Potential Design of Staked COMP

[bryancolligan]

Purpose

This post intends to engage the community and discuss a potential design for stakedCOMP (stCOMP) token. This post is part of a larger process to drive economic utility to the COMP token in efforts to increase participation in Compound protocol through incentives.

First, stakedCOMP will add economic utility to the COMP token in the form of a fee distribution. Additional goals of the proposed token design are to balance and weigh multiple variables simultaneously. Some of those variables include yield, treasury, market reserves, token health, time preferences, sustainability and brand.

Image 1. Competing Variables

Designed well, Staked Compound should create a healthy inflow of capital in search of yield. Previous DeFi protocols have transitioned their protocol tokens into yield bearing assets with positive response from their communities. Historic examples like Acendex, Sushi, etc … That capital inflow should help the token’s health. A healthy token combined with Compound’s capital efficiency will help keep fees and interest-rate-curve-spreads low. Low fees push a unique advantage to compete sustainably long-term as DeFi’s top lending protocol.

Why do we need a new token?

The positive characteristics of a well designed Staked COMP should include but not be limited to: continued governance, claimable fees, embedded yield and time preferences for locking COMP token. These should slow down COMP token sales, increase token optionality, and provide more attention and integrations with the Compound ecosystem. These activities should create financial alignment that incentivizes holders to engage in governance - one of Compound’s current major issues.

Considerations to discuss are the fact that a new token will increase maintenance costs. These costs include Security, Risk analysis, DeFi operations and Marketing. Each of these activities aims to grow the tokens’ footprint and drive sustained growth.

Token Optionality and Demand Drivers

Growth is driven by Demand. By increasing token optionality demand should increase. We should also maintain the current functionality of the COMP token while increasing the use cases for new stakedCOMP.

Governance

StakedCOMP needs to retain the current governance functions. A user should be able to delegate and vote on how the Compound DAO functions while earning staking yields.

Fee distribution

One of the biggest drivers for stakedCOMP and DeFi is the potential to earn fees. The community has committed to distribute 30% of market reserves back to stakedCOMP holders each year. As of august 4th, 2024, the current market reserve holdings are as follows:

Compound v3 market reserves: $13,081,198.39

Compound v2 market reserves: $57,451,433.24

Compound Staked Product Analysis - Google Sheets (Dune coming)

We suggest using the following calculation each month to determine how much of Compound’s reserves will be distributed to stakedCOMP token holders. This equation will help create a smooth linear change in staking yield distributions as the reserves rise or fall, creating a less noticeable change in distribution than if the distribution rate was updated on an annual basis.

Equation 1. Fee Distribution Equation

Monthly fees distributed across stakedCOMP holders = Current Reserves x 30% / 12 months

Assuming no new reserves generated, the proposed Fee Distribution Equation would distribute v2 asset reserves in the following schedule (tokens are priced at today’s rates).

Table 1. V2 Reserve Distribution

And V3 reserves would be distributed in the following schedule.

Table 2. V3 Reserve Distribution

One caveat in the Fee Distribution Equation is that it only distributes 30% of the market reserves above the target reserve amount. Target reserve amounts are set by Gauntlet, they are the amount of funds required to de-risk a market experiencing bad debt during a liquidation event.

The fee distribution equation will need to pull the “target reserve amounts” from the contracts where Gauntlet sets them on-chain.

Tables 1,2 and 3 in spreadsheet form for further analysis.

Compound Staked Product Analysis

Yield Generation

Table 3 shows the combined monthly reward distributions from V2 and V3 markets modeled by Equation 1. The projected Yield assumes 10% of the circulating supply of COMP is staked at COMPs current market value.

Table 3. Total Reserve Distribution

The yield rates for the first 12 months will vary with the amount of circulating COMP staked. The following table shows how staking APRs may change as a larger amount of COMP is taken out of circulation.

