[Gauntlet] Polygon USDC - Reward Recommendations

Simple Summary

If the community believes that demand for the Polygon USDC market has stagnated, Gauntlet recommends decreasing rewards for the comet to mitigate COMP losses. We will create a poll below to gauge the community’s sentiment.

Option 1 - Decrease Rewards

  • Gauntlet recommends decreasing daily COMP supply rewards from 34.73 (Earn Distribution 4.19%) to 15 (Earn Distribution 1.82%)
  • Gauntlet recommends decreasing daily COMP borrow rewards from 34.73 (Borrow Distribution 4.57%) to 15 (Borrow Distribution 1.98%)

Option 2 - Keep Rewards

Do not change rewards in hopes of incentivizing more protocol growth.

Analysis

As mentioned in our most recent Weekly Polygon USDC Market Update, and as seen in the above charts, demand for the Polygon market has stagnated recently.

Note that utilization of late has been ≥ 70%, indicating there may be borrowing demand given enough USDC supply. However, Earn Distribution is currently 4.12%, which should appeal to suppliers.

The comet has accumulated $9k reserves in the past month while distributing ~$148k COMP rewards. This rewards cut would decrease the COMP rewards to ~$64k.

Next Steps

  • Create a poll to gauge community preferences.
2 Likes

To gauge community sentiment, starting a poll here

  • Option 1: Decrease Rewards
  • Option 2: Keep Rewards
  • Abstain
0 voters
1 Like

The move to introduce Supply rewards worked better than i expected and lead to noticeble increase in both supply and borrow, which was stagnated for a long time before that. That was quite a successful adjustment and i don’t see it very reasonable to adjust it as soom as in 2 month after. So i am leaning more to keep it for now. Cryptomarkets aren’t very volatile lately, so that probably contributes to a growth stagnation a lot. Cutting distributions at that point might save a little bit of tokens, but might jeopardize future growth. As initiatives actually work best at a quiet times, where earnings everywhere drop a lot, rather than when everything is booming. I believe Polygon is perspective market and it’s worthwile to continie with distributions to grow marketshare, which is still very small.

But if we still have to consider cutting distributions, than looking at current utilisations in my opinion it makes a lot more sense, to start from halving Supply rewards while keeping the Borrow intact. Rates will still look attractive on both sides. Protocol actually gets nothing from Suppliers, those rewards can really work as a temporary short-term boost. And good example of it is Arbitrum market, where Supply rewards were prioritised over Borrow rewards and it really suck comparing to Polygon, with just a mere 5M of borrowing in a month, where almost half of it just arrived this week. Protocol wants borrowers, that is where money are coming from. So if we are to learn anything from observing Polygon and Arbitrum deployments, than it would be rather that it should start with generous Borrow rewards and small or even zero Supply distributions. Supply distributions might be increased on introduced on temporary basis in case of lack of Suppliers and high utilizations, but eventually should be lowered or even eventually zerowed. As Suppliers earn enough from market naturally. Of course it is somewhat chicken and egg problem, as you can’t get Borrowers without existing Supply. But there is no reason to attract Supply if there is nobody to take it either. And yet again we can see at Arbitrum deployment as an example. There is a Supply, but why utilisation so low? Naturally because Borrow APR isn’t attractive. It’s good enough for existing Borrower, but it doesn’t really incentivise new ones to come to Compound as similar rates could be achieved at other places. And you don’t really move your loan between protocols for small fluctuation of interest.

3 Likes

Hello, Kila here from the team behind Stabl.fi and Retro.finance.

The recent integration of Stabl.fi’s interest-bearing stablecoin CASHv2 has injected ~800k USDC into Compound v3 (Polygon) since the beginning of August.

This integration has not only spurred an increase in $CASH Total Value Locked (TVL) but has also catalyzed the growth of Retro, a fast growing ve(3,3) dex on Polygon using the CASH yields (in part coming from Compound) as bribes to drive liquidity in the ecosystem. $CASH is one of the main quote token for trading pairs. In light of these developments, it is imperative to advocate for the preservation of Compound’s current incentive setup on Polygon. This argument outlines the critical factors that emphasize the significance of maintaining this setup, emphasizing the benefits for Stabl.fi, Compound, and the wider DeFi ecosystem.

