Compound Monthly Financial Report & Analysis - Jan 23
This Newsletter issue covers Compound DAO & Protocol Performance during Jan 23.
Table of Contents
Governance Recap
COMP holders and delegates had a busy month voting on 5 on chain proposals.
The Compound v3 WETH market proposal was executed on the 24th of January and is live with stETH & cbETH as collateral.
Three proposals to update some v2 & v3 parameters from Gauntlet.
One proposal from GFXLabs to upgrade the v2 Oracle.
Crypto Markets & COMP Analysis
Crypto markets a nice green start of the year with Bitcoin gaining 40% during January, recouping all of Q4 22 losses. ETH underperformed BTC but had a nice rally as well, gaining 33% during the month.
COMP closed January at 52 USD recording a monthly gain of 67%
Crypto rallies are a booster of lending protocols performance, so how did Compound perform during Jan 23 ?
Supply & Borrowing Analysis
Data Source : Defi Llama
Monthly Supply, borrowing and Available Supply are defined as the average daily data (extracted from Defi Llama) for the month.
Compound v2 had a small 3% increase in liquidity supplied (includes both available supply and borrowed supply). Compound v3-USDC lost around 3% of its average monthly supply.
USDC borrowing on Compound v3 had 20% increase during January, boosted by Stables demand for leverage.
Data Source : Defi Llama
Compound v2 monthly average supply has been downtrending since the start of 2022 due to the crypto bear market.
Data Source : Defi Llama
Compound v3-USDC launched during August 2022 and has been gaining more USDC Deposits since. January was a down month for USDC supply however as liquidity providers used their stables to buy crypto.
Data Source : Defi Llama
Compound v2 borrowing has been downtrending since the start of 2022 as well as leverage demand decreased.
Data Source : Defi Llama
v3 USDC borrowing has been on the rise since its launch. COMP incentives are enabled for borrowers helping in the rise.
Data Source : Defi Llama
The crypto bear had its effect on available supply as well on Compound v2.
Data Source : Defi Llama
Available USDC Supply on Compound v3 has been increasing since launch but had a minor down tick during January due to high borrowing demand.
Revenues Analysis
Data Source : Token Terminal
v2 suppliers generated 1.4m USD during January. The protocol increased its reserves by 164k USD. This translates to around 11% average reserve rate on v2.
Data Source : Token Terminal
v2 suppliers are generating 0.78% annualized return on the 2.1B USD supplied, based on January’s fees levels.
Data Source : Token Terminal
At January’s levels, Compound v2 is generating around 2m USD for the protocol reserves.
Expenses Analysis
Data Source : On Chain Governance & https://compound.finance/governance/comp
Compound expenses include the DAO operations and COMP incentives.
The Compound Grants Program 2.0 (CGP 2.0) run by Questbook went live on the 16th of January. The CGP was funded with 1m USD (800k for Grants, 200k for the committee) for 6 months which translates to 166k USD monthly (83k for January since the program started mid month).
OpenZeppelin provides security and audit services to the DAO and their partnership with Compound gets renewed every quarter with a quarterly budget of 1m USD.
Gauntlet seeks to maximise Compound’s capital effeciency and minimise the protocol’s risk through paramter updates like collateral & reserve factors, incentives …Gauntlet have a pertnership with Compound that gets renewed on a yearly basis and is currently running with a funding of 1.4m USD.
COMP incentives are the major cost to COMP holders as their ownership in the protocol gets dilluted. On compound they are used mainly to incentivise new markets and thus accomplish a necessary function of bootstrapping liquidity.
Data Source : https://compound.finance/governance/comp
v2 Makets (Major Stables Suppliers & Borrowers & WETH suppliers) were rewarded 1.7m USD in COMP incentives during January.
Data Source : https://compound.finance/governance/comp
USDC Borrowers and WETH suppliers on v3 were rewarded 274k in COMP during January.
Treasury Analysis
Data Source : Dune Analytics & Flipside Crypto
As of the end of January 2023, Compound protocol treasury had 137m USD in assets. Of which, 80m is in the Reservoir. COMP token represents 93% of assets in the treasury.
Focus 1 : Compound Utilization Ratios
Data Source : Defi Llama
The utilization ratio is definded as borrowing / (borrowing + available supply).
Compound v2 has been operating with less than 30% utilization ratio since May 22. The utilization ratio is important for suppliers since the fees collected from borrowers are distributed to all pool suppliers.
Data Source : Defi Llama
v3 USDC has been operating with more than 50% utilization ratio almost all months since its launch.
The higher utilization ratio is helped by Compound’s v3 Collateral isolation from assets supplied for borrowing.
Focus 2 : Compound v3-USDC Collateral & Loan to Value
Data Source : Defi Llama
Users can collateralize their USDC borrowings from Compound v3 using WETH, wBTC, COMP, LINK and UNI.
Similar to USDC borrowing, Collateral backing it has been on the rise as well.
Data Source : Defi Llama
Loan to Value is defined as borrowing / Collateral or 1/Collateralization ratio.
Compound v3 USDC has been operating with 40-50% LTV since its launch. This translates to 200-250% collateration. This is important to the safety of the protocol. Lower collateralization ratios means more liquidations which could result in bad debt for the protocol.