Removing Borrow Rewards for BAT, ZRX, UNI, and LINK

Ideas
1

Compound Proposal 68 recently succeeded in removing borrower rewards for the cCOMP market. This proposal was primarily meant to address governance risk and market inefficiencies - rewards were so high that the 100,000 COMP borrowing limit was continually being hit, preventing the market from reaching equilibrium.

While there are no borrowing caps in place on BAT, ZRX, UNI, and LINK markets, the effective borrowing rates for these assets have consistently been negative (currently ranging from -3.4% to -5.9%). This indicates that there is not a lot of natural demand for borrowing these assets.

Compound is currently providing ~9.5 COMP per day (~$2,700) to subsidize borrowers for each of these assets, while the total amount of reserves earned by the protocol per day for each asset ranges from $300-$500 per day. Basically Compound is paying $8,000+ per day to gain market share in non-existent markets.

I think it would make sense to remove borrowing incentives for each of these assets. This will save about 14,000 COMP per year which can be allocated for other uses (contributor funding, service contracts, incentivizing other markets, etc), and should also effectively end recursive leverage on these assets. Compound could still get most of the benefits of incentives by keeping the supplier incentives unchanged - supplier incentives offset the cost of borrowing ETH or stablecoins against these collateral assets, and support deep liquidity in case borrowing demand increases in the future.

What do you think? Please share your perspective and vote in the polls below! If there is broad support I’ll try to move this forward as a full proposal.

Should borrowing incentives be removed for BAT?
  • Yes
  • No
  • Abstain

0 voters

Should borrowing incentives be removed for ZRX?
  • Yes
  • No
  • Abstain

0 voters

Should borrowing incentives be removed for UNI?
  • Yes
  • No
  • Abstain

0 voters

Should borrowing incentives be removed for LINK?
  • Yes
  • No
  • Abstain

0 voters

3 Likes
2

Totally agree. Having a negative effective spread between borrow and lend seems to be excessive incentivization

3

I support an adjustment for sure, but I see the situation as fundamentally different from cCOMP with its borrow cap. The size of these markets together is also much larger than in the case of cCOMP, so I would prefer a slightly more incremental approach. Perhaps we could start by halving the borrow speeds on these markets? Arguments against an incremental approach?

4

The GFX Labs crew and I are working on a robust proposal to address COMP speeds for all markets. I have already sunk a good amount of time into R&D. I’m aiming to have something for the community to comment on before the end of next week.

5 Likes
5

To say simple don’t fix something that isn’t broken. For beginning i want everybody to remember and to understand that Compound isn’t paying anything, it’s a cost of a zero, COMP tokens don’t have any backing value, they are created from thin air and the only value they have is the one market is giving to them.

The purpose of distribution isn’t subsidizing anything, it’s merely a distribution of tokens to Compound users. Borrowers are indeed users, and for markets mentioned above it’s relatively fair distribution, in the meaning that there are no farmers, who use markets as one and the only goal of farming COMP to dump them on market.

It was reasonable to remove rewards from comp market, because it was flawed by existence of CAP, which shouldn’t be even there at first place to begin with. This markets are different.

If the argument is about that it’s makes borrow rates negative, well yea, that’s market conditions and opportunity. These markets recieving scraps from the distribution table already, while vast majority of comp distributions already farmed through stable coins to dump it on market. And it’s like that for a very long time.

Compound as a protocol is slowly falling behind really, and one of the reasons is VC attitude.

If someone believes that trying to conserve COMP in treasury going to bring more value to protocol I dare you to continie in that direction. Just come back here after market crashes, and all that conserved COMP in pending distribution become worth 10-20X less, and tell how much value you gained with that.

Worthless tokens are trully worthless without community behind them, and small/medium size users already left Compound for competing platforms, as all this distributions are unobtainable anyway due to ethereum fees.

I used to believe that VC behind Compound protocol is benefit, but i’m slowly starting to believe that it’s trully not. Of course, Compound will always be remembered as true innovator, and team who brought defi revolution to the cryptoworld, but seriosly, instead ot saving pennies, main goal should be creating protocol treasury from stable coins/ quality assets which would carry Compound over as rainy days will eventually come. And that isn’t something that could be done quickly or when s…t already hits the fan.
Native tokens are not treasury, just remember that, please.

2 Likes