Table 4. Percentage of COMP Staked vs. Yield Rates

Compound Staked Product Analysis

This does not include future fees generation which will be included in the distribution to staked COMP holders. For example, in the last 12 months Compound v3 generated $9,684,990 in reserves. Future fee generation is difficult to predict and projecting future yields will not be part of this post. We would welcome a community member to speculate and provide the community with additional data supporting possible scenarios.

https://dune.com/queries/3962738/6668145?category=canonical&namespace=ethereum

After a period of 12 months we recommend that our risk analysts give a recommendation on what percentage of reserves to distribute as staked COMP yields in pursuit of making the most sustainable ecosystem possible.

Staking & Redemption Functions

Claim mechanism

The claim function similar to COMP rewards will allow users to claim their stream of the fee distribution. Currently the fee reserves have accumulated over 20 different tokens. Having a product distribute a diverse set of tokens should be attractive for a variety of users.

Token Locks

To smooth out and drive predictable returns, we suggest a 28 day staking and unstaking mechanism. To provide full transparency, we will have a public dashboard of pending unlocks. Analyzing unlocks will enable the community to better understand how to manage protocol liquidity. While we recommend a 28 day unlock, we also recommend reviewing other mechanisms such as voter escrow and time frames 4 year lock up mechanisms to potentially create longer term alignments.

We also recommend 2 ways to instantly unlock staked COMP: Atomic liquidations and Liquidity pools. These mechanisms have the potential to generate additional fees for the treasury.

Redemptions & Atomic Redemptions

The redemption function should allow a user to redeem their stakedCOMP for COMP. The user should continue receiving fee distributions until the unlocking period is over.

In a scenario where a user is unwilling to wait the unstaking period, we recommend the ability to instantly liquidate stakedCOMP with a 5% liquidation fee. This way there is always a path for redemption and Compound Protocol can then hold the stakedCOMP and wait for it to unstake. Instant liquidations will come from the Compound DAO treasury which can then use the staking proceeds to buy back COMP.

Delegation & Voting Incentives

To align financial incentives between inactive token holders and delegates who intend to vote on a regular basis in DAO governance. Delegates should be able to set a commission rate to receive a percentage of the staking rewards earned on the stakedCOMP they are delegated. By choosing their commission rate a market equilibrium will approach the true “cost” of having a delegate participate in your best interest as a token holder in DAO governance.

Delegates should only be able to claim the commission rate they set on their constituents if they meet a minimum voting threshold. We recommend the minimum voting participation should be set at 80%. Another potential way to ensure delegate participation is to only allow them to claim their commission for the periods preceding the votes in which they participate. For example if there’s a vote every Monday, if you skip a week of voting, you can only claim 75% of your commission in a 4 week period.

The commission they can claim should be the proportion of the votes they use vs the total they are delegated. This mechanism will prevent delegates from voting on decisions with irrelevant amounts of votes.

This delegation mechanism is inspired by how NEAR Protocol and Cosmos run their validators.

Wrapped Staked COMP Flywheel.

We also recommend building a version of the token which continually claims, buys back and stakes COMP token. While not a burn mechanism, the buybacks should drive continued transactions to the on-chain volume of the COMP token. Similarly to other wrapped staked tokens that have created a buy back mechanism from the embedded yield, the token price should increase steadily over time. This should create a deflationary effect for the COMP token.

Other components needed to optimize this mechanism design are liquidity pools, a cross chain messaging partner and rebalancing partner.

Liquidity Pools

We recommend the DAO maintain liquidity pools to generate fees for the DAO. This way smaller positions can easily swap in and out of stakedCOMP and COMP positions instantly. Other pools the DAO should manage and earn fees on are COMP paired with the collateral assets on Compound in which reserve fees are generated. Currently reserves are generated from 20 different tokens. Purchasing COMP directly from Protocol Owned Liquidity makes the flywheel more efficient.

We are looking for liquidity pool construction recommendations from the community; including pool size, DEX, etc …

Chain Selection

As new ecosystems emerge we recommend Compound Protocol to entertain partnership conversations with the Chains where stakedCOMP will launch natively. If native stakedCOMP is generated on 1 or multiple partner chains, it could drive significant transaction volumes, users, attention, and utility to each chain on which it launches. Each chain partnership should have an agreement that generates fees for Compound DAO.

