I agree with you!
75 → 70
We need to protect Compound users from liquidation!
1 Like
That indeed would be more accurate approach, but too late, friend 
It’s was all VC conspiracy in the end :)))) The only thing could be done at this point is to make sure that everybody is aware of upcoming decrease of WBTC CF to 65.
It’s almost impossible to outvote biggest COMP holders if they unite in pushing something.
But keep in mind, i support change itself, i think it makes sense to decrease CF for WBTC. (in current market conditions) Staged decrease would be more forgiving for users, but in theory if everybody who is in risk zone takes action in time, there might be no liquidations in the end, and then proposal wouldn’t look that much dramatic.
2 Likes
That’s a very valid point which I wasn’t aware of, so thanks for pointing this out to me jmo! :))
I suppose it was a bit unlucky the way these particular votes fell together, and granted this does change things slightly, but perhaps in this special case it would have worked in favour for most to have an exception made and kept things separate, considering the previous 2 votes and their outcome, together with the shaky sentiment around some of the proposed adjustments from before.
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.
8 Likes
Echoing the sentiments here on how fantastic it is to see such active discussion in Compound’s protocol governance.
@rleshner I agree with all of your points on Proposal 39 being a sub-optimal process for reducing the WBTC collateral factor. In a different market environment, I would strongly urge a re-structuring of the proposal towards a gradual ramping-down - whether over a designated time period, e.g., 2 months similar to SAI, or over multiple rounds of proposals.
The Gauntlet team’s diagnosis is directionally correct based on the analysis that they’ve presented, but the limitations of the protocol as it stands today and the urgency of the risk are why Pantera Capital is voting FOR Proposal 39.
Relative to past cycles and even this past summer (when the SAI change occurred), crypto markets are more leveraged, intertwined, and price-reflexive on an order of magnitude. Considering that a re-structured proposal could take another 5-7 days at minimum to pass and that a staggered approach would require multiples of that - I think we would generally agree that 5 days is a long time in crypto and 15 days is an eternity.
I’d also note that we arrived at the same conclusion as other large investors, completely independently and from the perspective of a Compound user rather than an early-stage Compound investor (which we are not). IMO, this is a significant indicator of current market views and particularly the risk of a significant, rapid de-leveraging / price spiral in today’s environment.
As governors of the protocol, we should balance stakeholder needs and consider the impact to users in all decisions. At the same time, I’m keenly aware that one of the biggest open questions about Compound governance is whether decentralized governance can assess risk accurately and react quickly to protect the health of the protocol.
In a worst-case scenario, where the risk outlined in Gauntlet’s analysis is realized during this critical decision period, the perception that we as a community were aware and did not react in time is a potentially disqualifying event for those who aren’t convinced yet on decentralized governance. In this lens, the size of WBTC on Compound and the timing realities of a more progressive approach are the key factors in us voting to act quickly rather than delay for an optimal implementation.
4 Likes
Many of the great ideas from this debate will make it much easier to reduce risk without degrading the user experience — improving liquidations, supply caps, off-chain alerts. I’m excited to see proposals and developer grants.
2 Likes
I’ve started a new thread to talk about liquidations now that the proposal has passed:
I’ve put together a couple quick suggestions for how we could minimize the impact here, would love to hear everyone’s thoughts
1 Like