Remove cCOMP borrow cap

Proposal: remove the borrow cap on the cCOMP market.

On last Wednesday’s Community Call (I tried and failed to record the call…next time) we discussed removing the cCOMP borrow cap of 100k COMP. The borrow cap was originally put into place to prohibit someone from using the market to borrow COMP, create a governance proposal, vote, and return the capital in seconds. After the upgrade to Governor Bravo and the installation of a review period, the governance process is significantly more cost-prohibitive for a borrower to obtain the necessary votes to meet the proposal threshold. As well, the review period gives users 48-hours to position their COMP holding for a vote, unlike Governor Alpha which used an instantaneous voting system. If a malicious user were to borrow the required COMP to meet the proposal threshold the community would have sufficient time to defeat their proposal.

Removing the borrow cap will help the COMP market develop. Trading firms (onchain and offchain) utilize money markets like Compound and Aave in their systems to borrow assets and particularly ones that are not abundant in supply in traditional borrow/lend services like BlockFi, Genesis, Nexo, and Celsius. It is helpful for everyone if spot and futures markets are efficient.

Next Steps: Changing the borrow cap does not require a traditional governance proposal since caps are controlled by the community multisig. The multisig holders follow the direction of the community. Below is a 7-day poll for removing the borrow cap on the cCOMP market. If you vote “YES” you think the borrow cap should be removed. If you vote “NO” you do not think the borrow cap should be removed. If the poll revolves to “YES” after the 7-day period the multisig holders will remove the borrow cap.

Discontinue cCOMP borrow cap
  • YES
  • NO

0 voters

3 Likes

I think removing the borrow cap is a great idea! As it stands now, a few users are earning excessive COMP rewards through farming the cCOMP market, and the borrow cap prevents additional borrowers from helping the market reach equilibrium.

Couple comments on the governance process to support this change:

  • Discourse forum polls are naturally vulnerable to sybil attacks (anyone can create an account and sway the vote). Selecting the “show who voted” option and changing “show results” option to “on vote” can help with this, as it will be easy to identify new accounts with no forum activity and disregard their vote. You can also use the “limit voting to these groups” option and select trust levels 1-4, which excludes trust level 0 (newly created accounts with less than 10 minutes of read time). Adding an abstain option is also nice, it lets people see the results even if they don’t want to sway the outcome of the vote.

  • The vote can also be held in the Compound Snapshot space. Power over borrow caps is already delegated to the community multisig so a snapshot vote isn’t strictly necessary, but it offers a more objective view of tokenholder support versus forum polls.
1 Like

I think I configured the vote to be “show who voted” and “show results” option to “on vote.” As for the “limit voting to these groups,” I’ll try that out next time; good idea.

If the poll looks manipulated, we can try doing a snapshot instead.

Thank you so much @getty for hosting this! Yes, lets raise it to 2.1 Million and get our farmers into more productive assets. I am all for a snapshot one or however @monet-supply says is great. I think there is consensus here, especially after hearing @rleshner speak about this last call.

I made a snapshot post here incase someone prefers to the express themselves using their votes

I don’t think it is wise for us as a community to change the offchain terms of a proposal long after it is executed. The multisig never had terms to follow the result of discourse or snapshot votes. If the borrow cap for COMP were to be removed, I would much prefer a real governance proposal. Also, the community should remember the main reason for borrow caps—safety not restricting assets.

I would also like for the COMP rewards given to cCOMP market to be decreased to that of what other markets get. Doubling the COMP rewards isn’t an effective way to reward COMP holders.

2 Likes

Borrowing Cap history:

  • Proposal 26 set the Borrow Cap Guardian to be the Community multisig
  • How the Community multisig manages the Borrow Caps was established in Discord / forums
  • Proposal 27, which added COMP support, set the initial borrowing cap to 50k COMP; the discussion around the 100k borrowing cap ceiling was a Community multisig discussion in Discord if I recall

The Community multisig is empowered (at a protocol level) to set these limits; if there is a strong community consensus, I don’t think that it needs to take place through an on-chain formal proposal.

Removing the borrow cap for COMP is a very significant change to the tokenomics of COMP and how governance works (Justin Sun may borrow all 400k COMP to bolster his TUSD efforts).

I don’t believe that we can get an honest representation of community consensus off chain for a few reasons:

  • We have seen new voices come out at voting many times. Many delegates do not follow along in the forums until we come to an on-chain proposal
  • Many votes are managed by Coinbase custody which can’t be signaled on Snapshot or other off chain voting methods
  • I don’t recall the community ever making significant decisions off chain before

This change deserves the scrutiny of a main governance proposal and any decision made off-chain claiming strong community consensus will likely be more of a finger in the air temperature check.

7 Likes

Excellent and convincing counter-point!