Cross Chain Messaging

Once the chain where stakedCOMP will be generated has been selected, optimizing wrapped-stakedCOMP will require rebalancing and cross chain bridging. For this, a cross-chain messaging protocol will be required to ensure secure and efficient transfers and seamless experiences. This partnership will generate fees and should have an agreement to bring fees back to the DAO.

Future Fee generation techniques

There are many potential mechanisms to drive additional fees to staked COMP. We recommend more research into each of the following topics:

1. Internalize Liquidations
2. Increase Collateral Factors
3. Increase Liquidation Factors
4. Increase Liquidation Penalties
5. Increase target reserves
6. Auction Liquidations to searchers
7. Adopt 2-way (borrow/supply) comets to increase utilization of assets
8. Create new v2 alt market, starting on ETH (Segmented with different risk profiles based on volume/mkt cap)
9. Enforce higher utilization of dormant asset thru taxes and rebates

Conclusion

We at AlphaGrowth are excited to push this agenda to the community and drive engagement on this novel concept. The following is a suggested timeline and next steps to drive the product forward.

Step 1 This forum post on a potential design

Step 2 Gather community feedback and finalize scope

Step 3 Generate requirements

Step 4 Vendor selection process. Build or buy?

Step 5 Set dates and drive a go-to-market strategy and launch.

Looking forward to everyone’s feedback. This is obviously not financial advice in any way and just an idea.

[cmrn]

Serious effort here, nice! @bryancolligan

Taking time to consider the detail is smart and who’ll develop it is a great question.

VaultCraft has expressed interest, which is great. Aera maybe is interested as well. Hearing individual proposals for the implementation would be really incredible. Chainlink seems to be a fitting partner for messaging as they have established history with Compound,.

Excited to hear everyone’s input.

Staked COMP Ticker?

• sCOMP
• stCOMP

[misher]

@bryancolligan

Wrapped Staked COMP Flywheel.

Tax-wise this allows people to apply capital gains which is useful. I don’t think we need liquidity pools for staked comp or wstaked comp though? The whole point of the wait time is to keep people from quickly unstaking or doing flash MEV with staking and claiming the rewards. This helps keep COMP price stable which is one of the benefits of staking. If anything, I’d only want stakers to be able to vote as that helps protect against flash loan votes.

PS: stCOMP sounds too much like a Lido product.

[citizen42]

This is super cool for COMP, I’ve been following compound for a long time and even considering now with everything that happened to join delegate race, I would like to propose to community maybe as names for staked token as “iCOMP” , “vCOMP” or “yCOMP” …. even stCOMP sound better the “scomp” … great path ahead nonetheless, very excited

[misher]

iCOMP or xCOMP sound good to me. Or even COMPx

[VaultCraft]

We will be submitting our proposal for stCOMP infra shortly

[dennison]

Very cool, thank you @bryancolligan !

I wanted to make some suggestions based on our research in designing a generic staking and liquid staking system.

Locking Mechanisms and Duration Mismatches

The introduction of locking periods, presents significant risks that could undermine the stability and integrity of the COMP ecosystem. The withdrawal delay inherent in such systems creates a potential for duration mismatches, which could lead to a dangerous depegging between liquid staked COMP and COMP itself. This vulnerability not only serves as a potential attack vector but also erodes confidence in the token’s stability.

Long-term Lockups

While long lockup periods are often implemented to foster alignment and commitment, they inadvertently introduce market inefficiencies and perverse incentives. Early adopters of lockups bear a disproportionate opportunity cost, as COMP is likely to trade at a premium due to the perceived staking opportunities. As lockups constrict supply, a counterintuitive incentive emerges to abstain from locking tokens in order to capitalize on appreciating prices.

Furthermore, the introduction of a liquid version of staked COMP effectively nullifies the intended long-term alignment, potentially triggering unintended consequences reminiscent of the Curve Wars, where third-party actors may be incentivized to create additional tokens representing locked COMP positions. Such an outcome would likely be detrimental to COMP’s organic growth and ecosystem health.

