With last week’s launch of Compound’s governance token along with our recent announcement surrounding DeFi Rate’s Governance initiative, it should come as little surprise that we’re pursuing Compound as our first DeFi political campaign.
1/ Today we’re excited to publicly announce our initiative towards becoming a leading #DeFi governance delegate 🔥
Full announcement 👇https://t.co/UNQVnQpBMg
— DeFi Rate (@DefiRate) April 20, 2020
For those interested, you can delegate COMP tokens to our official governance wallet: defirate.eth.
Our post earlier this week outlined a few topics to keep in mind when considering governance delegation. With that, we’ve decided it would only be fair to go through it step by step and detail why we believe we’re a great fit for the job.
Towards the end, we also detail some initiatives we’d like to help lead and how we intend to grow the Compound protocol in the coming future.
Let’s get into it!
Specialized Knowledge – Is this party well versed on the subject?
Since starting DeFi Rate in July, the lending sector has undoubtedly been our primary area of coverage and is the driving reason behind our bid as a Compound delegate. Our lending dashboard has grown to become one of the go-to resources for the DeFi community when comparing lending rates across different projects – Compound included.
Compound was one of the first projects we covered and we continue to cover it extensively. We’ve seen first hand how the lending protocol has grown in the past year along with how it faired relative to the rest of the market.
In summary, here’s some of the content our team has produced around Compound in the past few months, hopefully giving you plenty of assurance that we’re well-versed in the DeFi’s biggest lending protocol.
- Ecosystem Report
- Project Review
- cTokens Overview
- Spencer Noon’s Our Network: Issue #14
- Compound Labs Raises $25M in Series A
- Compound Launches Governance Token
- Lending Rates Report
- Compound Open Oracles
Is there an area of Compound you believe we should be more well-versed on? We’re open to hearing any and all feedback!
Experience – Does this party have a background that makes them well suited to make the right choices?
As we outlined above, the lending sector is our biggest focus here at DeFi Rate. With that, we’ve been fortunate enough to have a front-row seat to the growth of permissionless lending in the past year. We’ve watched Compound evolve from a lending protocol with only $20M in value locked heading into the Summer of 2019 to watching it cumulate over $1.5B in total deposits last month.
Our extensive coverage on Compound has given us our fair share of experience and opportunity in understanding the leading lending protocol.
Intent – How does this party stand to benefit from being a delegate?
By becoming a Compound Delegate, our hope is to grow Compound, the lending sector, and DeFi at large to reach a mainstream audience. We want the world to experience the benefits of open finance and the potential it holds for shaping our financial future.
Seeing as lending is one of our specialties at DeFi Rate, we obviously stand to benefit from growth in the lending protocol as more users explore the range of lending rates available on the market. Our ability to hone in on lending makes us a great candidate for the future of Compound.
Direction – Where would this party like to see the project go? How will this influence their decisions?
We want Compound to succeed. As it stands today, it’s clear that Compound is the sector leader when it comes to lending – and rightfully so! We want to see Compound proliferate as an open money market protocol for global finance. We believe that all assets, both crypto and traditional, could benefit from the underlying money markets that Compound can provide.
We want to aide in Compound being able to offer a wider range of assets, other loan types like stable rates and flash loans, and the integration of insurance in the form of intuitive covers into the protocol to better protect the less experienced userbase.
All in all, we want to create a seamless lending and borrowing experience that’s competitive with the wider market. We want to see the protocol be adopted by the global population, and in turn, have the protocol recognized as a valuable piece of software within traditional financial markets.
Lastly, we want to continually explore the composable nature of cTokens and Compound smart contracts. Using projects like Dharma, Set Protocol PoolTogether, Opyn and SwapRate as examples, (all of which use Compound in some shape or form) it’s quite clear that a strong foundation has been laid for lending products to emerge higher up the stack. We aim to bring those opportunities to the table for consideration and support.
Commitment – Will this party be active in its governance participation and due diligence?
We’re dedicated to leading Compound to the best of our ability. We aim to run a transparent governance process via Discord (as it’s likely the only way to succeed) so all delegators have an opportunity to weigh in their thoughts on any governance decisions.
In addition, we’ll publish governance reports outlining any and all pertinent information surrounding Compound Governance decisions and our rationale behind those decisions.
Now that we have that stuff out of the way, let’s propose what we’d like to work on as a part of the governance committee.
Expanded Asset Listing Framework
An expanded asset listing framework is a critical piece for the long-term success of Compound. By easily being able to qualify assets for listing on the money markets protocol, we can strategically expand offered assets to expand the protocol’s user base into other token communities.
Initially, we’d draw on Synthetix’s Asset Listing Framework for a basic reference on how to approach this. In short, it should come down to two core characteristics: (1) liquidity and (2) secure price oracles. There must be a significant amount of liquidity to minimize slippage and price manipulation. In turn, this is only possible with a secure price oracle backing asset.
We’d like to recognize that this initiative may take time to properly dial-in and would love to welcome all participation in this endeavor.
New Assets Proposals
Upon establishing an Asset Listing Framework, we aim to propose new assets to be listed on Compound as the governance committee sees fit. Currently, supported assets on Compound are rather limited compared to competing lending protocols like Aave. Importantly, outside of stablecoins, most lending pools are offering negligible returns to depositors.
In order to change this, we’d like to explore assets that have seen success on other lending protocols when used as collateral as well as assets that offer relatively attractive rates due to the nature of their economics.
This could include:
- Other stablecoins (BUSD, USDT, PAX, TUSD, sUSD, etc.)
