First, I’d like to acknowledge that the debate over these parameter changes is awesome. Everyone here is motivated to see the Compound protocol succeed, and everyone is bringing a different perspective to the conversation.
Governance needs to balance the needs of three different stakeholders; suppliers, borrowers, and COMP token-holders (governors). WBTC is the protocol’s largest collateral asset. As such, it is responsible for a large portion of borrowing demand (stablecoins), which in turn creates interest for the suppliers of assets. Adjusting risk parameters should be done with a holistic consideration of all stakeholders.
The Gauntlet team has done a great job analyzing WBTC market risk, and advocating for a reduction of risk associated with WBTC. It is the solution, reducing the collateral factor, that forms the basis of my Against vote.
Reducing a collateral factor is a significant event, since it directly degrades the user experience of borrowers. When SAI (which had been deprecated for 6 months, and was a small asset) had its collateral factor reduced, the community (1) fiercly debated the necessity of the change, (2) carefully managed the change, in timing and communication. SAI was iteratively reduced in proposals 3, 4, 5, 6, and 15, with significant effort put into informing users ahead of time in Discord, Twitter, the newsletter, etc. WBTC is approximately 3000x as large as SAI was.
I strongly believe there are ways to reduce risk, without degrading the Compound user experience. These could include supply caps (per @arr00), protocol liquidation fees (to offset cascade risk), external liquidation protections (e.g. B protocol), resting protocol-level limit orders, real-time alerts to borrowers using an off-chain system (“margin calls”) etc – all ideas discussed here and in Discord, which could upgrade Compound so that a 75% collateral factor is safely managed.
My participation in this thread was late – I try not to involve myself in governance, to allow others to become the leaders of the protocol, and I could have done a better job raising concerns earlier.
From here, let’s communicate these changes aggressively to users, and work towards building a system that is capable of safely supporting a 75% WBTC collateral factor, at massive scale.