{Parts of this proposal have been taken from rleshner’s proposal for USDC on Ethereum.}
Background
Compound III is a next-generation collateralized borrowing protocol, designed for security, capital efficiency, low gas costs, and streamlined governance.
Each deployment of Compound III features a single borrowable asset. Borrowers supply collateral, which is isolated and remains their property–it is never rehypothecated or withdrawable by other users (except during liquidation).
By removing every unnecessary feature and use-case, upgrading the risk engine (and capital efficiency), and focusing on a single borrowable asset, the protocol has the potential to be the safest & most appealing tool for borrowers ever designed.
Polygon PoS is a proof of stake chain built on Ethereum. WIth over $1.8 billion in TVL across DeFi protocols, Polygon is the largest DeFi ecosystem across all Ethereum scaling solutions. Alongside Compound, Polygon acknowledges Ethereum as the premier blockchain for decentralization and developer talent, however the gas fees can be prohibitive for many users. With a mission to provide #DeFiForAll, Polygon aims to provide an extremely cheap yet secure DeFi experience for users across the globe, regardless of wealth status. In order to create the best DeFi ecosystem across blockchains, Polygon hopes to see Compound III launch so that users can benefit from a robust lending system in an affordable manner.
Proposal
Initialize Compound III on Polygon with USDC as the borrowable asset. Seed the market with 500k USDC.
At launch, we propose accepting:
- WETH
- WBTC
- MATIC
- USDC
- DAI
- USDT
Protocol Launch
Referencing rLeshner’s proposal, the launch of a new compound III market first begins by raising the supply caps of the collateral assets (each individual). The function called is updateAssetSupplyCap in the Configurator 5. This will be a total of 8 actionsThe supply cap changes are summarized below:
| Asset | WETH | COMP | DAI | USDT | MATIC | WBTC |
|---|---|---|---|---|---|---|
| Supply Cap | 5400 | 40000 | 7500000 | 5000000 | 3000000 | 420 |
The next (9th) action is to deploy and upgrade to the newly configured implementation for the market. The proposal calls the deployAndUpgradeTo function of the ProxyAdmin contract, which is the only contract capable of changing the implementation of the proxy. This wrapper function also takes care of deploying the new implementation from the factory contract 1, using the previously set configuration in the Configurator.
The final (10th) action is a simple ERC20 transfer from the Timelock to the new market, adding 500,000 USDC of reserves.
Reasoning:
As an EVM compatible chain, the deployment of Compound III markets on Polygon will be seamless. Given the contracts have been tested, audited, and deployed to production for the USDC market on Ethereum, there should be little security concern for also deploying on Polygon.
Having USDC as the borrowable asset brings two major benefits, namely in security and utilization. Referencing the IMF’s Global Financial Stability report from April of this year, over 90% of borrowing in DeFi is denominated in stablecoins. Thus, to ensure sufficient utilization of borrowed assets, USDC presents a highly demanded asset. Additionally, having USDC as the borrowable asset enables safer borrowing for users. By accepting volatile assets such as WETH, WBTC, MATIC as collateral, users need only track their collateral value to ensure they avoid liquidation, rather than worrying about the borrowed asset increasing in value while the collateral decreases. While Compound has a robust liquidation mechanism, this brings benefits to users of the platform so that they can practice healthy borrowing.
Seeding the market with 500K USDC at launch will help create a sustainable market from Day 1. Reserves create a liquidity and loss cushion for users, and enable new dynamics introduced by the upgraded interest rate models in Compound III.
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. Would be massive.