Last week I wrote a post about an idea for Compound Governance to support the growth of the PoolTogether protocol. A strong consensus emerged against that specific implementation but many seemed supportive of the general principle of helping support PoolTogether and thereby also help the Compound protocol grow.
After talking to members of the community, I have a new proposal. This proposal achieves the same end goal of supporting growth in a way that doesn’t use a limited resource (COMP) and costs the Compound protocol much less.
The proposal is for the Compound protocol to “sponsor” the USDC prize savings pool on PoolTogether with $10 million of USDC.
“Sponsorship” is money deposited into PoolTogether savings pools that contributes interest to the savings prizes but is NOT eligible to win. This raises the expected value for all depositors and helps kick-start a reflexive growth loop for PoolTogether (larger prizes create more deposits, more deposits create larger prizes). It’s important to note the sponsorship can be removed at any time! So the value is not locked into PoolTogether. At the end of the day, all this capital is going into Compound so it’s good for Compound as well.
The actual proposal would do the following:
- Send COMP from the Comptroller to the Timelock
- Mint cCOMP with the COMP
- Borrow $10 million USDC using cCOMP as collateral
- Deposit USDC into sponsorship of USDC savings pool
The USDC deposited into the PoolTogether would be subject to the smart contract risk of the PoolTogether contracts. This risk is very low based on a few factors. 1) The PoolTogether smart contracts are non-upgradeable. 2) The USDC prize pool contract has been live on main net since January 11th 2021, securing over $80 million dollars with no exploits of any kind. Contracts using the same code but different asset types have been live for even longer. 3) the prize pool contract has been professionally audited by Consensus Diligence. 4) The prize pool has no external dependencies (no oracle risk). 5) The team has an excellent security track record and no smart contracts related to PoolTogether have ever been exploited.
The only additional risk is that the loan could be liquidated if COMP price majorly decreased. This risk can be well managed by ensuring the liquidation price is very low.
Reiterating the introduction. This is a low cost and low risk way for the Compound protocol to incentive growth via integration partners. As a protocol, making sure strong third party interfaces exist is crucial to the long term health of the Compound ecosystem.