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Looking at DeFi Governance from Compound Liquidation Compensation Voting

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Original text by Chris Powers

Original translation: overnight porridge

Since this summer, the word "governance" has been in the The central location of DeFi. It is hard to imagine that more than six months ago, there were only a few DeFi projects such as Maker that used tokens for governance on the chain.

After Compound launched the COMP token in June, DeFi ushered in a new era of "governance tokens". These tokens are primarily used as an incentive or reward mechanism, while also controlling (to varying degrees) the on-chain protocol and, in many cases, the treasury.

Now, Compound is facing its first major governance test, with token holders voting on whether Compound depositors who suffered liquidations should be compensated. (Note: Previously, due to the skyrocketing price of DAI on the Coinbase Pro platform, and Compound used the Coinbase price oracle, some lenders were liquidated due to insufficient collateral).

Now, kybx86 has made a proposal to compensate the liquidated Compound by allocating 55K COMP (or roughly $6.6M) to the affected addresses user.

The proposal was rejected this Monday morning, with 681,290 COMP voting "No" and 212,592 COMP voting "Yes."

DeFi governance seen from Compound liquidation compensation vote

In this voting activity, The decisive role was played by Polychain, the second largest COMP holder and a relatively active governance participant (Polychain voted on 13 proposals). For this proposal, Eli Krenzke of Polychain explained the voting results on the forum:

This proposal provides compensation before a clear path to solve the problem is established. We would like to gain a clearer understanding of these potential solutions before determining any form of compensation.

Even if the protocol works as designed, this proposal could compensate users and potentially further exacerbate systemic risk. We do not want to set a precedent that tail risk should be subsidized by the COMP governance process.

This proposal proposes compensating, in the form of COMP, the small number of users affected by the issue, even though their actions were not in line with the long-term interests of the protocol. We would prefer to see proposals denominated in liquidated assets, but understand the additional technical complexities.

The people who voted for this proposal were the rising protocol politicians and the address holders who submitted it. In a thoughtful tweetstorm, Synthetix founder Kain explained his rationale for his upvote, which he called an “indirect alignment of COMP holders and depositors.” Additionally, the DeFi Pulse Index initially voted in favor, but its snapshot page now shows against compensation.

There are also some well-known COMP holders who chose to abstain. For example, Robert Leshner, the founder of Compound, did not participate in this vote. Also chose to abstain.

The liquidation compensation vote is "Negative" However, in fact, the attitude of Polychain is still the main one. In other words, how to persuade major shareholders to participate in voting has become the key to DeFi governance.