Should Compound Retroactively Airdrop Tokens to Early Users?

The Story So Far

Crypto has always been about building networks that are owned and operated by their respective communities. For example, when Compound launched the COMP governance token in April of this year, the goal was to place control of the Compound protocol in the hands of a broad, representative, and actively engaged community of users and developers that have a stake in Compound’s success. After all, that’s what decentralization means.

While the COMP token launch has brought new users onto the platform, most of those users to date have been professional liquidity providers (e.g., crypto hedge funds, whales, and prop shops). This has been good for Compound because, as a money market, it needs liquidity to function.

The Problem

The problem is that protocols like Compound need more than just liquidity to succeed. They need developers who work on things like protocol upgrades and on integrations with the outside world (i.e. wallets, exchanges, dapps, other protocols, etc); they also need a set of long-term power users who take an interest and step up to participate in protocol governance.

An Idea for Discussion

Compound owes much of its success to the thousands of community members that have joined its journey over the past two years. This is true particularly of the early users who provided liquidity (both as borrowers and lenders) before there was any monetary incentive to do so and of the early developers who opted for building on top of Compound before the launch of the COMP token.

If there is any group of people that is most likely to be aligned with Compound’s long term success, it’s that group. As Compound’s early adopters, they are the ones who are the most likely to become enduring superfans of the network; they are the ones who stand to be the best stewards of the protocol’s long-term direction.

Concretely, the community can opt through governance to redirect 5% the total COMP supply to the ~5,000 addresses that belong to both users and developers who interacted with the Compound protocol (either v1 or v2) before June 8, 2020 — i.e. one week before the launch of the COMP token. To help ensure that the recipients of these grants remain aligned with the community in long term, these tokens would be distributed to those addresses gradually, over the course of four years.

The above would imply that each of the ~5,000 early adopters of the Compound protocol would receive 100 COMP tokens over the course of four years. At today’s prices, that implies a grant of $12.35k worth of COMP per address each year. As for where these tokens would come from: they would be redirected from the flow that currently goes to liquidity providers.

We would love feedback from the community on this idea.

For disclosures, please see https://a16z.com/disclosures/

42 Likes

+1

Makes sense to give equity to early stakeholders—Uniswap, Curve, and Hegic have done the same. Currently, unless these people were already wealthy and could acquire significant amounts of COMP through liquidity mining, these contributors have little stake in Compound’s future.

8 Likes

Generally think this could be a good move, especially with the vesting discussed.

Worth considering taking a page out of UNI’s playbook: some X% of rewards distributed as an address-based airdrop to all users & X% of rewards distributed based on volume (or some metric that weights relative contributions)

Posting a link to a previous discussion on this same topic: Distribution of COMP token to early users, pre-COMP distribution period

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I believe retroactive airdrop of COMP tokens to users is in general good idea. It makes sense to give some voice to those, who used protocol before launch of governance token.

Why i think so? Because at the current point, vast majority of governance tokens are distributed to liquidity farmers. Which, while are indeed providing some benefet for protocol, doesn’t really justify why they actually should capture almost all governance power eventually (if things will go same way for 4 years). While retroactive airdrop doesn’t completely resolve that issue, it will indeed add to decentralization and will reward some actual users of protocol, not those who just put capital on both sides of DAI market with sole intention to milk governance tokens.

While i think most of community will support the idea of distribution the details are worth discussing:

First, what is reasoning behind 5% of Supply? Why not 3%? Or maybe 10%? Especially considering vesting period.

Second, should it be socialism distribution, or meritocracy? Like should users recieve equal amount, regardless of their usage, or should it depend on for example how many fees they generated? Or maybe should it be a combination of those, like base amount of COMP per address + additional COMP, based on usage for that address (fees accrued on both supply and borrow side). I personally would rather not see pure socialism, though to distribute at least some portion of COMP based on if address ever interacted with Compound seems reasonable and responsible towards community.

Add: Another thing to keep in mind, that unlike UNI tokens, COMP tokens do not replenish, they have fixed supply, and thus, with doing retroactive airdrops we don’t want them to be lost by being distributed to “dead” addresses, which user lost keys to or forgot about them, so i think distribution should have some sort of “Claim” interaction, where tokens, which were never claimed going back to distribution pool after some reasonable time, a year maybe. Like if user never claimed them within a year, account is considered abandoned, and tokens reserved for that account released back to pool with account loosing their right to claim them.

8 Likes

This makes total sens.