Reward tokens

While COMP fee reserves have accumulated over 20 different tokens, rewarding users with tokens, including native COMP can introduce some unpleasant securities laws issues. Today COMP is a pure governance token, and staking will effectively reward operators for their own work in the operation and maintenance of the Compound DAO. Compensating operators for their work in COMP though effectively prices COMP as a financial instrument. This is dangerous for the DAO to do as it strongly undermines COMP pure governance utility. It should be noted there is an ongoing lawsuit on this issue and the DAO should be very careful to be a compliant organization.

This is less of an issue if we’re returning stables, but it might be inconvenient to require users to get their rewards across the entire treasury, and giving users a choice would create weird dynamics between the valuation of reward tokens (and open another attack vector). It probably would be better to do a perpetual dutch auction of the tokens (like Unistaker DAOs) and return all rewards in ETH (or I suppose a single stable). It’s also kind of inconvenient if users receive lots of different reward tokens.

Liquid Staked COMP
Additionally, to mitigate regulatory risks (serious risks: there be dragons here), the DAO should exercise extreme caution in developing its own liquid staked COMP solution. (In our opinion: the DAO shouldn’t develop its own but let the free market construct one or more and users choose independently).

In the interest of full transparency, I’d like to highlight our work at Tally.xyz on a Liquid Stake Token protocol. This initiative aims to address the myriad challenges faced by DAOs in implementing staking mechanisms. By offering a neutral, DAO-owned software solution, we believe we can provide a framework that is not only compatible with various COMP staking implementations but also aligns perfectly with the DAO’s interests and governance structure.

Super excited to follow along with this!

[TokenDynamics]

Token Dynamics proposal evaluation

Token Dynamics has been asked to evaluate this proposal.

We believe that the proposed changes can achieve stated goals - namely, increased participation in voting and voter alignment, with some modifications.

stCOMP mechanics

We recommend stCOMP be a non-tradable rewards token whose compensation is pro rata to its share of stCOMP supply * the staked delegate’s voting attendance.

On staking, COMP holders would choose a delegate - any address, including their own.

Voting

Delegates should be able to set a commission rate to receive a percentage of the staking rewards earned on the stakedCOMP they are delegated.

This mechanism aligns voters with delegates and increases voter engagement.

Minimum commission rate

Delegates may have incentives outside of the protocol which are not known to COMP holders (e.g. large holdings of competitors’ tokens, short positions on COMP).

We recommend a minimum commission rate, (say, 4%) in order to prevent bad actors from cheaply gaining influence by setting the lowest rate.

Anti-spam mechanism

If rewards are conditional on voting, and voters are rewarded from a fixed pool, adversarial conditions arise where it may be profitable to spam proposals on which other delegates will not vote, thus increasing the proposer’s own share of stCOMP rewards.

We recommend implementing a small bounty for proposals, returned to the proposer on its passing, in order to prevent such an attack.

Slashing conditions

The ability of a majority to slash stCOMP of minority voters as a disincentive against malicious proposals should also be considered.

Slashing conditions could also be used to enforce anti-spam.

Fee distribution

The community has committed to distribute 30% of market reserves back to stakedCOMP holders each year.

A fee distribution to stCOMP holders who vote will increase voter engagement but not necessarily COMP price.

COMP will be repriced as the market finds equilibrium with stCOMP’s APY.

The % of reserves distributed will also implicitly set growth expectations for Compound’s revenues.

According to AG’s model, COMP is fairly priced at $40 to receive a ~15% APY with 30% of market reserves paid out to 3 million COMP stakers.

These figures change with assumptions. Our analysis shows that just under ~6.2 million COMP sits in wallets active in the last year, excluding the Comptroller address, which should not stake its COMP in the new model. If all of these holders stake, APY will sit around 7.25% for a $40 COMP token.

Factors affecting the future price of COMP include % of market reserves to be distributed, growth expectations, available comparable risk-adjusted returns, and % of COMP staked.