1 Like

ipfs://bafybeifq5ac4wg4w4c3eu3x3tmn7cy2ez4aenrqx5a7kyvvdhlrvtiltau/#/comp-vote.eth/proposal/QmZUtFVmqBPkurntoCqLYrKZebwiCwbrfE8YLvWSECJjRM

if the link broke?

the multisig in itself is off chain - if the power is there to use, so it shall be used

I don’t think its a major change to tokenomics. For community consensus, snapshot is better than off chain for that exact reason, gnosis sig and coinbase custody don’t support it, we want the consensus to be community led.

But the decision to raise the borrow cap individual times has failed to even notify the community of it happening. One multisig isn’t “on chain governance”. The “limit” of 100k has been hit, and the community wants it raised infinitely, so how come we must ask to raise it, but when it is raised without being asked or even told, it is ok? The community multisig has stated that they have too much power, so the time is to remove it. If governance wants to set another borrow cap, that can go on chain, but the point was for the community to have that power in a multisig.

it’s not off chain. all of it’s actions can be monitored at any time. however the discussion is.

My bad. Yes, the multisig wallet is a smart contract deployed on chain. It’s signers live in the real world.

I wanted to bump this thread because I think it is an ongoing thorn in Compound’s side. Currently cCOMP borrow has a yield -7.36% and due to the borrow limit, this market is well outside the bounds of its natural equilibrium. The unique part about cCOMP market is that the supplemental distribution is paid in its native asset. While this is obvious, the implication is that this market should be the most efficient at reaching market equilibrium because its yield has zero-price risk (assuming adequate collateral), unlike other markets where there is COMP price risk that must be accounted for.

The major risk at play in this discussion is a malicious actor borrowing large amounts of COMP and then making and/or voting on proposals that may not be in the best long-term interest of the protocol. The borrow CAP is our main deterrent from this sort of actor and in a functioning market, an increasing interest rate would also act as such.

The following are the options I have considered to fix this market: Increase Borrow Cap, Raise Interest Rates, Remove/Lower COMP Distribution

Increase Borrow CAP:

Increasing the COMP borrow cap could help to mitigate the issue, however there is still a risk that we hit the new borrow cap immediately and are in the same situation. See below for the analysis… For the increased borrow cap to allow for positive borrow yield in excess of the supply yield, the CAP would have to be increased to a value far greater than the community might be comfortable with.

If you look at our current situation (~100k COMP Borrow CAP), in order to achieve a net zero interest rate, we will need the supply to decrease by roughly 5x to achieve a utilization ratio of ~80%.

An increase in Borrow CAP to 150k COMP would still require the amount of COMP to supplied to decrease in order to have a net zero interest rate.

An increase to 200k COMP would be able to achieve market equilibrium (as per my definition) assuming no change in COMP supplied. Additionally, the supply net interest rate at the breakeven point (~1.1 million COMP) would be ~1.36% which is far less than the current 2.98%. Essentially, it is unlikely that the supply will grow to levels that cause the borrow rate to go negative because the interest rate will be far too low to support that value.
COMP_BorrowCAP_Analysis

Raise Interest Rates:

One relatively simple fix that I have not seen mentioned is simply increasing interest rates on the cCOMP token. The only parameter I would suggest changing is the 0% utilization rate, due to the already high interest rate model of cCOMP. However, this “fix” will not effect any real change in alleviating the issue at hand unless it is done in tandem with one of the other solutions.

Remove/Lower COMP Distribution:

This is by far the easiest fix, as setting the distribution to zero would fix all issues immediately. However, this is probably not ideal since the entire point of distributing COMP is to reward the users of the protocol and incentivize activity.

Conclusion:

I propose that the cCOMP borrow CAP be increased to 200k COMP. The additional 100k COMP does pose a risk to the protocol in that a malicious actor could create a proposal with that borrowing but is enough to have meaningful influence on its passage. This activity is mitigated by allowing the cCOMP market to achieve a net positive borrow rate (by making the malicious attack costly). 200k COMP Borrow at the current supply of ~550,000 COMP would result in a net borrow rate of ~6.9% (12.91% Borrow Rate - 6.00% COMP Distr.). While this rate is not exorbitantly expensive, it is better than a negative rate and has a real economic cost if amount borrowed reaches the CAP. Having properly functioning markets, especially for the protocol’s governance token, is very important for Compound’s long-term success.

What does everyone think? Do any additional scenarios need to be explored? If we can achieve consensus on the forum, we could try to enact this change in the AAVE,SUSHI,etc market addition proposal that is upcoming from @getty and team.

I already did a report on this, got a grant for it, written a handful of forum posts, voted on the forum, voted on snapshot, talked about this at basically every call, I am beat.

If someone wants to sponsor a prop, so be it, but take a look at who historically has borrowed comp, this is an uphill battle and a painful situation for me personally, governance as a whole and individual contributors.

Hopefully a multisig to control reserve factors and borrow caps will be in place, but the current multisig wont touch the borrow caps after all this, so be it.

COMP…POUND! Still love you guys

1 Like