4 Likes

Great idea, as compound was/is very developer focused, and interoperable with smart contracts, I think we’ll want to make sure that airdrops to smart contract addresses are claimable by the deployer. Or at least consider this and have some mechanism to make sure smart contracts that automatically deposited/withdrew from Compound have their airdrop appropriately claimable. Love the idea!

1 Like

I like money so I’m not going to be sad if someone gives me a bunch of COMP but idk if this is really the best way to be spending the COMP. As someone who would receive a good amount of COMP if this passed and owns some COMP currently I will vote NO if this gets to be a proposal.

2 Likes

Supportive. Perhaps a more formulaic approach based on time-weighted liquidity ($ supplied/borrowed) would be best. Thoughts?

4 Likes

Okay, here is my personal story…

I’ve been using Compound for a long time – since December of 2018. I’ve been active in the community and even started working on a protocol built on top of Compound. I’ve received a lot of value from Compound and also created a lot of value for the protocol.

Since COMP distribution started I’ve held everything I’ve received. I’ve also done some market buys to increase my COMP. Despite this, I still don’t have enough COMP to create an autonomas proposal (100 COMP). I do find this discouraging.

I think the idea of getting early participants up to 100 COMP is a good one. Specifically because that is the threshold to meaningfully participate in governance.

In terms of distributing this, I would probably favor some sort of larger up-front airdrop with a slower distribution of the remainder. I think in some ways, if the distribution is slow it actually incentives just selling it. But if I get 50 COMP up front then I am half way to my goal of 100 COMP and I have incentive to hold on…

8 Likes

Just wanting to clear up a slight ambiguity on the numbers.

5% of total supply over ~5000 addresses, making it 100COMP per address - So I reckon it’d be 25COMP per year over four years, making it ~$3000 worth of COMP per address each year.

Is that the correct way of looking at it? Or did I misunderstood how it might work?

Cheers.

3 Likes

I totally agree understand why this a good idea. We should look at those first supporters and include them into the voting/ecosystem. So totally YES

2 Likes

I am generally neutral regarding this proposal. However, I would like to remind everyone about the whole Uniswap debacles where some users did not receive their share due to the use of contracts account. If we want to be fair, let’s discuss it here first about who (addresses) get it and who does not.

Some projects, with users who directly use compound, that we might need to consider:

  • InstaDapp
  • Dharma
  • Argent
  • please add more…

I believe there are also other projects that use compound in parts of their protocol, where users indirectly interacted with compound, such as PoolTogether. We should discuss where the lines would be drawn. I suggest two-tier approach to this problem.

  • Proposal 1: Determine the (max) amount of comp that the community wants to reward compound users with. e.g. 5% of treasury or 2% of total comp supply or 100 comp per address. Only after proposal 1 has passed, we then proceed with the next proposal.
  • Proposal 2: Determine which users will receive the airdrop.

This way, we can be sure of what the community really decides on and avoid scenarios like:

  • I agree with comp airdrop but x amount is too much/little so I vote NO.
  • I agree with comp airdrop and x amount, but I disagree that y project users also receive it so I vote NO.

If this proposal indeed goes through the motion: I personally support the cutoff date of Jun 8th 2020, vesting schedule and minimum airdrop of 100 comp per user (considering that’s what you need to create an auto-proposal). I also like @Sirokko’s ideas on mechanism to distribute comp to active addresses, in the hope that those who receive airdrop will be active contributor to the protocol. One potential mechanism is deciding pre-determined “Claim Window”, such as “After 1 year of no-claim, the comp allocated to the addresses will be returned back to treasury”.

Disclaimer: I am a fan of both Uniswap and Dharma teams (which worked on the additional UNI airdrop proposal)

3 Likes

Not in favour of the proposal even though I stand to receive upside from this. I think the analogies to Uni doesn’t really address the issue of voter apathy/splits nor is it entirely obvious that early adopters still have any form of engagement or assets on the protocol.
Would be much more inclined to have this converted to systematic grants to new developers on Compound, as opposed to additional acquisition costs on people who are familiar with the Compound ecosystem - but may/may not be part of the system now.

If this does turn out to pass, would recommend holding off until we have vesting implemented.

2 Likes

Agree that voter apathy/splits might be an issue but it is also entirely obvious that will be a problem regardless of the existence of this specific proposal. I also agree that grants for new and future contributors would be net good for compound. However, I disagree with the characterization of this proposal as “acquisition” cost, since the users have already been acquired. This proposal, I believe, aims at realigning those who have provided important signal of early adoption for the protocol.