All else equal, we expect holders of COMP to be compensated for changes in COMP price through the distribution of excess market reserves. Only sharp drops in COMP price in deeply liquid markets pose economic security concerns - discussed later.

Claim mechanism

The claim function similar to COMP rewards will allow users to claim their stream of the fee distribution. Currently the fee reserves have accumulated over 20 different tokens. Having a product distribute a diverse set of tokens should be attractive for a variety of users.

The distribution will be very small for the majority of holders, less than breaking even on gas fees for transfers of assets which are essentially dust for smaller holders (e.g. cwBTC, cDAI).

The treasury might consolidate assets ahead of distribution. More radically, *fair distribution mechanisms such as lottery-based treasury distributions could be explored.

A lottery mechanism would likely reduce sell pressure from smaller holders and might also generate increased demand.

Token locking

Regarding @dennison 's response to the original post:

The introduction of locking periods, presents significant risks that could undermine the stability and integrity of the COMP ecosystem.

While we don’t see perverse incentives here, we also don’t see the benefit of locking tokens for a long time.

stCOMP, as a non-tradable token, should be quickly and directly exitable for COMP once votes for which it is delegated conclude. Users could enter a virtual “exit queue” to unstake their tokens, but their tokens would be locked for the duration of votes.

stCOMP flywheel

We also recommend building a version of the token which continually claims, buys back and stakes COMP token. While not a burn mechanism, the buybacks should drive continued transactions to the on-chain volume of the COMP token.

We see nothing wrong with this mechanism but recommend focus be placed elsewhere, as the resources required and risks (e.g. smart contract risk) incurred may not outweigh the benefits of such a mechanism.

Protocol-owned liquidity

Other pools the DAO should manage and earn fees on are COMP paired with the collateral assets on Compound in which reserve fees are generated.

Protocol-owned liquidity (POL) using market reserves may generate fees, but it should be carefully managed to avoid impermanent loss and increased risk of governance attacks.

Increased risk of a governance attack comes from the increased accessibility of COMP tokens.

Any LP strategy of COMP should take this into consideration. Properly-managed LPing of other assets seems beneficial.

Further economic security considerations

Compound’s economic security is mostly a function of liquidity depth of COMP, and of the value of treasury assets.

These proposed changes still leave Compound vulnerable to profitable governance attacks, particularly while user-facing contracts remain upgradable.

Summary

We recommend the following:

• A non-tradable stCOMP token
• Rewards pro rata to stCOMP holders, accounting for delegates’ voting attendance
• A minimum commission rate
• A small proposal bounty (not strictly necessary) OR
• Slashing conditions for stCOMP delegates
• A lottery mechanism for distribution of COMP
• Minimal token locking
• A careful POL strategy

In addition, Compound must upgrade its economic security to avoid future attacks, using measures to be discussed elsewhere.

[Dopenomics]

Love the mockup, as well as feedback from @TokenDynamics!

Gonna be a bit of a contrarian though and suggest not making stCOMP a thing, and rather redesigning how staking/governance functions for the DAO.

Making a liquid staked token (“LST”) can add TVL numbers, but it’s leveraged and inefficient. Depegging will be a constant risk. Using these tokens as collateral in DeFi products then has added risk. Most of the benefits of a fee-earning token work with typical staking without the LST.

My primary recommendation is to stick with just staking, but update staking to using general purpose reward multipliers so as to approach consumer specific pricing (“CSP”). This would mean higher APRs for locking up tokens for longer, higher APRs for using Compound’s various products, higher APRs for any go-to-market activation Compound chooses to set. With fixed rates going to the staking rewards, multipliers make the distribution more of a PVP game, giving more rewards to more active and aligned participants, as opposed to set-it and forget-it capital.

Raised revenue from added usage helps continue to fuel staking rewards. A sizable portion of rewards should go to protocol owned liquidity (“POL”), specifically as v3 liquidity, single sided and out of range, adding price support to COMP downsides. If orders get filled (price decreases until out of range on the other side) then funds should be added to stakers, raising their APR and making the token more attractive. If the COMP price rises, going further out of range, the essentially buy orders should be raised, but to a lesser degree than the price, continually providing support until filled. This way either price or APR is definitively going up, both things which are marketable and beneficial to token holders.

