Simple Summary
Gauntlet proposes pausing supply for the following collateral assets on Compound v2:
- cAAVE
- cCOMP
- cLINK
- cSUSHI
- cUNI
These collateral assets have empirically provided minimal reserves to the protocol, both in terms of users borrowing these assets and borrowing against these assets. They also expose the protocol to outsized tail risks in scenarios of market downturns, cToken/oracle price deviations, and price manipulation attacks, given lower liquidity in these tokens and the absence of supply caps in v2. Additionally, COMP, LINK, and UNI are listed as collateral assets in Ethereum Compound v3 USDC, which includes supply caps.
Analysis
Reserve growth
As seen in the above figure, the cAave and cSUSHI supplies in Compound v2 have largely stagnated this year, indicating minimal additional demand for these assets. The cCOMP, cLINK, and cUNI supplies have reduced, and users now supply these assets in Ethereum Compound v3 USDC.
Compound V2 projected annualized reserve growth from borrows against collateral assets
The above chart illustrates the projected annualized reserves given the current borrow positions against the specified collateral assets. Combined, borrows against cAAVE, cCOMP, cLINK, cSUSHI, and cUNI generate $21,500 in annual reserves for Compound v2, representing approximately 0.78% percent of the total projected annualized reserves.
Additionally, these collateral assets have very low utilizations, indicating minimal borrow demand. As a result, only $32,400 annualized reserves are generated as a result of users borrowing these collateral assets, representing approximately 1.17% of the total projected annualized reserves.
Risks
The risks of offering cAAVE, cCOMP, cLINK, cSUSHI, and cUNI are amplified on Compound v2, as the protocol does not have supply caps. The protocol faces market downturn risk if a large whale joins, and faces price manipulation risk, which could drain the protocol of millions of stablecoins. The recent cSUSHI cToken/oracle price deviation also exposed the protocol to insolvency risk.
Conclusion
cAAVE, cCOMP, cLINK, cSUSHI, and cUNI generate only 0.78% of Compound v2’s projected reserves from users borrowing against these collateral assets, and they generate only 1.17% of Compound v2’s projected reserves from users borrowing these assets. They also expose the protocol to outsized tail risks in scenarios of market downturns, cToken/oracle price deviations, and price manipulation attacks, given lower liquidity in these tokens and the absence of supply caps in v2. Additionally, COMP, LINK, and UNI are collateral assets in Ethereum Compound v3 USDC, which includes a supply cap.
Therefore, Gauntlet recommends pausing supplies for these assets which have empirically provided minimal reserves to the protocol, while significantly reducing tail risk.
Next Steps
- Initiate poll to check the community preference