I think most people here agree with implementing vesting schedule for the airdrop (IF it goes through). I am not sure what you mean by “vesting implemented”. Do you mean comp vesting for liquidity mining rewards? I don’t see how that these two are related. The source of this airdrop would be allocated directly from the treasury. Hence, the community can decide to distribute the airdrop separate from the current rewards logic.

After some considerations I’m in favor of this proposal now. It will take some time but I believe this will be net positive for compound. Sure, giving incentives to present and future contributors is important (with potential gamification) but not sure if it’s actually any more positive than incentives for past contributions. Also, vesting it in up to four years actually might make the recipients to actively contribute to the protocol for that period, ensuring active compound community for these early years. More importantly, those recipients use compound before any liquidity incentives (that disproportionately benefit whale LPs and short term users i.e. mercenary farmers).

I would bet that these early adopters will actually be more active in the development of compound than the mercenary farmers. One last point, 100 comp for 1000s of actors is a great incentive for a diverse community to emerge from while decreasing the impact of any potential plutocracy.

4 Likes

https://compound.substack.com/p/vote-results-etherscan-and-coinbase (some context)

Well, I’m the 0xc185 address at the top. Also the guy with the 1 million REP in Compound and I think I was borrowing up to 6 million DAI for months and months. I know my fees were over 750k DAI.

I know I spoke to Calvin and Robert quite a bit, and they were so happy that I was helping the platform out, and we were all excited about the growth. Early 2020, I had to wind down a couple of the CDPs and loans for various reasons… then COMP launched and they chose not to reward anybody who had helped them over the past two years.

I’m also a top 10 staker in ETH2 and have supported numerous projects in the ecosystem since the crowdsale, including over 30k ETH to EF and TheDAO white hat group.

It’s fairly obvious how I’d like to see this resolved. I’m not the only person from this time with a bitter taste in my mouth about how Compound handled this.

18 Likes

I would go even more drastic about retroactive rewards,
compound v1 started around Sep-26-2018 and COMP distribution started at Jun-15-2020 that means that early users used Compound for at least 2,5 year.
if we would want to be totally fair and give equal rewards for the users before COMP distribution started then 30.7%~ from the total amount that the Reservior received to distribute should go to them, but also i would love to include some calculation about protocol usage to calculate what amount should receives individually.

8 Likes

Agreed. Been a user since 2018. Proper precedent to set in my estimation. These folks, a small sliver, whom have chimed in above have been users who were incredibly valuable to its operation. Ought to matter to current users and funds who liquidity provide.

Math is simple on this one.

3 Likes

According to the problem statement:

“The problem is that protocols like Compound need more than just liquidity to succeed. They need developers who work on things like protocol upgrades and on integrations with the outside world (i.e. wallets, exchanges, dapps, other protocols, etc); they also need a set of long-term power users who take an interest and step up to participate in protocol governance.” I think there are two separate issues that the author outlines:

  1. reward early users of Compound (borrowers and lenders) and
  2. reward early developers who built on Compound in the early days when DeFi was not even a thing.

I personally contributed to Compound in both capacities: was an early user of liquidity pools and the first team who built a third party dapp on Compound – Bloqboard (now we are a mobile wallet Linen.app and are solely powered by Compound). Several other teams built on Compound back in 2018 and 2019: Zerion, InstaDapp, DeFi Pulse/LoanScan integrated analytics, Argent, Dharma. I am pretty sure there were more. All these teams helped the protocol to get exposure in the early days. Back in 2018 and 2019 it was unclear what use cases can be entertained and who borrowers and lenders were. In 2018 only few VCs understood DeFi - it was that early.

To my knowledge none of the users and developers were recognized for contributing resources and building on top. I do not even own a single COMP and can not vote. So, I strongly believe that it is fair to consider airdropping tokens to both of these groups: early users and early developers. Amount of the airdrop for users and developers are up for the community to decide. Probably makes sense to discuss these two groups of contributors separately.

10 Likes

Hello, I’m allo, active in the Uniswap governance forum ; Compound user since 2019.

I support the airdrop, but I would like to also encourage you to initially include addresses who interacted with the protocol through smartcontract wallets like Argent, Dharma, etc.

Or at the very least, have this debate before the airdrop. Otherwise, it may cause unnecessary drama and waste precious governance time.

3 Likes

I have a lot to say on this topic. Hope I’ll get around to writing up something soon.

TLDR (TLDW?) for now: I think it’s important to recognize the reason we as a community will be gifting people COMP and we should focus on advancing the protocol/community. The idea that Compound owes past users doesn’t sit well for me.

5 Likes