Dialogue with the core developers of Compound: Detailed explanation of the latest version of Compound
Original title: "Special issue - A deep dive into Compound III, an interview with Jared Flatow of Compound Labs"
Original compilation: Kxp, BlockBeats
Original compilation: Kxp, BlockBeats
Welcome to today's article on The State of DeFi Lending. This series of newsletters mainly focuses on the highlights of the DeFi loan market.
This article mainly consists of two parts:
Compound III Overview
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Data source: DeFi Llama
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The user interface of the demo version of the single underlying asset market on Compound III
On June 29, Compound Labs made its code repository public to support Compound's multi-chain strategy. After Compound successfully deployed many forks on other chains, including BSC, Avalanche, Tron, Polygon, etc., it began to explore chains for users with lower prices than Ethereum mainnet.
However, this announcement did not mention Compound Labs' Gateway project in its multi-chain strategy. Later, we talked with the Compound Labs team and learned that due to the rapid growth of the DeFi multi-chain landscape in the past year, the work on Gateway has been temporarily put on hold.
In Compound III, there are several changes worthy of our attention:
single underlying asset——In Compound III, only one asset can participate in lending in each market, so it is also called a single underlying asset market. In this market model, other assets can be used as collateral to provide a loan line for the account (according to the accumulated loan collateral coefficient of the assets provided). At the same time, in Compound III, only this single asset can generate income, and it is the only asset that users need to pay interest (mortgage assets will no longer have APR).
The single underlying asset divides Compound's users into two broad categories - lenders and borrowers. Lenders can make money by providing a single underlying asset, while borrowers need to provide other collateral before they can borrow the underlying asset (and pay interest on it).
double collateral factor——Comet proposed two collateral coefficients, one is the borrowing collateral coefficient and the other is the liquidation collateral coefficient, where LCF>BCF.
Adam Bavosa, Head of Developer Relations at Compound Labs, explained further in the chat:
In Compound III, borrowers need to be concerned with two collateral coefficients. The Borrowing Collateral Factor represents the percentage of collateral value (in USD) that a user can borrow. Users can borrow the entire amount at once and will not be liquidated in the next block, and it will be the same in Compound V2. The liquidation collateral coefficient is always higher than the borrowing collateral coefficient, and only when the user's loan balance accumulates high enough to reach the liquidation collateral coefficient, the account can be liquidated. Therefore, you can think of the difference between these collateral coefficients as the "no new borrowing" period, during which the borrowing is still repayable and cannot be liquidated.
Recently, Yaron Velner, founder of B.Protocol and major contributor to Risk DAO, wrote in thisMediumThe complexity of setting the correct CF and other risk factors associated with multi-debt markets is assessed and presented in the article
The findings suggest that controlling the borrowing assets used against specific collateral, as in Compound III, can help lenders better control risk while also improving capital efficiency for borrowers.
supply capto liquidate
to liquidate- Compound III introduces a new liquidation mechanism that splits the liquidation process into two steps: 1) Repays liquidated position liabilities from the protocol's reserve fund while retaining seized collateral in the reserve fund. 2) Once the threshold is reached for that particular asset in the reserve, liquidation will start. At that time, the reserve assets will be sold at a discount.
This separation of the two steps somewhat reduces the associated liquidation risk: 1) it creates a buffer between current DEX liquidity and collateral that does not need to be sold immediately; Potential losses from bad debts are transferred from the lender to the protocol reserve (and covered by the borrower's reserve fee).
While browsing the Compound III document, I found that the invocation of the liquidation function will be implemented through "clearance points", and these liquidation points will be added to the Gas fee as Token rewards and will be distributed in a later stage.
Jared Flatow, vice president of engineering at Compound Labs, said that the cross-chain deployment of a single underlying asset market will bring more possibilities, which need to be continuously explored by the community in the future.
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interview
interview
In this exclusive interview about Compound III, we're delighted to have Jared Flatow, VP of Engineering at Compound Labs, who brings us more Compound III updates today.
Q1: Comet is part of Compound's multi-chain strategy, what are the main contributing factors for its multi-chain? Given that most of Compound's multi-chain forks are more impacted in bear markets, why bother with a multi-chain strategy?
