[cDAI] MIP6 Collateral Onboarding Application

Reasons to include the cDAI token

  • Having cDAI as a collateral provides a way to influence DAI interest (supply and borrow) on the Compound Protocol which will be important in an Interest rate parity theory to keep the peg around 1.

  • It provides a liquidity provider of last resort in case of DAI liquidity issues on Compound. That is valuable for Compound protocol but also to DAI borrower as we can provide ways to avoid punishing interest rates (>20%)

  • It provides an easy way to expand DAI supply, if needed, by recycling DAI locked in Compound.

  • This collateral has only a protocol risk, no volatility risk (it’s DAI) and no custody risk which is not frequent.

  • A general discussion can be found here => [Discussion] cDAI/aDAI collaterals as a peg enabler tool

Application Form

1. Who is the interested party for this collateral application?

@SebVentures

2. Provide a brief high-level overview of the project, with a focus on the applying collateral token

Compound is a money market protocol. Participants can deposit tokens in excess in the protocol in order to get interest as liquidity providers. They get a Compound interest bearing token in exchange (cDAI in case of DAI deposited). Having a deposit on Compound also offers the opportunity to borrow some tokens from the liquidity pools using the deposit as collateral.

Each borrowing is over collateralized. The interest received on deposit and the interest paid on borrowing depend on the supply and demand for each token. Below is the DAI interest curve for supply (green) and borrowing (purple).

image

The cDAI token has an exchange rate with DAI that increase over time (more DAI per cDAI due to compounded interest). The current rate can be found here.

Currently, each cDAI earns some COMP tokens. Obviously, the collateral usage (an possible stability fee) would be better if the cDAI owner still gets COMP tokens. Not sure how that can work with a Maker Vault.

3. Provide a brief history of the project

Compound was launched by Compound Labs. Compound Lab raised $33M of equity with a last Serie A of $25M from Andreessen Horowitz in November 2019 (Andreessen Horowitz is also a big owner of MKR tokens).

Compound launched on mainnet in October 2018. It has strong adoption as TVL is now around $700M.

The DAI collateral contract exists since Nov 2019. It can, and was, upgraded (to use DSR).

The DAI usage on Compound was increased due to COMP farming with farmers supplying and borrowing DAI. It’s around 200M DAI currently.

4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

Whitepaper: https://compound.finance/documents/Compound.Whitepaper.pdf

Docs: https://compound.finance/docs

Code: https://github.com/compound-finance/compound-protocol

5. Link any available audits of the project. Both procedural and smart contract focused audits.

Audit report by openzeppelin: https://blog.openzeppelin.com/compound-audit/

6. Link to any active communities relating to the project.

COMP gouvernance portal: https://compound.finance/governance

7. How is the applying collateral type currently used?

The collateral is not widely used (no many use). It can be used on exchanged (Balancer mainly, Curve or uniswap). It is also a possible underlying for yDAI (which is not currently).

8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

No organization bears legal responsibility for the collateral.

9. Where does exchange for the asset occur?

The main exchange would be Compound Protocol directly as DAI can be redeemed with cDAI.

10. (Determined by Legal Domain Team) Has the project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

Not that I’m aware of.

11. (Determined by Legal Domain Team) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.

Not that I’m aware of.

12. (Optional) List any possible oracle data sources for the proposed Collateral type.

Comp tokens exchange rate are accessible on-chain.

13. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

No parties that I know of.

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