B.Protocol-Compound Integration is LIVE

Get more out of your Compound account

Published in

B.Protocol

7 min readMar 2, 2021

Get a slice of the liquidation proceeds on Compound and incentives committed liquidators for DeFi lending platforms, while accumulating governance power in B.Protocol.

Introduction

We are very excited to launch B.Protocol integration on top of Compound, which is now available on https://app.bprotocol.org/compound.

Compound users can now make more with their funds by using B.Protocol — the backstop liquidity protocol for DeFi lending platforms. Users can earn a slice of the liquidation proceeds made by B.Protocol’s backstop liquidators, help make Compound more resilient to Black Swan events and gain cScore — voting power on future updates of B.Protocol.

Users can Import their Compound account into B.Protocol with a simple one-click widget, and will get their COMP rewards as usual.

We are sharing here the full details about this new integration, to enable everyone to learn the details and choose how and when to get involved. For a detailed step-by-step guide, please check this tutorial.

What B.Protocol users get

Users who manage their Compound accounts with B.Protocol smart contract interface, accumulate B.Protocol-Compound User Score (cScore). The earliest you start using B.Protocol, the more cScore you get. After a 2 month period (end of April 2021), the cJar, which holds part of B.Protocol’s backstop liquidators proceeds from Compound, will be distributed to the users proportionally to the cScore they have accumulated.

Also, at the end of this first epoch (end of April 2021), users could start to vote on B.Protocol’s future updates, including the proceeds distribution model, the Backstop’s membership requirements, incentive models, and more. The voting power in the first vote will be proportional to the users’ cScore.

cScore is given only to B.Protocol users who use the Compound interface, and no cScore was pre-allocated to VCs or the team.
The cScore is registered on the blockchain but is non-transferable and is not even an ERC20 token. Hence it cannot be traded, and can never be traded.
While we technically cannot prevent future governance from tokenizing the cScore, the team will not actively support any outcome that will violate the applicable regulatory framework.

The B.Protocol-MakerDAO interface that was launched in October 2020 and currently holds around $30m TVL, has a separate Jar now (mJar) and separate User Score (mScore). Both the Jar distribution and the vote on the next update of the protocol will be made separately for each community.

Security model

B.Protocol is designed as a thin layer on top of the DeFi lending platforms it is integrated with, in order to make user funds as secure as they are when using the platforms directly. The user pays and gets the same interest rates, and has the same liquidation penalties as s/he would have using the platform directly.

The code for the Compound integration was audited by Solidified. The report did not find any major issues and confirmed our analysis regarding the security of user funds.

The problem we solve

The rapidly growing DeFi ecosystem is currently holding around $40B in assets (Feb. 2021), which crucially rely on an adequate liquidation process for their security. Lending platforms like Compound and Aave, the Dai ecosystem, synthetic asset platforms, and margin trading platforms, all rely on liquidations to remain solvent. But liquidation systems on DeFi are still under-developed, compared to Crypto CeFi and Tradfi in general.

Whenever a user debt is about to exceed its collateral, a liquidation process is triggered, in which a liquidator pays the user’s debt in return for a part of their collateral (we made this 3-min animation video to explain how it works in a simple manner). All major DeFi platforms currently outsource this service to the entire Ethereum community, by allowing every Ethereum account to participate in the liquidation process, and offer discounts of 3–13% on the liquidated collateral in order to incentivize liquidators to participate.

This is in general a fair approach, but as we have covered in a previous post, it brings up two major issues — 1) Gas wars that lead to miners extracted value (aka MEV) growth that will eventually mark down liquidation incentives to zero, and 2) lack of committed liquidators as the uncertainty of potential profits is too high. Both of these issues are critical to the stability of the DeFi ecosystem on any given day, and in particular on severe market conditions as occurred on Black Thursday in March 2020.

B.Protocol is a backstop liquidity protocol. A new DeFi lego primitive aiming to better handle liquidations on DeFi lending platforms in order to make the DeFi ecosystem scale in a secure and stable manner into CeFi levels.

