Preamble
- Full Title: Compound v4: Enhancing cross-chain rewards, liquidation flexibility, and operational efficiency with community-vetted, dynamic market parameters
- Description: Temp. check to collect feedback on the evolution of Sandbox into v4, introducing streamlined governance, dynamic market parameters, an enhanced liquidation mechanism, and efficient cross-chain reward distribution.
- Author: @cmrn
Abstract
This temp. check seeks feedback on evolving Sandbox into Compound v4, a more robust and flexible lending platform/interest rate protocol. Enhancements include streamlined governance, dynamic market parameters driven by real-time data, an improved liquidation mechanism, and just-in-time bridging for rewards. These upgrades optimize DAO operations, enhance UX, and strengthen Compound’s position leveraging community-vetted rulesets.
Motivation
The current market demands have highlighted areas for improvement, particularly in governance efficiency, cross-chain rewards, and enhanced liquidations. Feedback from Gauntlet and community insights suggest that a more dynamic and responsive system could significantly enhance performance and user satisfaction. Thus, evolving to v4 is not just beneficial but necessary to maintain and expand Compound’s leadership in DeFi.
Specification/Process
- Streamlined governance: Semi-algorithmic approach using onchain data for dynamic parameter setting, reducing workload for delegates/enhancing DAO efficiency.
- Dynamic market parameters: Fully algorithmic approach that tailors supply caps, collateral factors, and other params in real-time based on community-vetted rulesets.
- Enhanced liquidation mechanism: Supporting partial liquidations and dynamic adjustments to collateral buffers, making the liquidation process less punitive.
- Cross-chain reward optimization: Deployment of just-in-time COMP bridging to streamline and automate reward distributions across networks.
Rationale
The proposed enhancements are designed to address specific inefficiencies identified through community feedback and Gauntlet’s analyses. Streamlining governance and automating market parameters will allow Compound to react in real-time to market changes, improving operational efficiency and risk mgmt. Additionally, enhancing the liquidation process and optimizing reward distribution remain critical to maintaining user trust and satisfaction.
Considerations
The introduction of automated systems may raise concerns, particularly with regards to vulnerabilities and the potential for manipulation of onchain metrics. Rigorous testing, external audits, and phased rollouts are recommended to mitigate these risks. Moreover, maintaining a balance between automation and community oversight will be crucial to ensure that the adjustments do not adversely affect the protocol’s health or user assets.
How It Would Work
Let’s take the EIGEN listing for example. Every one of these (CF, LF, LP, SC) would be defined as “X” of “Y”. We may optimize formulas as preferred. @chainlink_labs can help fetch data and automate processes. There are additional vendors as well. Gauntlet is likely best positioned to make some of these decisions. They must be onboard with disrupting themself.
Timeline/Budget
- Design/development (1-3 months): Finalize specs and begin collaborative development.
- Integration/testing (2-3 months): Integrate v4 contracts with existing infrastructure and conduct comprehensive quality assurance and penetration testing.
- Feedback/iteration (3-4 months): Deployment on testnet to collect community feedback and completion of subsequent iterations before final audits.
- Rollout/monitoring (4-6 months): v4 release across supported networks and ongoing performance monitoring (in line with the Sandbox estimate).
Budget Request: Another ~$600k in COMP would be requested to support these phases, depending on the final scope and contributing teams/solo contributors involved, covering development, deployment, and community engagement efforts.
Expected Outcomes
- Maximal efficiency: Streamlined governance makes each vote more impactful, with automation reducing operational overhead.
- Improved experience: More flexible liquidation processes and dynamic market params increase Compound’s attractiveness for both borrowers and lenders.
- Strengthened position: Real-time adaptability and enhanced feature set reinforcing Compound’s leadership in decentralized finance.
Seeking Feedback
Gauntlet should remain a service provider in critical areas such as incentives. This temp. check serves to gauge community interest and gather feedback on Compound v4. A comprehensive proposal with further detail compiled from community input is to be shared.
Open Source Commitment
Professional DAO contributors are invited to express their interest in contributing to v4. It’d be open-sourced, dedicated as a public good, and a large-scale effort coordinating between contributing teams (with a target to deliver on track with Sandbox estimates).
Conclusion
v4 addresses weaknesses while significantly enhancing capabilities and efficiency, ensuring Compound remains competitive and forward-looking. Feedback is crucial as v4 is refined to align with current market demands and the DAO’s broader aspirations.
TLDR
- Rename Compound Sandbox to Compound v4.
- Transition from manually setting market parameters to ones that are defined by community-vetted rulesets (supply caps, CFs, reserve factors, liquidation thresholds, etc.).
- Real-time data (utilization, volatility, liquidity, etc.) defines these rulesets.
- Enhanced liquidation mechanism creating a less punitive process for users.
- Just-in-time COMP bridging to solve manually topping up bridge rewards.
- Currently seeking community feedback on all aspects.
FAQ
- Does this affect the potential Compound <> Morpho <> Polygon collab?
- No. DAO voters may choose one, the other, both, or none. At the end of the day, it will be the DAO voters who decide which initiatives to pursue.
- What areas beyond those that are technical can we improve while here?
- Socially and operationally, Compound can continue improving on aspects mentioned in community discussions. This provides some good notes.
- How does “streamlined governance” work exactly?
- We can categorize proposals with each having unique potential for automation. See beginnings of that here. Gauntlet and other professional DAO contributors are well positioned to contribute on these aspects.