Launching stCOMP would enable the staked position to be liquid. Unfortunately this nullifies the cool CSP methods I mentioned above, but it does enable rehypothecation and using staked positions as collateral. I agree with Token Dynamics that it’d be preferable if the position weren’t tradeable. If that were the case though, the positions could be backed as NFTs locking the tokens in position without stCOMP and the token still isn’t fully needed…

Arguments for stCOMP often include raised trading fees, but this trading comes primarily from people needing to liquidate the position and increasing the depeg, and nullifying its utility. Dilatory arbitrage, the process of redeeming the native asset for the derivative, such as purchasing not-yet redeemable LSTs, or T-Bills that haven’t matured, is far less efficient than many assume. If the goal is to give LPs additional rewards (staking rewards) and/or governance power, all of this can be done without stCOMP. Rewards earmarked for stakers can be distributed further to LPs, or any other group, if so desired. Governance can be built out so that LPs in a COMP-x pool can have voting power? All of the benefits, minus duplicated TVL, can still exist without launching an LST.

TL;DR, launching stCOMP will be a hassle with oracles and less safe. We could do a bunch of cooler stuff if you don’t.

[misher]

From a legal perspective which is the most “legal”? I know Ripple just won most of it’s case. Sushiswap seems to get away with buying Sushi on the market. I assume depositing COMP into a staking program and getting COMP is likely the simplest/least likely to offend the US government? That or buying and burning COMP from the market.

A large issue I see here is that COMP has low liquidity on eth, just bought 5 figures and had to pay a 2-3% premium, goes to 10%+ for 6 figures. Have to buy on CEX’s to get near market price. An airdrop program might be needed to incentivize liquidity. Though I guess profiting off the low liquidity is basically the same.

[VaultCraft]

Why is VaultCraft uniquely positioned to create stCOMP?

VaultCraft (www.vaultcraft.io) is uniquely positioned to provide infrastructure for stCOMP due to our ability to immediately meet the necessary design requirements using our existing, audited, and battle-tested infrastructure.

What is VaultCraft?

VaultCraft is a DeFi infrastructure for deploying non-custodial, multi-strategy yield products, or Smart Vaults, with option tokens on any EVM chain. Smart Vaults are currently auto-compounding Compound’s money markets on OKX (Compound Bonus Event | Web3 DeFi Campaign | OKX), which recently accumulated $25M in TVL. VaultCraft’s smart contracts have notably been audited by Paladin, C4, and BlockSec, as well by several white hats. You can read more about VaultCraft at the bottom of the post.

stCOMP Utility Requirements

As stated in the the post, stCOMP means to deliver more utility to COMP:

• Continued governance
• Claimable fees
• Embedded yield
• Time preference

VaultCraft’s smart contracts can easily address the above utility requirements, while also offering comprehensive functionality for:

• Claiming
• Token locking
• Redeeming
• Vote-escrow mechanisms
• Delegation & voting incentives

Additionally, VaultCraft is ready to set up a vault for the Wrapped Staked COMP, ensuring a robust and efficient solution for the Compound Finance community.

stCOMP Implementation

Our proposal is to use the same contract that we used for our Fraxlend Smart Vault with minor modifications to facilitlate Compound’s staking program:

https://github.com/Popcorn-Limited/contracts/blob/archive/v1/src/vaults/StakingVault.sol

The smart contract was designed as a flexible staking toolkit designed to

• Claim
• Time lock
• Reward multiple tokens
• Redeem
• Vote-escrow
• Delegate
• Create voting incentives

Claim

The claiming mechanism allows users to claim any number of tokens configured by Governance in a single, gas-efficient way. Rewards can be topped up by anyone at any time to allow for absolute flexibility.

