Global fintech and funding innovation ecosystem

Why Compound is redesigning it’s token-economics

The Defiant |

COMP rewards adjustment - Why Compound is redesigning it's token-economicsBackground

In the summer of 2020, Ethereum lending protocol Compound worked out that if you give away free governance tokens for borrowing and lending crypto, people will flock to your platform and pump the value of your new token.  But when that free money spigot ran dry, those new users disappeared. Almost two years later, the price of Compound’s token has fallen 83% from its all-time high, and the protocol has lost considerable ground to its rivals.

See:  Intro to yield farming and the latest developments in DeFi

Now the Compound community is using those governance tokens to redesign the incentives that attract people to the platform. One proposal wants to scratch the COMP rewards program entirely – and it’s gaining a lot of traction.

“This COMP farming behavior is not the kind of activity that will bring value to the protocol, or for the existing users and token holders. Incentives need to be used to grow the protocol to the benefit of the protocol itself and its users and token holders,” he said.

4 Phase Plan to overhaul the rewards program

In March, Tyler Loewen sketched out a four-phase plan to overhaul the incentives that Compound offers to its users.

  1. In his first step, Loewen suggested cutting COMP rewards in half.   Loewen’s idea attracted 82.1% of the 883,480 votes – just 8% of COMP holders voted against, and nearly 9.8% abstained. The proposal was implemented on March 26.
  2. His second step, which the community is considering until Thursday, would remove COMP rewards entirely.
  3. Optimize the protocol's interest rates
  4. Design a new rewards program

See:  Rise of Regulatory Compliant DeFi Protocols

“Bad Idea”

Teddy Woodward, the co-founder of Notional Finance (one of Compound's largest lenders supplying approx 6.7% of the protocol's liquidity), tweeted that Loewen’s proposal to remove COMP rewards entirely is “a bad idea and will drive capital to competitors:

  • He estimates that removing COMP rewards would cut annual lending rates for DAI from 2.77% 0.72% DAI, and from 2.42% to 1.55% on USDC. If that happened, lenders would migrate to platforms like Aave, where yields that are up to three times greater.
  • Most of the borrowing on Compound is driven by recursive borrowing, meaning that users will continually leverage funds back into the protocol to generate larger profits from the COMP rewards.

Continue to the full article --> here


NCFA Jan 2018 resize - Why Compound is redesigning it's token-economicsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Why Compound is redesigning it's token-economicsFF Logo 400 v3 - Why Compound is redesigning it's token-economicscommunity social impact - Why Compound is redesigning it's token-economics

Support NCFA by Following us on Twitter!







NCFA Sign up for our newsletter - Why Compound is redesigning it's token-economics




 

Leave a Reply

Your email address will not be published. Required fields are marked *

twelve + 10 =