Compound – the leading US lending protocol – has passed a proposal to cut COMP liquidity incentives by 20%.

The reduction in COMP rewards is designed to free up more capital for other needs, such as future development and audits, incentives for voting, and more.

Great report on the proposal along with future changes such as a vesting period on rewards can be found on the governance thread here.

Proposal Details

“Proposal 021” was put forth by blockchain simulation firm Gauntlet, following analysis presented by themselves and others suggesting that the current COMP emission rate is too high.

Data suggests that the vast majority of COMP tokens are flowing directly from aggressive yield-farmers to exchanges and speculators, rather than long-term holders within the Compound ecosystem.

The proposal was created and opened for voting on August 26 and requests a reduction of the COMP emission rate from 0.440 COMP/block to 0.352 COMP/block. This figure is represented by upgrading the protocol’s “compSpeed” to 0.176 (equal to half the 0.352 COMP emission rate).

Gauntlet argues that the COMP saved by lowering the emission rate can be put to more beneficial use, primarily to further develop the protocol and onboard new Compound users.

Voting was heavily in favor of Proposal 021, with roughly 86% in favor of the proposal. This includes large votes from tokens belonging to Polychain Capital and Synthetix founder Kain Warwick along with our support here at DeFi Rate.

The Backlash

Of course, not all community members are happy with the new proposal and its implications for yield farmers.

The liquidity incentive cut will likely lead to a migration away from the protocol for some farmers, taking away precious liquidity and adoption.

Popular crypto news website Cointelegraph has even gone as far as calling the overall Gauntlet proposal an effort to “end the COMP yield-farming craze”.

Still, in the midst of yields upwards of 1000% across multiple food coins, this proposal feels like a much-needed gut check to help bring COMP farming back to reality and further incentivize long-term holders rather than short term speculators.

What’s Next?

The proposal was passed, meaning that as of today, emissions have been reduced by 20%. Not surprisingly, COMP holders are rallying around the news, with the token price up 8% this afternoon.

The full-length Gauntlet proposal can be read here.

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