[Gauntlet] Ethereum v3 USDC Reward Recommendations (12/6/23)

Simple Summary

Gauntlet recommends the following Ethereum v3 USDC reward update:

  • Decrease Ethereum v3 USDC Daily COMP Borrow Rewards from 381.40 to 100

Given the current COMP price of $50, this reward reduction would save Compound $5.14M/year in COMP emissions, reducing the total Compound emissions across all markets by 25.5%.


Reducing COMP rewards across comets

Compound distributes 1,105.64 daily COMP rewards, amounting to $20.18M annually, across its entire ecosystem. With 1,940,385 COMP tokens left, this equates to approximately 4.8 years of sustainability at the current distribution rate. To extend this period and reach net profitability, Gauntlet’s strategy is to primarily utilize COMP rewards to initiate a comet’s growth rather than maintain user engagement within the protocol. Excessive dependence on COMP rewards for maintaining TVL can attract users more interested in COMP farming than in the protocol’s core offerings. As many v3 comets have now undergone their initial growth phase, we plan to gradually reduce COMP rewards. This approach is aimed at enhancing long-term net profitability and drawing users who align more closely with the protocol’s intended purpose.

The above table details the distribution of daily COMP rewards among Compound markets. Of these, 257.39 (23.3%) are allocated to Ethereum v3 USDC suppliers and 381.40 (34.5%) to Ethereum v3 USDC borrowers. In total, the Ethereum v3 USDC comet receives 638.79 daily COMP rewards, accounting for 57.8% of the total. With the Ethereum v3 USDC now having $376M USDC supply and a $360M USDC borrows, its TVL is sufficiently large, allowing us to begin reducing COMP rewards.

Reducing Ethereum v3 USDC COMP rewards

On 9/18/23, Gauntlet executed Phase 1 of its v2 deprecation strategy. This initiative revised the Ethereum v3 USDC’s Interest Rate (IR) supply and borrow kinks to 93%, with a corresponding Earn APR of 3.16% and Borrow APR of 4.1%. Over the past month, utilization has consistently been at or above this 93% kink.

Observing a higher borrowing demand compared to supply in the comet under the current IR curve and reward parameters, and aiming to reduce COMP rewards in the Compound ecosystem for cost savings and extending COMP rewards runway, Gauntlet suggests reducing Daily COMP Borrow Rewards from 381.40 to 100.

Assuming the current USDC supply at $376M with 93% utilization (equating to $349.68M in borrows), the table below demonstrates the impact of this change on Net APRs at the kink. The Net Earn APR would remain at 4.41%, while the Net Borrow APR would increase from 2.11% to 3.68%, which is still below the prevailing market risk-free rates.

Scenario Earn Distribution Borrow Distribution Earn APR Borrow APR Net Earn APR Net Borrow APR
Original Values 1.25% 1.99% 3.16% 4.10% 4.41% 2.11%
With Reduced Rewards 1.25% 0.42% 3.16% 4.10% 4.41% 3.68%

Borrowers who exit the protocol due to this change are likely not the target users of the protocol. Their departure would increase USDC liquidity, benefiting the intended borrowers, including the remaining non-recursive v2 USDC borrowers.

Next Steps

  • Target on-chain proposal 12/11/23
1 Like

Nice to see savings improvements flexibility adapting to positive market conditions. Very much a supporter of this.

Hopeful in the future the current COMP emissions framework is funded completely or surplused by protocol ecosystem revenue through either current protocol innovations or ecosystem expansion. Here are few ideas on Compound ecosystem revenue expansion:

  1. Deploy a new revenue generating native stablecoin that harvests its underlying yield of asset backing, returning proceeds to Compound treasury, creating a growth flywheel.

  2. Given USDC’s preferred placement in Compound ecosystem, garner a marketing fee from Circle to share a portion of its USDC backing yield with Compound ecosystem. Similar to how Paxos is paying marketing fees to FRAX and Maker ecosystems.

These solutions could either reduce COMP emissions net burn to zero or become surplus gains, or the funds could be utilized to grow Compound adoption faster.


We posted the on-chain proposal here. Voting will last for 3 days.

The proposal has passed and been executed. We thank the community for their participation.