We incentivize liquidity providers (keepers) to share their liquidation proceeds with the platform users in return for a priority in the liquidation process. By that, we bring more committed liquidators to the lending platform and help to shift back MEV to the community.

How does it work?

We integrate B.Protocol with existing lending platforms — Compound in this integration. We let users interact with Compound via a dedicated smart contract interface. B.Protocol liquidators get a priority in the liquidation process by providing a cushion to the user account when it is getting close to the liquidation price. You can read more about how B.Protocol achieves fairness in its liquidation process on top of Compound here.

The liquidation discount (aka liquidation penalty) of any liquidation that is being processed by B.Protocol’s Liquidators over Compound is being divided between the liquidators and the users. The users’ part is being accumulated in the B.Protocol-Compound cJar and will be distributed among the users at the end of each epoch according to their User Score.

Who Benefits from using B.Protocol

TL/DR — Everyone besides miners…!

Compound users can get added value from their funds in Compound, getting a slice of the liquidation proceeds with no additional risk*.
Compound as a lending platform gets new and committed professional liquidators that bring more stability to the platform. In the long run, a more stable platform could enable higher collateral factors without getting exposed to insolvency risks.
Liquidators get better risk management and prediction capabilities. This incentivise them to build better-adjusted tools for DeFi lending platforms, and in return for the decline in uncertainty, to share their proceeds with the users of the platform.
The Ethereum ecosystem gets another way to mitigate MEV and to shift value from miners back to users.

The Details

User Score

User Score calculation: The B.Protocol-Compound User Score (cScore) accumulation rate is calculated in correlation to the COMP distribution rate, and the user supply and borrow balances.
The cScore is not an ERC20 and is not transferable during the first epoch (ends in April 2021).
Fair Launch principles — No VCs & no pre-mine of cScore to anyone. Including devs.

Jar

Liquidation proceeds sharing: 3/8 (37.5%) of the premium of every liquidation (In the time of writing, this is 8% of the liquidation size) goes into the cJar smart contract. The rest 5/8 goes to the liquidators.
cJAR Rewards Distribution: In 2 months, at the end of the first epoch (scheduled for the end of April 2021), the content of the cJAR will be distributed among the users of B.Protocol-Compound in proportion to their cScore.

COMP Rewards

B.Protocol users of Compound are eligible to COMP rewards just like they would if they interact directly with Compound. You can claim your COMP directly from B.Protocol app.

Governance

2 months after launch (end of April 2021), the first epoch will end and 100% of the control of B.Protocol smart contract on top of Compound will be handed to the community who will have the power to decide about its future path. A decision by 51% of the users, according to their cScore, will be able to set an adjusted incentive model as well as make other decisions.
The B.Protocol-MakerDAO first epoch will end at the same time and the B.Protocol community who holds mScore will be able to vote at the same time on the future path and whether or not the two should be aligned or combined.
More discussions on the governance future will be held at the B.Protocol Discord server here.

How to start with B.Protocol

B.Protocol (https://app.bprotocol.org) is an alternative CDP management system. Users are getting the exact same conditions as if they were using Compound or MakerDAO, plus the ability to share the liquidation proceeds with B.Protocol liquidators.

Import your account to B.Protocol with a single click, using the Import widget.
If you do not have a Compound account — open one through B.Protocol by Deposit assets as collateral and Borrow your preferred tokens. Pay attention to the different APYs for each token.
Your User Score will keep on growing as long as you have funds in the platform according to the scheme mentioned above.
After 2 months from launch, the cJar balance, which is where liquidation proceeds are being kept, will be distributed among users according to their cScore.
Users will be able to vote on B.Protocol’s future updates according to their cScore.

*For a full tutorial on how to use B.Protocol head over to — https://medium.com/b-protocol/b-protocol-compound-tutorial-c97b6a292968

About B.Protocol:

B.Protocol makes lending platforms more secure by incentivizing liquidity providers (keepers) to commit on liquidation of under collateralized loans and shift the miners extracted profits back to the users of the platform. B.Protocol was founded by Yaron Velner, who was previously Kyber Network’s CTO and a co-designer of the WBTC protocol.

For more, please visit our website, twitter, discord and github.