I think we are getting a bit sidetracked here focusing too much on MKR as collateral. Not to say that isn’t a discussion to be had, but it probably warrants a separate thread.
Having that out of the way, I really appreciated @RepoTactics providing a bit of context regarding the discounted cash flows. Based on that information I would be of the opinion that COMP at least at the moment seems a bit overpriced.
That said i am not exactly sure how much that really matters, as the protocol doesn’t really “purchase” the collateral when a user opens a vault as much as it enters a repurchase agreement with that user.
Diving a bit into my own personal opinions, The protocol provides facilities for users to take levered long positions on collateral that they feel bullish on. It is our responsibility to 1 price the risk that we are taking by providing those facilities (plus some premium so we make a bit of revenue) and 2 determine what is an appropriate level of exposure for the protocol given the rest of our loan portfolio as well as our ability to liquidate the collateral to OTC or exchange markets.
All of this is to say that I think even with potentially overvalued collateral there may still be an opportunity given the right stability fee and DC.
To that end I guess I’ll ask a few of questions.
1 How much do you disagree with my assessment above?
2 Do we have some mechanism with which we may be able to estimate the volatility of recent ICOs until a reasonable amount of data exists about the token itself. I would imagine that you might be able to get a decent idea by looking at some index similar to the renaissance IPO index. Does anyone know of a similar index for the crypto space?
3 What markets exist (or are planned to exist) where this collateral might be liquidated, and what are the depth of those markets? To my knowledge there are 2 places where COMP holders will be able to sell these tokens in the short term without entering into an OTC trade Uniswap and Coinbase. On uniswap the current liquidity pool is around ~$4MM that’s (10x what we see for the BAT:ETH swap). I imagine that we may be able to estimate what the coinbase market might eventually look like by averaging tokens of a similar size in terms of market cap, but that is going to take a bit more research on my part.
TLDR: I can agree that COMP may be a bit overvalued at the moment, but it may still have a part to play in the collateral portfolio with the right stability fee and DC. Personally id be quite comfortable with it as an addition with a DC of around 1.5 ~ 2.5MM even before I went through the effort of determining an appropriate stability fee just to determine the appetite for leverage there.