[RFC] cTokens as collaterals

Ideas
1

How can we provide more utility for lenders

Compound V3 is an isolated money market that allows users to lend to earn interest or borrow and pay interest. The collaterals that are used for borrowing do not generate any yield.

Current flow:

  1. User lends ASSET into ASSET comet.
  2. User for lending receives a cASSET token, which is just lying in the user’s wallet and earns interest.

Recently, we started adding ERC-4626 assets to markets, such as wUSDM, sFRAX, and sUSDS. We also deployed ERC-4626 wrappers for all existing Comets, which allows us to add Wrapped Comet Assets (wcASSETv3) as collateral to existing Comets.

New flow :

  1. User lends ASSET into ASSET comet
  2. The user for lending receives a cASSET token
  3. The user can supply cASSET as collateral into the ASSET2 market.
  4. User borrows ASSET2

Benefits

Such an approach will increase the borrowings. Higher comet TVL leads to more stable APRs which is a benefit rather than a drawback.

Next steps (from the development side)

  1. Audit ERC-4626 deployment
  2. Increase the Comet implementation to support 24 collaterals
  3. Create migrations to add wrappers as collaterals
  4. Create/update liquidation script to support wrapper liquidations
  5. [optional]. Create a custom flow on frontend to make the flow smoother
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2

Example of New Opportunities Enabled by this RPC

Strategy Overview

  1. Portfolio Allocation 100% of user’s capital is allocated as follows:
  • 40%: Used to buy ETH.
  • 60%: Lent as USDC into Compound.
  1. Hedging ETH Exposure:
  • Borrow against the lent USDC.
  • Use the borrowed funds (40% of the ETH value) to short ETH, creating a hedged position.
  1. Yield Generation:
  • The 60% USDC allocation earns yield through lending in Compound.
  • The remaining 40% ETH, held in the spot, can be further leveraged by lending into Compound’s ETH market.

Outcome

  • 60% of the capital is generating yield from USDC lending.
  • 40% of ETH is leveraged to farm additional yield within the Compound.
  • The ETH exposure is fully hedged, minimizing price risk.

Key Advantages

  • The entire strategy is implemented exclusively within Compound, streamlining operations without relying on external protocols.
  • Combines yield farming, hedging, and leverage for optimal capital efficiency.
  • Increase of Compound TVL, which makes APR more predictable and stable
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3

Seems like users could get liquidated easier with this method in the case of a market dump.

Better to use this for stables only maybe?

4

Can you provide an example of such a case?