relatively stable, indicating that current depositors are likely yield-insensitive. In such a regime, maintaining COMP emissions on the supply side leads to excess protocol spend without generating commensurate utility.
Zeroing out supply-side emissions is economically rational, as these rewards are not materially influencing user behavior.
Mainnet USDS
On the Mainnet USDS comet, we recommend reducing supply side COMP rewards to 12.5 COMP. The current Net APY has drifted far beyond the market rate, the recommended daily COMP emissions aim to bring this closer to prevailing market rates while still remaining competitive.
Optimism USDC
Although, the utilization has trended upwards, we recommend setting the supply COMP rewards to half of current value.
Given the supplier inelasticity seen from the above visualization, we believe change in Net APY would not adversely affect supply outflows.
Base WETH
The Base WETH comet has persistently exhibited low utilization, suggesting that the current APYs are not attractive enough to stimulate borrowing, and that rewards need to be tuned to actual market behavior.
This inefficiency is likely exacerbated by the relatively high supply rewards, which skew the net APY in favor of depositors without catalyzing corresponding borrow demand. The underuse of the borrow-side incentive (currently 0 COMP/day) also reduces the attractiveness of the market for leverage-seeking strategies. Introducing a borrow-side reward (3 COMP/day) alongside a reduction in supply-side emissions rebalances the incentive structure, helping to boost utilization while controlling excess emissions.
Base USDC
We recommend increasing borrow side COMP rewards on the Base USDC comet to drive up borrowing demand. We do not recommend cutting COMP supply rewards as it would bring the net APYs below peer lending protocols.
Discounting noise in the supplies, the deposits have remained within the 22M-24M range over the last 60 days.
Base USDS
Despite the most recent IR curve recommendations, utilization has remained low. This can be attributed to over-incentivization on the supply side inflating APYs higher than broader market.
Reducing the supply side COMP rewards to a third of current value would still keep rates competitive while reducing costs.
Arbitrum USDC & Arbitrum USDT
USDC Utilization
USDT Utilization
Both the USDC and USDT comets on Arbitrum are showing improving utilization levels. However, borrow demand has room for growth, and the current COMP emissions may not be sufficient to attract new borrowers or sustain long-term utilization at kink. Supply APYs, on the other hand, remain within a band that is competitive yet not over-incentivized. Any downward adjustment risks reducing liquidity without necessarily enhancing utilization. Increasing borrow-side rewards to 15 COMP/day fosters incremental utilization while preserving the integrity of the supply base. No changes are recommended on the supply side at this time.
Next Steps
- Gather community feedback
- Post on-chain proposal