Overview
First thank you to everyone who has engaged in the conversation on a potential design for a staked COMP token. Potential Design of Staked COMP
During the discovery process and countless hours of feedback we have compiled a set of requirements that would seem to solve the needs of the DAO. We would like to encourage the Compound community to engage on this discussion. With positive sentiment and a positive snapshot, we would begin a process to open to proposals based on the following requirements.
The modules with requirements are as follows:
- Governance
- Fee Disbursement (retrieval, calculation and distribution)
- StakedCOMP Vault Management
- Liquid StakedCOMP
- Treasury Management
- External Utilities
- Attack Vectors and Vulnerabilities
Each Module we will provide:
- A need statement detailing why include the module
- An outline of the requirements for the module
- Objectives, Suggestions & Concepts on how to meet those needs
In return for each module we would like a proposal around
- Approach to the solving the module concepts and objectives
- Functions & features needed to meet which requirements
- Personnel needs. Why you?
- Schedule, timeline and deadlines
- Costs and how the module will be funded.
Governance [1]
Need
StakedCOMP needs to retain Compound Protocol’s current governance functions. While also supporting a new delegation layer to white listed delegates. With the current closing of the delegate race Compound Delegate Race Application this module should look to compensate a set of whitelisted delegates in a balanced manner. This module should aim to incentivize active delegates with a commission from stakedCOMP and discourage any voting over a certain weight. These weights should be able to be configured by a governance vote. We aim to create a balanced and compensated pool of delegates.
Outline of Governance Requirements
A user should be able to …
- delegate and vote on how the Compound DAO functions while earning staking yields.
- A user should be to delegate to a whitelisted Board of 8-24 Delegates
- A user should be encouraged and or discouraged to support delegate based increased or decreased apr/commission (Uni staker)
- A user should be able to re-delegate to an honest minority
The protocol should be able to configure…
- Counter measures for Over weighted delegates
- capping votes (fee tax or redistribution)
- voting curves (commission vs quadratic vs bribes by delegates)
- A delegate score based on delegate involvement & engagement (something like Karma Score)
Objectives & Concepts of Requirements (Governance)
We look to balance and weight governance via financial incentives. To align financial incentives between inactive token holders and delegates who intend to vote on a regular basis in DAO governance. When a user delegates to a balanced delegate who performs their duties the user should earn the optimal fees. While we desire delegates to communicate in forums and provide thoughtful responses, we care most about whether delegates vote or not.
A major concern is that when you align governance and financial incentives there is a tendency toward a positive feedback loop that aggregates governance and incentives. We are looking for solutions on how to cap, curve and or discourage voting aggregation.
Fee Disbursement (retrieval and distribution) [2]
Needs
New protocol infrastructure will be needed to programmatically pull compound v2 and v3 reserves to support fee distribution to stakeholders. The current process to retrieve reserves is manual and requires a 8 day governance vote. The DAO is looking for a process to be built to retrieve, calculate and distribute fee reserves. A proposer can refer to the previous post here for more details.
Outline of Fee Requirements
The protocol should be able to configure…
- Retrieval
- A process to retrieve fees from reserves
- A cadence and timing for every fee pull (Monthly Governance vote?)
- A calculation of how much fees to retrieve (30% above target reserves)
- Swap to COMP token and Aggregate
- Potentially a fee auction to swap to COMP
- LP Pool setup, Liquidity Strategy
- Bridging
- Potentially bridge COMP if needed programmatically
- Cross chain Flows if necessary
- Time weighted reward mechanism
- Send to claim contract
- Interfaces with module [3] which calculates how much each staker can claim.
- Disbursement of COMP to claim contract for stakers
- Disbursement of COMP to lockup contract for stakers to claim at a future date (Bond mechanism)
- An interface for programmatic claims
- Governance limiter & Taxes (reduced APR or increased time to claim)
- An adjusted calculation of fee disbursement based on delegated governance
- An adjustment to the fee distribution based on delegate score (something like Karma Score)
- Bond & Time Premium Implementation
- Time weighted reward mechanism
- Bond sales of
- Setup & Governance
- Configs of fee distribution based on Governance
- Configs of Governance limiter & Taxes based on Governance
- Clear implementation and methodology on how to handle past fees and fees forward looking
Objectives, Suggestions & Concepts of Requirements (Fee Disbursement )
Security and elegance should be the driver for Fee Disbursement. Key focus on a stable stream of distributions will drive an expected rate of return that is attractive to passive investors. Bumpy yield is less attractive. Main parameters in terms of timing, amounts to pull, percent to pull, adjustments based on target reserves should all be configurable. While we suggest the above requirements we are open to proposals with alternative suggestions.
