Crypto lending has blossomed into the decentralized finance arena’s biggest sector to date, and locking down the top of that sector for now are Maker and Compound, Ethereum’s most popular dApps at the moment.
Of those two projects, Maker has grown bigger and more decentralized so far, a reality that helps explain why the project’s MKR governance token — through which the Maker community stewards the Dai stablecoin and more — has become a keystone in the early DeFi space.
On the flip side, Compound’s cDai has proven it’s no token to sleep on either, but unlike Maker, Compound’s builders haven’t achieved decentralized governance yet.
The operative word in that sentence is yet, as the dApp’s leadership has stressed in recent months that the project would be further decentralized. The latest leap in that trajectory came this week after Compound revealed their own governance token, the COMP.
How COMP Works
In a blog post published on February 26th, Compound chief executive officer Robert Leshner outlined the newly envisioned “governance system that will replace the Compound protocol’s administrator,” the introduction of which would lead to community governance “without relying on, or requiring, our team whatsoever.”
Notably, the key to this new system will be COMP, a governance-based ERC20 token akin to MKR but set to offer more advanced features.
For example, COMP will have delegation functionalities built right into its design, meaning that holders can delegate their COMP voting power to other addresses or that users with no COMP can still vote via delegation.
Moreover, the COMP token has the ability to track “historical voting weight,” a dynamic that allows for compatibility with more complicated votes later, e.g. a community poll that that mandates users have held their COMP for at least three months to participate.
With these features, COMP’s political possibilities are wide open, and those political possibilities may reverberate throughout the wider Ethereum community as the Compound team is going to open up the token’s design for everyone.
“We hope that COMP can set the standard for how governance tokens operate, and our team will write an Ethereum Improvement Plan (similar to the ERC-20 standard) to accelerate decentralization for the entire ecosystem,”
Value Capture in the Future?
While Maker’s MKR token has a considerable market cap and a direct value proposition, COMP has reportedly been designed only for governance and not as an investment. As Leshner explained in his announcement post:
“COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.”
Even still, the Compound CEO’s remarks here hardly preclude the possibility of the COMP token becoming a project worth investing in at a later date. So thinks DTC Capital’s Spencer Noon, who noted on the news that Compound’s stakeholders may later vote in some type of value capture system once the project is decidedly beyond its builders’ control.
“It’s better to have your community add the controversial feature vs. doing it yourself,” Noon added.
OpenZeppelin Releases Audit Findings
This week, the smart contract auditing experts at OpenZeppelin published a security review of Compound’s alpha governance system. No critical vulnerabilities were found, though a handful of high-to-low severity issues were found.
“Some changes were proposed to follow best practices and reduce potential attack surface,” the auditors concluded.
Undoubtedly then, the Compound team is already hard at work in combing through OpenZeppelin’s feedback. To be sure, it’s always better to be safe than sorry when it comes to designing smart contracts, so the auditors’ suggestions will only help to make the Compound project stronger going forward.