The new Composite Governance Proposal by Gauntlet Founder Tarun Chitra will maintain all future COMP token distributions according to a maturity schedule.
The proposal was made on Wednesday and describes the various ways in which the exercise could be implemented. One might include a secret lockout period in which tokens could be claimed on a regular basis, while the other might suggest a “continuous lock period” that gradually release the tokens as they mature.
Both solutions are in stark contrast to the way the reward system is currently set up, where the wait time is nearly zero. While COMP is not immediately distributed in the user’s wallets, it can be claimed at any time either by interaction with the protocol or by explicitly calling the claims function. Usually this is a gas saving measure.
Without maturity, yield farmers can simply accumulate their cash to earn COMP and sell it to the market instantly. This created a somewhat perverse incentive that conflicts with the stated purpose of distributing COMP. The idea behind this is to distribute ownership and management of the platform to the users. But in reality, whales currently dominate the distribution with the goal of making an immediate profit.
Adding benefits would discourage “pure capitalist income farmers”, as mentioned by Robert Lesnar, Compound Labs CEO, from putting their capital into the protocol for short-term gains.
However, if the proposal is adopted, it could have a strong impact on the existing DeFi ecosystem.
Cointelegraph previously reported that Compound is by far the largest recipient of the DAI minted by MakerDAO (MKR). According to Defipulse data, the registry currently contains 211 million DAI, which is not only more than 46% of the current DAI total, but 55% more than the total market capitalization as of June 30 of $ 129 million.
The timeframe is so important that DAI has been the primary growers of crops in the complex only since July 2. Cointelegraph previously reported that the recent increase in supply of DAI is mainly due to demand for high-yield farming from composite and other protocols.
While Compound is rarely the most profitable revenue record, it has been the most stable and largest source of revenue, largely due to its relatively steep distribution curve and high market capitalization. The returns on the current base are around 8% APY, which can almost triple by entering a DAI position with leverage.
Tightening the return rod through maturity can result in a large portion of the capital lock and unwinding compound and possibly the total value of the manufacturer down. Due to the widespread belief that TVL reflects the success of the protocol, it could also lead to a drop in token prices. On the other hand, selling pressure will be greatly reduced, which may have a compensating effect.
However, the decision will severely restrict a lot of the total cash flow revenue and will likely affect all other protocols in some way.