How will the new Compound governance proposal, approved by a wide vote, affect users?
The previous rule was that 2,880 COMPs were distributed to users per day, which will not change.
BlockBeats news, the Compound Governance proposal #11 was approved at 2:37 am Beijing time on July 1. The proposal will take effect in two days. According to the content of the proposal, there will be two main changes:
1) The borrowing rate, which serves as a weighting mechanism, was cancelled, and the allocation of COMP in various markets was adjusted. Each market allocates COMP according to borrowing requirements; The money is then divided equally between suppliers and borrowers. The COMP rewards awarded to those who participate in the loan mining will be distributed in dollars. & have spent
2) Previously, users could use “flash loans” to manipulate the timing of cross-market lending to get more COMPs. After that, users would need externally owned accounts (rather than smart contracts) to refresh the allocation in each market, thus reducing the risk of evil.
The allocation formula used to determine the COMP allocated to each market for each block is:
Total amount borrowed * Lending rate per block * DOLLAR value changed to:The total amount borrowed * DOLLAR value.
The COMP rewards awarded to those who participate in the loan mining will be distributed in dollar value, which means that users are likely to exit the high-risk token (BAT) and 0X (ZRX) markets in favor of safer and stable assets such as USDC and DAI.
The Comp voted for 771,804 mortgages. Less than one COMP token voted against it. According to CoinGecko, this is equivalent to 26% of Comp’s mobile votes in favour of the reform.
The proposal came about because as the Compound’s funding grew, its founder, Robert Leshner, found that there were two problems with the Compound:
1. BAT (and ZRX) market currently has extreme liquidation risk.
2. Most users (non-Woolite) who were using the Compound agreement received little or no COMP. This goes against the goal of the COMP allocation mechanism to include core users in governance.
So, according to a June 29 report in Rhythm, he proposed Four reform proposals:
1. Reserve Factors
2. Updating Interest Rate Models
3. Updating the Distribution Formula
4. Reduce COMP Speed
In the end, the community voted to change the formula.
Compound began distributing its governance token, the COMP, on 15 June. Previously, users were rewarded with COMP tokens based on the interest they received or paid (in most cases, both). The idea is that ‘if you’re paying a lot of interest or getting a lot of interest, you’re playing the game,’ says Robert Leshner, founder of Compound.
So how profitable is the Compound mining before the change? NEXO, the central-owned lending platform, took part in the COMP mine on June 18, three days after Compound started giving out tokens, According to previous reports by Legal Action. At the time, NEXO made a single us25.4 million transfer to Compound, earning 18,000 in a single day based on what it paid at the time. Subsequently, NEXO transferred nearly 60 million USDT to Compound. It can be seen that the profit temptation is great. But, perhaps because of risk and other concerns, NEXO soon began withdrawing the money it converted to Compound.
It was hoped that the system would help avid users who had real demand for Compound services, but no one expected a huge gap and arbitrage between the cost of getting involved in the COMP mortgage and the market price of the COMP. As a result, Compound usage patterns have changed dramatically, with some formerly less-popular lending markets, such as BAT, flooding in with cash to become more dynamic. As of June 15, the total amount of supply to Compound BAT was less than 2 million. At the time of writing, it was 333 million.
What happens when the new proposal is passed?
The previous rule was that 2,880 COMPs were distributed to users per day, which will not change. But under the new proposal, users will receive COMP tokens based on the dollar value of assets they deposit or lend from the system.
Simply distributing returns in terms of dollars in the financial system is unlikely to reduce the overall benefit of yields, but these assets are almost certain to shift to different markets, according to stakeholders.
“The goal of COMP allocation is to allocate COMP to users who create value for the agreement, whether by providing capital or by paying interest on borrowing,” says Brendan Forster of Dharma. “It seems to me that changing the distribution mechanism would do a better job of achieving that.” Instadapp co-founder Sowmay Jain also expressed support for the newly adopted proposal. Instadapp’s revenue tool is designed to help investors maximize COMP returns.
MakerDAO was the team that was nervous about this change. Cyrus Younessi of MakerDAO risk team wrote an article in the project forum that this change could lead to a surge in demand for Dai. “I would expect the two most popular mining assets to be THE USDC and Dai because of their (attractive) interest rate curve,” he wrote. “It is possible [very likely] that we will see unprecedented demand for Dai.” Most of Dai’s natural resources could also be locked up in Compound mines, and there would be fewer orders from sellers.
But investors moving their COMP mines to DAI have an added advantage: by focusing on stabilizing assets, they are far less exposed to potential volatility in their investments (far less than ZRX or BAT’s expected high-yielding agriculture).
At this point, Foster writes, “This change reduces the risk of an agreement and should therefore increase the demand for COMP.”
“Current users are not really interested in COMP as a managed asset, they are only interested in the economic gain from distribution. They may sell off COMP on a regular basis,” Mr Foster wrote. “This change could result in a company, being distributed to users who are more likely to be a company, longtime confidants, and therefore more likely to be a company.”
