Compound Migration Proposal Phase 4 (6/16/23) - Two Options
Simple Summary
For phase 4 of the migration, Gauntlet offers the following two proposals:
-
(Gauntlet Recommendation) Decrease v2 rewards and, increase v2 USDC reserve factor
- Increase v2 USDC Reserve Factor from 7.5% to 15%
- Decrease v2 daily USDC supply COMP rewards from 161.20 to 111.20 (-50)
- Decrease v2 daily USDC borrow COMP rewards from 161.20 to 111.20 (-50)
- Decrease v2 daily DAI supply COMP rewards from 161.20 to 111.20 (-50)
- Decrease v2 daily DAI borrow COMP rewards from 161.20 to 111.20 (-50)
Note that we are not recommending increasing v3 rewards with this option. The resulting decrease in COMP rewards amounts to $5,400/day in savings in COMP distributions (~$2M/year).
-
Same as option 1 (decrease v2 rewards and increase v2 USDC reserve factor) with the addition of increasing v3 rewards by 200 COMP.
Analysis
Phase 1 of the migration was executed on 3/6/23, which moved 120 daily COMP rewards from v2 to v3.
Phase 2 of the migration was executed on 4/5/23, which moved 200 daily COMP rewards from v2 to v3.
Phase 3 of the migration was executed on 5/30/23, which flatlined the v3 borrow APR.
As shown above, the v3 protocol is currently very appealing to borrowers, as the Net Borrow APR is 1.43%, with a max Borrow APR of 4%.
The following large non-recursive v2 stablecoin borrowers have continued to remain in the v2 protocol throughout the three migration proposals, despite less appealing Liquidation Factors and Net Borrow APRs.
Option 1 (Gauntlet Recommendation): Decrease v2 rewards, and increase v2 USDC reserve factor
We recommend no longer increasing v3 USDC rewards, because:
- Increasing Ethereum v3 USDC COMP rewards hasn’t resulted in users migrating so far.
- V3 Net Borrow APR should be appealing enough as it is, especially after the most recent Interest Rate curve proposal.
- We are working towards reducing COMP emissions across Compound markets to increase net profitability, and v3 already offers 481.41 daily COMP rewards.
Instead, we recommend increasing v2 USDC Reserve Factor and decreasing v2 USDC and DAI daily COMP rewards by 200. If the v2 users decide to continue to stay in the v2 protocol despite increased reserve factor and fewer rewards, then Compound will be saving ~$2M/year in COMP rewards as a result of this change, while increasing their v2 reserve growth. If the v2 users decide to look elsewhere, then v3 should be a very appealing option. Decreasing v2 rewards while maintaining TVL should be viewed as a positive.
Option 2: Migrate v2 rewards to v3, and increase v2 USDC reserve factor
If the community wants to continue attempting to highly incentivize users to migrate to v3, then we can allocate the 200 COMP rewards from v2 to v3, as we did in Migration Phase 2.
Next Steps and Timeline
We welcome the community’s feedback and will create a poll below to gauge the community’s preferences. We plan on taking this to on-chain vote on 2023-06-26. and target the proposal going live on 2023-06-28 but this is subject to delay depending on how governance proceeds.
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.