Initialize Compound III (WETH on Ethereum)

Proposals
11

Gauntlet would like to kickstart the conversation around an important strategic consideration for the wETH market: how would wETH supply be encouraged?

On Compound V2 markets, there is natural demand to supply wETH, given that the wETH can be used as collateral. However, this natural demand as collateral does not exist on the Comet market, as the wETH supplied can not be used as collateral. Of course, wETH supply is a limiting factor to the growth of this market.

In the case of the wETH Comet market, the yield of supplying wETH will be significantly more important to attract wETH supply than it is on the V2 market.

Although Gauntlet does not make strategic recommendations to the DAO, we wanted to kickstart the conversation, as the decisions the DAO makes here may impact our recommendations on the interest rate configuration for wETH.

Several options for the community are:

Option A: Configuring the wETH interest rate curve differently on Comet than on V2.

  • Benefits: the interest rate curve can be configured to provide a higher yield to wETH suppliers on V3 to encourage supply while aiming to prevent excessive utilization.
  • Tradeoffs: there is currently a scarcity of data on the elasticity of users with regard to interest rate curves.

Option B: Pause supplying of ETH on V2 to encourage supply on V3.

  • Benefits: encourages migration to both the Comet USDC and wETH markets.
  • Tradeoffs: there are nuanced risk tradeoffs here. For example, pausing supply of ETH on V2 prohibits borrowers from adding more ETH collateral to their positions in times of market stress.

Option C: Distribute COMP incentives on Comet (for the supply side of wETH)

  • Benefits: encourages supply to wETH market.
  • Tradeoffs: cost to the protocol. In addition, there is currently a scarcity of data on the elasticity of users with regard to interest rate curves. Any future COMP incentive reduction should be made gradually to not shock the market.

We look forward to hearing the community’s input. Of course, the community may choose one or a combination of the above options.

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