StakedCOMP Vault Management [3] (Reward Calculations)
Needs
Once we’ve collected reserves, swapped them for COMP and bridged them to a claim vault, we need to calculate the rewards owed to each staker, and how many rewards they can claim immediately vs at a future date. Whether this calculation should be done once all the rewards are in a single location, or in transit while the rewards are being transferred so the claim contract receives them already knowing what individual has the right to receive them is up for debate. In either case we need a reward allocation mechanism in which the entire pool of staking rewards is split fairly between stakers in accordance with the rules set by the DAO. In the event that Compound gives higher rewards to individuals who lock them for longer periods before claiming, a vault is required to hold those future claims and redirect them back to the claim contract when they become available to claim.
Outline of StakedCOMP Vault Requirements
The protocol should be able to configure…
- Vault calculation and token routing
- Readable implementation of APR based on stCOMP price feed
- Readable implementation of current COMP able to claim
- Redemption function of NAV underlying assets
- An adjustment calculations based on time premiums
- Potentially Time weighted reward mechanism 3 blocks to 4 years
- Potentially Time Locks for reward mechanism 3 blocks to 4 years
- Potentially Bonding and Unbonding for reward mechanism 3 blocks to 4 years
- Public dashboard of pending unlocks and rewards distributed
- Potentially have taxes configured to go back DAO
- Redemptions Atomically back to treasury
Objectives, Suggestions & Concepts of Requirements (Reward Calculation)
The Vaults main purpose is to manage received token and distribute according to amount of staked weighting, time preference and governance controls. Different time premium considerations can be analyzed and suggested. With an understanding that a ~$18MM of token should be distributed over the next 12 months time premiums over 12 months may not make sense. We do want to avoid flash staking as much as possible in the case where a large amount of funds will flow over a smaller period. Being able to communicate flows for implementation is important as well as transparency on how funds and waterfall calculations will flow.
Liquid StakedCOMP [4]
Needs
We are looking for proposal for a version of the liquid staked comp token which continually claims, buys back and stakes COMP token into vault. This LST would need to be built on top of the vaults. 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.
Outline of Liquid StakeComp Requirements
The implementation of Liquid staked comp
- Composable (ERC-20, ERC-4626 or similar)
- Wrapped stakedCOMP with auto-compounding mechanism
- Needs to prevent centralization of power to a single delegated entity.
- Allow for a mechanism for delegation
The protocol should be able to configure…
- Redemptions Atomically or Time Based back to treasury
- Potentially integrate with governance to redelegate to honest minority or highest APR delegation
Objectives, Suggestions & Concepts of Requirements (Reward Calculation)
Historically when a yield strategy in crypto is built without a liquid token of the yield another team implements a liquid staked token. To frontrun yield and governance aggregation as an attack vector, we are looking for a team to create an implementation of liquid staked COMP that can be used to flow funds and compound in a tax efficient way. While composability is key to be able to apply all the different available DeFi utility some consideration around liquidity fragmentation should be thought of. One security consideration is to prevent centralization of power to a single delegated entity. A governance consideration is that the LST delegates liquid staked comp to the highest APR or honest minority. Potentially a user who holds the LST could choose their delegate?
Treasury Management [5]
Needs
We are looking for one or multiple proposers to manage portions of the COMP treasury to create the greatest risk-adjusted-returns for the Compound DAO. Rather than holding dormant tokens that fall behind inflation, Compound is looking for teams with proven treasury management track records who can build, or have, mechanisms to adjust their investment strategies in a decentralized manner in which the Compound DAO remains in control of the invested funds.
