Expanding Compound Governance

Robert Leshner
May 27, 2020 · 3 min read

To create unstoppable, upgradable financial infrastructure, Governance replaced our team as administrator of the Compound protocol; COMP token-holders and their delegates debate, propose, and vote on all changes to Compound.

The stakes are high — the protocol holds more than $100 million of assets, and dozens of applications rely on Compound markets. Which is why, for the past two months, COMP has been tested in the open, with a limited group of stakeholders.

During that time, the community proved that Compound is upgradable by anybody with a good idea, without relying on our team or middlemen:

  1. Our team added a new asset, Tether, to the protocol
  2. Dharma, an application built on Compound, created a new DAI interest rate model
  3. A community member managed the process to begin deprecating SAI

The functionality to create proposals, delegate and vote performed flawlessly in Coinbase Custody and the voting interface, and no vulnerabilities were discovered.

Today, we’re excited to announce that Governance is ready to scale from our core team and shareholders, to the entire Compound ecosystem.

Distributing COMP

The distribution of COMP will become a core mechanic of the Compound protocol. All users and all applications built on top of Compound will continuously, and automatically receive governance rights, for free— in order to shape the future of the protocol.

“The individuals, applications and institutions that use the Compound protocol are capable of collectively stewarding it into the future — and are incentivized to provide good governance.” — Robert Leshner, Compound Founder

How it works

  • 4,229,949 COMP will be placed into a Reservoir contract, which transfers 0.50 COMP per Ethereum block (~2,880 per day) into the protocol for distribution
  • The distribution is allocated to each market (ETH, USDC, DAI…), proportional to the interest being accrued in the market; as market conditions evolve, the allocation between assets does too
  • Within each market, 50% of the distribution is earned by suppliers, and 50% by borrowers; in real-time, users earn COMP proportionate to their balance; this is separate from the natural interest rates in the market

April 2021 update: the COMP Distribution was modified in proposals 10, 21, and 33; Governance allocates 2,312 COMP per day to markets in a fixed allocation, which is no longer based on interest rates.

Public Testing, Review, and Planning

An upgraded version of the protocol is now running on Ethereum’s Kovan testnet:

  • The COMP Distribution codebase is available to review on Github
  • OpenZeppelin performed an audit of the release; no issues were found
  • You can manually test the release by setting your web3 network to Kovan on the Dashboard

Developers should plan whether & how to transfer COMP to users; with some planning, the distribution can be a powerful mechanism for user acquisition and participation.

Tracking the Distribution

You can monitor the distribution on a newly created COMP Distribution Dashboard.

Next Steps

Allowing every user to participate in governance will be the most important milestone in Compound history — and one worth preparing for.

To begin the transition, we’ll first abdicate the Guardian functionality that allows our team to disable Governance in an emergency; once disabled, COMP holders have complete, censorship-resistant control over the protocol.

Next, one of the members of our team will propose a protocol upgrade to support COMP Distribution — this will likely occur next month. Once activated, the distribution will last for approximately four years—continually bringing more users, and more applications into the governance process.

Update, June 10th

The COMP Distribution has been tested, analyzed, and verified on the Kovan testnet; thank you to every community member that participated and provided feedback.

We’ve created Proposal 007 to upgrade the protocol, which if passed, will begin the COMP Distribution on June 15th — the start of complete community involvement.

If you have any questions, ideas, or issues, join us in Discord and the Governance forum — we’d love to hear from you.

From all of us at Compound, 📈.

Compound

Compound is an algorithmic, autonomous interest rate protocol built for developers.

Compound

Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

Robert Leshner

Written by

Full-stack founder of Compound. Chartered Financial Analyst, previously a finance guy.

Compound

Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

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