Proposal to Add cUSDC (V3) as Collateral

Governance IP Improvement Proposals
#1

Proposal to add cUSDC (V3)

Proposal to add cUSDC (V3) as a capped collateral to Interest Protocol.

Overview

The latest iteration of Compound’s lending market, like previous versions, provides a tokenized representation of USDC that has been deposited into the Compound Protocol. It accrues interest at a rate set algorithmically by the interest rate curve for deposited and borrowed USDC. At time of writing, that is 2.14%. cUSDC is freely transferrable and redeemable. The token contract is upgradeable by Compound governance.

Because cUSDC (V3) is interest-bearing USDC redeemable with Compound, which is not the issuer of USDC, there is a risk of the token becoming illiquid should Compound have insufficient USDC reserves to meet withdrawals. To mitigate this, Compound, similar to Interest Protocol, automatically increases rates rapidly to encourage new USDC to enter the protocol or for borrowed USDC to be returned. There is no obvious mechanism to introduce slippage risk when redeeming.

The stable value of cUSDC in relation to USDC, the sole reserve asset of Interest Protocol at time of writing, makes it a secure asset that is also yield bearing. In times that Interest Protocol charges users less than cUSDC yields, it allows for users to safely arbitrage the rates, resulting in higher cUSDC and USDi usage.

Token Address: 0xc3d688B66703497DAA19211EEdff47f25384cdc3
Capped Token address:
LTV: 98%
Liquidation incentive: 0.75%
Maximum Cap: 1,000,000
Oracle Address:
Primary oracle:
Secondary oracle:
Price deviation: N/A

Liquidity

Market Cap: $195,000,000
Liquidity: Equivalent to USDC reserves at Compound V3; ~66 million at time of writing
Volatility: Stablecoin
Coingecko 7-day avg 24hr volume: N/A
Notable exchanges: N/A

Technical risks

  1. Type of contract: staked asset token
  2. Underlying asset: USDC
  3. Time: Deployed August 13, 2022
  4. Value:
  5. Privileges: A 4 of 6 Guardian msig can pause V3
  6. Upgradability: Yes

Relevant References

Compound III Documentation
Compound Finance Marketplaces
Audit by Open Zeppelin
Audit by Chain Security

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#2

I haven’t used Compound personally but USDC lenders receive comp rewards right? and does locking their cUSDC collateral in an IP vault mean they forgo their comp rewards? If yes, then IP lending rate will have to be marginally higher for the arb to make sense correct?

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#3

They do not on V3. There are some rewards on V2. On V3, only borrowers get rewards, and the rate is currently negative taking into account rewards.

I don’t think it should, since it’s the borrowed balance over at Compound that would drive the rewards for V3. As for V2, I don’t know how they calculate it - I would assume it’s based on the deposited amount and not the cUSDC in the wallet, but I’ll confess I didn’t look since I was focused on V3.

At present, there’s not really an obvious arb, since deposit rates are slightly higher on Compound and the borrow rate is negative in real rates. That being said, someone could borrow USDi/USDC against collateral on IP that’s not supported there, and then deposit onto Compound, and then loop on Compound to collect rewards.

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#4

I support these provided they are excluded from IPT rewards and the caps are reasonable.

I have not checked if v3 changed the liquidity controls but v2 you could end up locked in a contract with no liquidity because there was no limit on borrowing vs. cToken redemption’s the assumption being that the steepness of the rate curve near the liquidity boundary would bring in liquidity for redemption’s.

Long ago I suggested to Compound that they use some of their treasury reserves for liquidity buffers (taking advantage of the high rates) but this suggestion was ignored and so far with only a few exceptions for very limited times liquidity hasn’t been ‘that much’ of a problem at Compound.

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