Outline of Treasury Management Requirements
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Comp Buy Back (Configuration knobs and dials)
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Balanced Governance
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StakedComp Income
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Deep liquidity
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Atomic Redemptions with fee
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Yield Optimization & ladder strategy
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Hedging COMP
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Pooling Comp liquidity strategy
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COMP perps dex strategy ( see this below as well in External Utility)
Objectives, Suggestions & Concepts of Requirements
The strategy should include where funds are coming from, Compound DAO controlled funds include the DAO treasury, and the existing reserves of each market above the minimum required reserve and the portion sent to the claim contract as staking rewards. If funds are removed for investment strategies, the proposal must include how the funds will be withdrawn, and returned safely, over what time period, and how to return them immediately if the investment strategy underperforms.
External utility [6]
Needs
We are looking for a team to propose a strategy they will run to increase the DeFi utility of staked COMP across the chains and ecosystems that will amass the largest participation in the dApps in which staked COMP has been integrated. We need to give staked COMP the same utility that every token strives toward for a healthy DeFi ecosystem, from sufficiently deep liquidity for Swaps, Lending Protocols, Perps DEXs, etc … The proposer should have a plan that includes what tokens are needed from the treasury to seed these activities and how they plan to attract user funds to scale each strategy.
Outline of External Utility Requirements
A sustainable strategy that the team has the resources to execute in a timely manner for each of the following:
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A DEX strategy to sustainably ramp up pairs with staked COMP
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How the strategy will deepen liquidity
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What counterparty assets staked COMP should pair with, on what DEXs, on what chains.
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How the party will work with those DEXs for an efficient rollout
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Where funds will come from to pair with staked COMP (counterparties, loans, treasury)
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A Perpetuals strategy to get options on stakedCOMP
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A rollout plan for which platforms and partnerships should be used, on which chain.
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The ability to negotiate and launch the outlined strategies with Perpetual platforms.
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A Lending strategy where stakers can borrow and lend their stakedCOMP
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How they’ll get a stakedCOMP market listed on Compound
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How they’ll get stakedCOMP listed as collateral on Compound
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Outline the activities those markets will enable
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A plan for how COMP can be instantly unbonded with a penalty by the Compound timelock only, so Compound can handle liquidations of larger supply caps without relying entirely on stakedCOMP DEX liquidity.
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Partner and bring structured products into the ecosystem that use stakedCOMP in their yield bearing products.
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Include any additional DeFi strategies they plan to implement, examples could include
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Fixed-rate lending
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Collateralized debt positions (CDP)
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Synthetics
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Reserve currency
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Concentrated liquidity
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Bridge Rehypothication
Objectives, Suggestions & Concepts of Requirements (Reward Calculation)
The fundamental theory of token optionality says that by having a solid offering of DeFi dApps, users will be less likely to sell their token. We’ve always held onto dollars, because of how much we can do with them (no matter where we are on Earth). This team is not expected to build any platforms, rather to partner with existing protocols and ecosystem teams to maximize stakedCOMP’s footprint across their partner’s dApps. The team should have a track record of executing partnerships and working inside the ecosystems on which Compound is deployed.
Attack Vectors and Vulnerabilities [7]
While the concept of stakedCOMP can drive attention and activity around the Compound protocol, it does not come without risks. We have compiled a list of risks to the protocol that the DAO should be aware of:
- Governance
- Centralization of Governance
- Sybil takeovers [incentive to Sybil]
- Delegate Collusion (oligarchy)
- Aggregation governance token (Convex)
- [st]COMP’s increases liquidity making attacks easier
- Fiscal attack vectors
- Increased Volatility on COMP until price settles
- Price Volatility makes governance more sensitive
- Liquid version will happen with or without a compound blessed implementation
- Second order effects of direct incentives, such as “taxes,” un-bonding penalties, (Fei depeg is a good example of the failure of direct incentives)
- Swap rate during reward aggregation (see routing through manipulated liquidity in bZx exploit The bZx attacks explained — palkeo)
There can be something else we missed and are looking for feedback from the community to tackle any Unknown Unknowns or Attack Vectors we haven’t covered.
After a 2 week discussion period we recommend a snapshot to proceed with an RFP process if the snapshot is positive. We encourage teams to engage on the described modules or discuss requirements and help craft the solution. Also we encourage alternative proposals and solutions covering the entirety of the project.