Time Lock

Deposits can be time-locked over a governance specified period or be always redeemable. The contract also supports vote-escrow multipliers based on lock times which will increase/decrease a users claim on rewards based on their staked time. In case Compound is interested in testing a ve-model we could simply redeploy the same contract in a different configuration and direct rewards towards this new version.

Redemption

We would modify the contract to add a configurable redemption period which can be skipped by paying a (configurable) early-exit penalty.

Delegation & voting incentives

To allow delegation of votes and commission rates we will incorporate ideas from the UniStaker (GitHub - uniswapfoundation/UniStaker: Staking infrastructure for fee collection and reward distribution for the Uniswap protocol.) contract developed by the Uniswap foundation. Voting Incentives can be added later via an optional penalty module once the mechanism here is fully specified.

Wrapped Staked COMP implementation

If Compound decides to use the Wrapped Staked COMP Flywheel design, Governance would simply add COMP to the rewards token and pay out COMP instead of the previous rewards tokens. COMP can also be staked for stCOMP.

In this scenario we would suggest building some additional contracts to automate the conversion of reserve tokens for COMP via continuous dutch auction (popularised by Euler). This would allow anyone to:

• Claim reserve tokens
• Sell for COMP (creating buy pressure for COMP)
• Send COMP as rewards directly to the staking contract

With sufficient liquidity in the reserveToken/COMP pools most of these trades would probably be routed through these pools increasing volume while still keeping the process autonomous and decentralized.

Since VaultCraft runs incentive programs on multiple chains we can also assist with the cross-chain messaging aspect of this future design.

Conclusion

In summary, VaultCraft’s audited and battle-tested infrastructure is perfectly suited to support stCOMP. Our extensive experience with DeFi products and Smart Vaults, combined with our proven track record of managing significant TVL on platforms like OKX, positions us uniquely to meet Compound’s needs. Our flexible smart contracts can easily incorporate the required utility functions, including governance, claimable fees, embedded yield, and time preferences. Additionally, our readiness to implement a Wrapped Staked COMP Flywheel and facilitate cross-chain messaging demonstrates our commitment to providing a comprehensive, efficient, and decentralized solution for the Compound Finance community. VaultCraft’s expertise, innovation, and dedication make us the ideal partner to bring stCOMP to life.

VaultCraft (Main TLDR)

VaultCraft’s 4626-based infrastructure allows for automated, multi-strategy DeFi products, or Smart Vaults, that can be boosted with call options, where users pay the protocol in WETH for a 25% discount on the governance token, VCX.

Audits:

• Paladin
• BlockSec
• C4
• 0xruhum

Features

• Non-custodial, permissionless, & automated
• Native money market
• Multi-strategy
• Rebalancing
• veTokenomics - veVCX
• Revenue generating call options - oVCX

Team

Founding team with 25+ years of TradFi, Hedge Fund, and DeFi expertise (Founder previously built IKU, a protocol for tokenizing IP to fund medical research, collaborated with Stanford and Harvard Medical school IKU - Biotech Redefined | IKU - Biotech Redefined)

Traction

• Stats
• $25M TVL ATH
• $4M annualized revenue

Important Links

• OKX Smart Vault integration (Compound Bonus Event | Web3 DeFi Campaign | OKX)
• coingecko (https://www.coingecko.com/en/coins/vaultcraft)
• Website (https://www.vaultcraft.io/)
• X (x.com)

[TokenDynamics]

Thanks for the support @Dopenomics

We strongly agree that stCOMP should not be an LST, but rather a non-tradable IOU, for the same reasons you’ve mentioned.

We glossed over it in our initial post in the first section, but it’s important to underscore.

An LST would present a host of other issues, including the economic concerns you’ve cited.

[bendi]

Hey @bryancolligan, thanks for this. It’s clear this took a lot of work to put together, and it is very comprehensive. Here are few thoughts and points of feedback.

First, there’s a lot here. That’s a good thing, in the sense that it’s an ambitious proposal. When implemented, it will do a lot of great things for the DAO. The flip side of that coin is that implementing a system that did everything described here would take an enormous amount of work and time, and there isn’t an off the shelf solution that will provide everything desired.

