“Long term, what we’d really like to do, is not be responsible for the protocol at all. Our long term goal is to create a DAO that can govern the protocol.”
– Robert Leshner, Founder and CEO of Compound
Last December, I had the opportunity to briefly speak with Robert Leshner and explore a range of ideas, including financial transparency, open finance, asset backed , and Decentralized Autonomous Organizations. What follows are thoughts, quotes, and highlights with a focus on the DAO aspect of the conversation.
This piece will not dive into the technical aspects of Compound’s protocol. For more technical information I suggest reading as well the informative posts they have published on .
Below is an explanation of Compound from . If you’re already familiar with Compound, feel free to skip past the italics.
“Compound Finance is a money market protocol on that lets holders earn interest on supplied assets or borrow assets against collateral. Compound maintains a pool of liquidity anyone can add to. Users can borrow up to 66% of their collateral’s value (150% collateralization). Interest accrues immediately and compounds continuously. Rates adjust automatically based on supply and demand. Users can add or remove funds at any time, but if their debt becomes undercollateralized, anyone can liquidate. Liquidators are incentivized by a 5% discount on liquidated assets.
Compound keeps 10–15% of borrowers’ interest; the rest goes to suppliers. Borrowers are charged a 0.025% origination fee. There’s no fee for supplying.”
Working With The Present To Build For The Future
When Leshner launched Compound in 2018, he and his team opted to raise $8.2 million from several influential VCs, including Andreessen Horowitz and Polychain Capital, as opposed to raising via a offering. At the time, a offering would have provided more “hype” but by raising via traditional means, Leshner was able to focus on the product while minimizing the risk of being dragged down by future legal fees and regulatory uncertainty.
As Robert put it, “Most teams in crypto were focused on raising money instead of building usable platforms and products…. As we started thinking about Compound, we said what would be the best platform… everything we can do to simplify the experience and remove friction the better.” At the time of writing, roughly $34 million are locked into Compund’s protocol and .06% of ’s supply is circulating through its platform.
Robert was consistently clear that he believed the most effective path forward was to leverage existing business structures (e.g. LLC’s and equity) in order to reduce regulatory pushback and overall uncertainty. While the team brainstormed several models, at the time, it would have been a distraction. Leshner suggested that the team is still interested in governance models but made it clear that continuing to deliver a frictionless user experience was Compound’s overarching goal.
Compounding Towards A Decentralized Future
Leshner’s dream would be for Compound to be fully decentralized — to become a living protocol with modifications, updates, and rules determined by an open source community. But, he believes delivering on this promise, especially given the ambiguous state of what a DAO is or will be, is too high a risk: “The risk is if you decentralize too soon you may lose control of the company’s trajectory.”
When a company has a daring mission of creating more transparent and open financial markets, taking things step-by-step in order to guide the product towards the end goal seems necessary. Perhaps in ten years when the decentralized financial movement has gained steam, founders will be able to launch DAOs from the start; perhaps there will have been tested roadmaps and/or structures for doing such a thing. But while we’re here in the early innings, maintaining some control in order to respond to market and regulatory changes may be a necessary “evil.”
In practice, Leshner thinks about it like this: “The things I want to decentralize first are the ones that are most likely to succeed in being decentralized, as well as weighing against the things that have the most benefits from decentralization. The benefit is really risk in my mind. I actually think having one company controlling prices is risky simply because if the prices are incorrect it could lead to mistakes in the protocol… The oracle is probably one of the first pieces we would decentralize…”
Decentralization As A Process
“Decentralization should lead to a wisdom of the crowd optimization and long-term success.”
– Robert Leshner
Compound has already begun considering how their community would respond and become involved in decentralization decisions. In November, they held a vote as to whether the stablecoin should be adopted by the platform. DAI eended up edging out USDC as the winner but the experiment proved to Leshner that decisions could be made by the community and that the wisdom of the crowd’s decisions would yield the best protocol for Compound users.
In December, Leshner told me, “The end goal is for the protocol, piece by piece, to be decentralized.” Now, the company is moving forward Big picture, V2 takes steps that open up major decisions to Compound’s users. At the center of the “new compound” will be cTokens. cToken asset gateways will provide an outlet for anyone to create a market for any asset on Compound. A cToken is effectively a “minted” version of any ERC20 asset (or ether) that exists within Compound with its own set of rules and programmability. This effectively will put control of which assets are available and the rules by which Compound’s money markets function into the hands of Compound’s users and the open finance ecosystem.
In 2017, when the idea of Compound was just beginning to brew, the notion of a roadmap towards decentralization was often a laughing matter. With plenty of success over the last year, Compound can perhaps become an example for how it can be done or at the very least a great barometer for whether it’s possible. Perhaps a new kind of company trajectory will emerge and eventually a new company structure may form.
Thank you to Robert Leshner, Daniel Goldman and Calvin Liu for making this piece possible.
Published at Tue, 14 May 2019 00:04:43 +0000