We recognize that a US-based entity, Compound has a fine line to walk in terms of compliance and signal. We do not intend to rush any listings, rather to curate discussions surrounding the introduction of new assets so that they may be implemented in a timely fashion.
Generally speaking, Compound’s ability to support in-demand assets in a secure, permissionless fashion is what we believe will drive future growth. By opening up the number of supported assets, more users may be attracted to the protocol either seeking leverage using their favorite ERC20 token as collateral or by capitalizing on the attractive yields they may offer relative to returns on the assets currently being supported.
Driving this point home, the diverse nature of DeFi lending protocols is one of the core differentiators between centralized providers like BlockFi. Instead of trying to stimulate demand by inflating interest rates through other mechanisms, we view the introduction of highly tested and clearly demanded Ethereum-based tokens to be a great middle-ground.
Coordinating Governance & Risk Meetings
Communication is key. We’ve seen multiple other DeFi protocols, namely MakerDAO, successfully orchestrate governance and risk meetings which have been critical for distributing key information and gathering signals on different topics.
As such, DeFi Rate can organize routine governance meetings. The frequency of these meetings will likely change over time as governance plays an increasingly important role in the success of Compound.
The important note here is that we are willing to commit to the organization, maintenance, and note-taking during these meetings – ultimately aiming to become a trusted resource for other delegates who may be unavailable due to prior commitments.
Insurance is quickly becoming a vital piece for investor protection. As a Compound Delegate, we will push for the native integration of an insurance provider into the protocol. With this feature, users will be able to make a deposit or borrow from the protocol and protect that capital directly from Compound’s front-end – rather than having to navigate to another platform as we see today.
Both have their benefits and drawbacks and we’d love to explore a potential integration with Compound’s key players on which platform would be best suited for end-users.
DeFi Rate has established relationships with both of these teams, most notably through exclusive interviews with the project’s founders which can be found here (Hugh from Nexus) and here (Aparna from Opyn). We believe this makes us well equipped to further these conversations in the event that there is a clear demand for these integrations.
Additional Loan Types
While variable loans are great, it’s important that Compound expands its product offering for a growing user base. Notably, we’ve seen two core innovations within DeFi lending in recent months.
The first is fixed-rate loans. Fixed-rate loans act as one of the biggest debt markets in traditional finance and should undoubtedly be considered as a product for Compound. While the exact implementation needs to be explored deeply, this is a product we’d love to offer Compound users in the future.
The second is a crypto-native loan type – flash loans. Despite the fact that flash loans have received a bad rep by the DeFi community, they’re ultimately one of the most innovative creations we’ve seen to date in DeFi. As such, it’s important for Compound to offer innovative solutions that can’t be found anywhere in traditional finance.
Aave’s flash loans have seen massive success in recent months as DeFi users capitalize on the potential arbitrage opportunities while DeFi aggregators like DeFi Saver are leveraging the financial primitive for novel use cases like advanced management strategies for Maker Vaults.
We believe flash loans could act as one of the next catalysts to propel the lending protocol further. That said, we’d love to explore the possibility of integrating flash loans into Compound.
Protocol & Token Economics
The Compound Protocol and COMP token economics are still in its early stages. Fortunately, our Governance team is equipped with individuals who’ve spent years working on token economics, DAOs, and DeFi.
We want to ensure the protocol is properly incentivized and funded for its long-term success. We’d like to explore the potential for protocol fees directed towards a DAO. By implementing these economics, we can ensure that Compound is self-sustainable well beyond Compound Lab’s runway.
The DAO’s treasury fund could be managed by COMP holders at large (not just delegates) who direct the protocol’s capital how they see fit. This could include hiring Elected Paid Contributors (EPCs) like MakerDAO, Marketing initiatives, along with funding protocol integrations and other tools for developers.
The most crucial aspect of DAOs is that of community and coordination. Building off our team’s experience with DAOs like MetaCartel and Raid Guild, we believe we would be well suited to spin up a suite of experiments to better align incentives regarding any new protocol & token economic designs.
We’re extremely excited to be kicking off our governance initiative with a protocol that’s so closely aligned with our work at DeFi Rate. Compound’s potential to act as the backbone for global money markets is extremely profound. The fact that this opportunity is even a reality is a strong testament to the exciting future DeFi is building each and every day.
Beyond Compound itself, this thought-process has generated a lot of exciting discussions for the future of DeFi Rate and the emerging role of specialized knowledge providers in the web3 ecosystem. What’s perhaps most interesting about Compound is there is no inherent speculation with COMP tokens – making it drastically different from virtually every other ERC20 governance token on the market.
It’s this core component that makes us that much more motivated to solidify our reputation as a trusted resource for the DeFi community at large. All in all, everything outlined in this proposal is exactly that – a proposal. We’re hoping to garner some feedback from the community on what they’d like to see with the future of Compound.
While there will likely be minimal delegation in the next few weeks given COMP tokens are still being slowly rolled out, we wanted to take the leap and highlight our plans and thoughts on how we’d grow the protocol in the future given the opportunity to do so.
Please feel free to reach out to us with your feedback or any questions. In the coming week, we’ll be opening the official DeFi Rate Discord for discussions on our governance plans.
If you’re a COMP holder and you believe in our vision and passion for DeFi, you can delegate your tokens to our official governance wallet – defirate.eth
This is just the beginning of a long road for our governance initiative. More details surrounding other protocol governance initiatives will be released in the near future.
Get fired up! We surely are.
Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.