Synergistic Growth:

The collaboration between Compound and Stabl.fi has initiated a symbiotic relationship that is fueling the growth of both platforms. Users deposits into stabl.fi to get interest-bearing CASH, fueling deposits into the Compound’s USDC vaults, gaining a surge in liquidity, further solidifying its role as a foundational DeFi platform. Simultaneously, Stabl.fi leverages Compound’s established user base and reputation to enhance the adoption of its own products, fostering a mutually beneficial cycle of growth.

Sticky Liquidity:

The current incentive setup on Compound’s Polygon protocol provides CASH holders with a lucrative opportunity to earn sustainable yields and ensures that there is always USDC on compound v3. The sustainable yield generation through Compound bolsters users’ confidence in the CASH stablecoin, fortifying its position in the broader DeFi landscape. The retention of this incentive structure on Compound’s Polygon protocol propels the development of stable yield and encourages more teams to build on top of compound

3 Likes

Hello , Gim here from the Tetu team . I do not support reducing rewards as most of our community members use our USDC splitter strategy which is a major supplier of USDC in compound market . Reducing rewards affects this and also the projects that have build strategies on top of compound due to this sudden change

3 Likes

Stabl.fi, CASH Will Shape the new era.

Thanks for the community’s feedback. Given that the poll was 50/50, we will move forward with an on-chain proposal that will be the source of truth. We aim to publish the on-chain proposal on Monday, August 14.

1 Like

Be it as it may, it is still feels not well thought-out and rushed proposed change, especially at times when the protocol is in process of adding staked matic to exact same market. Which would no doubt change the input data in some way.

I’d say we would be much better to pospone it and observe for a month or so, to at least avoid being put in situation where multiply changes to market are introduced at the same time and we wouldn’t really be able to tell what cause what.

Given community feedback, we will wait one month and revisit the Polygon USDC comet after the addition of MaticX.

Is it time to revisit this?

Doesn’t seem that Polygon USDC market dynamics have changed much since MaticX was added.

1 Like

Hi @tylerw ,

Here’s an update on the current COMP rewards structure in Polygon v3 USDC:

  • Daily COMP Supply Rewards: 34.73 COMP
  • Daily COMP Borrow Rewards: 34.73 COMP

Assuming maxed-out supply caps and current liquidation factors, the total borrowing power would be $82.29M.

Here’s a breakdown based on our assumptions:

  • Borrow Usage (60%): This leads to a borrowing volume of $49.37M USDC.
  • Utilization (80%): Corresponding to a supply volume of $61.72M USDC.

With the above utilization and the present Interest Rate curve:

  • Supply APR: 2.6%
  • Borrow APR: 4.3%

Given the current COMP price of $46:

  • Supply Distribution APR: 0.9%
  • Borrow Distribution APR: 1.2%

This results in the following Net APRs:

  • Net Supply APR: 3.5%
  • Net Borrow APR: 3.1%

The current projected net APRs are within the reasonable ranges. If the community believes there is still growth to be had in the comet, we do not currently recommend changes to the COMP rewards on Polygon v3 USDC comet.

I agree with Gauntlet view that rewards distributions on polygon usdc are within reasonable range and don’t really need adjusting for now.

I believe that this market actually performing quite well in recent months, and addition of staked matic brought useful contribution to growth of usage.

Personally i would say that further growth is more likely tied to addition of more collateral, of which the most useful to growth would likely be wsteth, rather than any sort of reward manipulations. At least for now. Theoretically slight increase of distributions for supply side might be on a table eventually, but considering that current very attractive total apr for supply of usdc do not attract more supply already, i don’t see the need to advocate for increasing it at the moment. APRs currently might be a bit distorted due to the recent surge of btc, which led to similar price movement in a broad crypto market. Such distorted numbers are bad guidance for adjusting longterm and midterm policies, which reward distributions are.

Lend and borrow have been pretty much stagnant since July. Yield on this market has been consistently >2% higher than Aave v3 USDC on Polygon, and capital still hasn’t migrated here.

It feels like it’s worth experimenting with incentives on this particular market. This market is still small and also mature enough to use as a model for Base and Arbitrum growth, as well as future launches.

COMP incentives as is don’t seem to be showing good ROI.