The Comet protocol contract is a fundamental building block that can be deployed on multiple chains to support common use cases and composability. This contract is versatile and simple in structure, so it is also easy to manage. Its capped supply, dual collateral coefficient, and single underlying asset allow governors to safely deploy and control independent markets. We have also built new tools in the repository to help the community safely and efficiently manage various situations on Comet's different chains. We don't want the bear market to last forever, nor do we want the cost of the Ethereum mainnet to remain high forever. So we believe that the protocol should really meet the needs of users and provide them with faster and more affordable services (although there will be some trade-offs in doing so).
Another key part of Comet's practice strategy comes from a single "underlying asset" in each market. Since the basic Token positions can be transferred through cross-chain bridges, as long as the same basic asset (such as USDC) has a highly liquid interest rate market on multiple chains, it is possible to merge multiple markets into a unified liquidity pool.
Q2: The Commercial Open Source License (BSL) gives the Compound community the option to franchise the brand, meaning that new deployments are either standalone and pay some fee, or are used to contribute to the Compound community, but it is also possible to simply Voting rights are mapped onto the new chain and give the Compound community complete control over the new deployment. Which of these situations is more applicable to Comet? Which option do you think would be more popular?
They are more specific to additional purpose grants, require explicit governance approval to deploy, and are not directly managed by the DAO. While we'd love to focus on these grants to enable more flexible use cases in the future, we'd rather the community take responsibility for deployments of all kinds. Additionally, we want to figure out how these deployments are compatible with licensing agreements and formally adopted by governance. Right now, we're trying to showcase our vision today on some of the big networks.
Q3: A major change in Comet is that it only supports a single loanable asset. Can you explain to readers how this design strengthens market risk management? Why have you chosen to continue supporting the multi-collateral market? Do you think its main use is single collateral (other than borrowable assets) or single borrowing?
In the case where there is only one type of borrowable asset, the collateral coefficient will be directly linked to the underlying asset. Compared with V2, since the price risk is only for specific assets, the coefficient of a specific collateral may be higher, while for stablecoins, its price risk will be completely determined by the collateral assets. In our opinion, the existence of multiple collateral assets can not only improve the flexibility of users, but also increase its composability to other contracts and agreements.
Not only that, but in the single underlying asset market, users can decide the proportion of each specified asset that their collateral can borrow, and managers can also set an upper limit on the amount of each type of collateral that can be used to borrow each underlying asset. In this way, the risks of the underlying asset suppliers are also more controllable.
Q4: Another major challenge of multi-chain and L2 deployment is the low liquidity of DEX liquidation, and Comet has introduced an upgraded liquidation mechanism, can you explain to readers how the new mechanism works and its advantages?
Admittedly, when listing assets on any chain, we must consider the liquidity of the DEX. In the new liquidation mechanism, this is still crucial. The mechanism splits liquidation into two separate steps: debt absorption and purchase of collateralized assets. Whenever an account's assets shrink, anyone applies to "absorb" it and transfer the position to the protocol. Afterwards, the protocol repays the debt in proportion to the seized collateral and provides additional reserves to the account. That way, liquidators can buy collateral from the protocol at a discount. Since the protocol always transfers debt onto its own balance sheet, its reserves act as a security for the protocol.
Q5: What new integration types and creative components can the account management tool that Compound III will launch bring?
In the new account management system, users can entrust their positions to another contract (or address) for management. This mechanism is very flexible and allows various protocols to be built on top of the core protocol. Taking advantage of this, we have established our own "bulker" contract function, so that users can complete asset provision and borrowing in one transaction, and can package the submitted ETH into WETH. At the same time, we also no longer depend on the "msg.sender" function, which opens up more possibilities for integration: for example, users will have the opportunity to manage their positions off-chain through the L2 protocol. Alternatively, this system can also be combined with new on-chain/off-chain primitives provided or created by the service.
Q6: At present, there is still some confusion about Compound Labs' development work on Gateway (also known as Compound Cash) and the upcoming Compound V3. Can you talk about the main differences between the two products, and what groundwork still needs to be done before Gateway goes live?
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