[Gauntlet] 2024-02-05: Ethereum v3 USDC - Risk Recommendations
01Summary
Gauntlet proposes increasing the COMP Liquidation Penalty in Ethereum v3 USDC comet from 12% to 25% to address concentration risk, as COMP supply cap is fully utilized at 100%.
- Type
- parameter change
Key changes
- Increase COMP Liquidation Penalty from 12% to 25% in Ethereum v3 USDC comet via updateAssetLiquidationFactor method(high)
Notable concerns
- COMP supply cap has been fully utilized at 100% for the past two months
- Limited DEX liquidity for COMP creates concentration risk
Generated by Kvorum
02Description
[Gauntlet] 2024-02-05: Ethereum v3 USDC - Risk Recommendations
Simple Summary
A proposal from Gauntlet to adjust one risk parameter in the Ethereum v3 USDC comet.
Gauntlet recommends the following risk parameter change:
- Increase COMP Liquidation Penalty from 12% to 25%
For more details, see the full forum post here.
Motivation
In the Ethereum v3 USDC comet, the COMP supply cap of 900k (~$48M) has been fully utilized at 100% for the past two months. Given the concentration risk posed by COMP and its limited DEX liquidity, we advise raising the COMP Liquidation Penalty from 12% to 25%.
Full proposal and forum discussion
Specification
This proposal updates the Ethereum v3 USDC comet through the UpdateAssetLiquidationFactor method in the Configurator contract.
By approving this proposal, you agree that any services provided by Gauntlet shall be governed by the terms of service available at gauntlet.network/tos.
03Mismatch analysis
The description states a single risk parameter change: raising the COMP Liquidation Penalty in the Ethereum v3 USDC comet from 12% to 25%, executed via updateAssetLiquidationFactor on the Configurator. Action 0 matches this exactly: it targets the Configurator contract, references the USDC comet and COMP asset addresses, and sets the liquidationFactor parameter to 0.75 (75%). In Compound III, Liquidation Penalty = 1 - liquidationFactor, so a factor of 0.75 corresponds precisely to a 25% liquidation penalty, consistent with the stated target (the prior value would correspond to a 0.88 factor / 12% penalty, which is plausible and not contradicted by the data available). Action 1 (deployAndUpgradeTo) is the standard mechanical step used in every Compound III governance proposal to deploy the new configuration and activate it on the proxy — this is routine boilerplate that faithfully implements the described change and is not something proposals typically call out explicitly, per convention. No value mismatches, target mismatches, or omitted material actions were found. Confidence is high because the description is specific (concrete percentages, specific contract/method named) and directly verifiable against the decoded calldata.'
Generated by Kvorum
04Actions
- Target
- 0x316f…36e3
- Value
- 0 wei
- Function
- updateAssetLiquidationFactor(address,address,uint64)
- Arguments
{ "0": "0xc3d688B66703497DAA19211EEdff47f25384cdc3", "1": "0xc00e94Cb662C3520282E6f5717214004A7f26888", "2": "750000000000000000" }- Calldata
- Target
- 0x1ec6…8779
- Value
- 0 wei
- Function
- deployAndUpgradeTo(address,address)
- Arguments
{ "0": "0x316f9708bB98af7dA9c68C1C3b5e79039cD336E3", "1": "0xc3d688B66703497DAA19211EEdff47f25384cdc3" }- Calldata
05Tally
Summed from votes
06Voters
| Voter | Choice | % of total | Rationale | ||
|---|---|---|---|---|---|
| EA0xea6c…3bf7 | For | 331K | 0.00% | — | 3y ago |
| 8D0x8d07…a265 | For | 70K | 0.00% | — | 3y ago |
| B90xb933…8dd1 | For | 57.6K | 0.00% | — | 3y ago |
| 130x13bd…8548 | For | 50K | 0.00% | — | 3y ago |
| 3F0x3fb1…4c8a | For | 25.6K | 0.00% | — | 3y ago |
| B30xb356…c826 | For | 1.3K | 0.00% | — | 3y ago |
| E40xe459…e666 | For | 0.7 | 0.00% | — | 3y ago |
07Forum
- [Gauntlet] Ethereum v3 USDC - Risk Recommendations (1/31/24) ↗discourse · high confidence
Arguments for
- Increasing the liquidation penalty to 25% provides a larger post-absorption price drop buffer (11.8% vs 5.17%), reducing protocol insolvency risk from a large COMP supplier position.— Gauntlet
- A higher liquidation penalty would incentivize a decrease in COMP supply, which is beneficial given demonstrated DEX liquidity constraints relative to the supply cap.— Gauntlet
Arguments against
- A 25% liquidation penalty is excessive and unreasonable, and addresses a symptom rather than the root cause of COMP liquidity problems.— Sirokko
- Compound protocol itself bears responsibility for COMP liquidity as the token issuer and should have implemented liquidity incentives or provided protocol-owned liquidity to DEXes rather than relying on penalty increases.— Sirokko
- The protocol's treasury holds 1.8M COMP tokens but does nothing to support or provide on-chain liquidity, creating unnecessary risk exposure.— Sirokko
Unresolved concerns
- Why has Compound not implemented liquidity incentivization programs or deployed protocol-owned liquidity to ensure adequate on-chain COMP liquidity given it is the protocol's largest asset?— Sirokko
- Is increasing the penalty the appropriate long-term solution, or should the protocol address the underlying liquidity infrastructure problem first?— Sirokko
Notable participants
- GauntletRisk analyst proposing the liquidation penalty increase with detailed quantitative analysis and absorption scenarios.
- SirokkoCommunity member raising concerns about penalty adequacy and challenging the protocol's responsibility for COMP liquidity management.
Generated by Kvorum
08Similar proposals
- compoundexecuted[Gauntlet] Ethereum v3 USDC Comet Recommendations (2024-04-18)88%
- compoundexecuted[Gauntlet] Ethereum v3 USDC - Risk Recommendations (02/19/2024)87%
- compoundexecuted[Gauntlet] Optimism USDC Risk Recommendations - 06-17-2485%
- compoundexecuted[Gauntlet] COMP Recommendations - Ethereum v2, USDC and USDT Comet on Mainnet85%
- compoundexecutedRisk Parameter Updates for USDC Comet Market85%
- compoundexecuted[Gauntlet] 2024-01-14: Polygon v3 USDC.e - Risk Recommendations84%
- compoundexecuted[Gauntlet] Polygon USDC.e Risk Recommendations (04/01/2024)84%
- compoundexecuted[Gauntlet] Risk Parameter Recommendations (02/2025) - V3 Ethereum USDS & V3 Arbitrum USDC/USDT & V3 Polygon USDC/USDT84%
- compoundexecuted[Gauntlet] Risk Parameter Recommendations for LINK and UNI (Oct 2024)83%
- compoundexecutedRisk Parameter Updates for 1 Collateral Asset on the Comet USDC Market82%