My strong recommendation would be to anchor on what is the most important part of the proposal, launch with something that accomplishes that goal, and iterate from there to achieve the full vision. Small, manageable portions can be tackled by different vendors or grantees over time, with fast feedback cycles. The number one thing to avoid is giving out a large grant to implement everything all at once, and then finding ourselves with nothing to show for it a 6 months or a year from now.

To me, the core goal of the proposal is rewarding COMP stakers who participate in proper governance of the project. I continue to believe that the UniStaker system being rolled out by Uniswap provides the best foundation for achieving this, and that it could be rolled out in relatively short order (on the order of 4-8 weeks).

Of course, everyone should take my opinion with a grain of salt, because my company ScopeLift was contracted by the Uniswap Foundation to develop the UniStaker contracts! But I believe they’d be a great foundation for COMP staking, on top of which a liquid staking token (i.e. “stCOMP”) could be developed. We’re in the process of building an LST on top of UniStaker (going to audit this month) and I’m sure others will as well.

When it comes to multichain work, this is also hard. There are emerging options, one of which is MultiGov. Again, big disclosure here: we’re working with Wormhole to build those contracts, so we’re of course biased. Whether it’s MultiGov or another system, though, multichain work can be tackled independently of staking and the LST. There is no reason to couple these out of the gate.

One of the details there’s been some discussion of is how to distribute rewards when fees are collected in lots of different tokens. I’d suggest checking out the Protocol Fee Payout Race (which is an MEV dutch auction mechanism) we build into UniStaker. This could be adapted for Compound fairly easily and greatly improve the UX and tax implications for users when earning staking rewards.

Another detail is whether staked COMP should be locked or not. I share others skepticism on the value of a locking mechanism. It’s important to remember that in

Overall though, I’m pleased to see a comprehensive proposal, especially the care and thought that when into yield generation modeling. ScopeLift is eager to help the DAO accomplish these goals in any way we can.

[TK1]

Thanks for this proposal. You guys did a great job getting the compound vaults integrated into OKX and ran a good campaign which generated significant TVL.

With your extensive experience in the DeFi world and fully audited smart contracts I’m convinced you’re the right party to provide infra for stCOMP.

[misher]

Given how large the % of the funds are saved versus income coming in and that a majority of them are on eth, perhaps a simpler staking system that just pays out a % of saved funds on eth over the first year can be implemented in the short-term while in the long term a cross-chain system that also integrates income can be put in? Same amount paid out either way but at least the system will be simple at the start (less likely to have bugs) while the complicated system that’s being discussed is fleshed out and audited over a year period?

[defi_95]

VaultCraft presents a credible option for implementing stCOMP, offering technical readiness and a relevant track record.

Key strengths being:
Technical Readiness: VaultCraft’s infrastructure appears to meet stCOMP requirements, potentially enabling faster deployment.

Security: Audits by reputable firms (Paladin, C4, BlockSec) bolster confidence in their smart contracts.

Proven Adoption: $25M TVL on OKX for a relatively new project demonstrates some ability to attract and manage user funds.

Cross-Chain Experience: Expertise with multiple EVM chains could facilitate future expansion.

[crypto_degen]

VaultCraft’s proposal for stCOMP implementation merits serious consideration, given their relevant experience, audited infrastructure, and demonstrated ability to attract TVL.

[dmitriywoofsoftware]

Many of you have concerns about what token to distribute because we have multiple tokens in treasury and not enough liquidate on DEXes to receive COMPs

1. All market reserve assets can be swapped into one asset, for example, ETH.
2. Market reserve assets can be evaluated and exchanged with COMP treasury. Treasury “buys” assets, and “sells” COMP.

[dmitriywoofsoftware]

Also, yielding and voting at the same time seem like incredible power. I would suggest to choose the side. You farm yield, or you participate in voting.

[RedVeil]

All the delegation logic certainly adds quite a bit of overhead but i think especially looking at recent events it makes sense to incentivise participation more via yield. Whatever the exact mechanisms might be.