[COMPOUND] Adopt Optimistic Governance for Market Parameter Updates

Executive Summary

Following Tally's successful RFP response to become Compound's Voting Service Provider, we explored visibility improvements for MarketAdmin transactions. However, consultations revealed that MarketAdmin represents a suboptimal operational model with fundamental limitations:

• Inherent Opacity: Single guardian entity limits distributed oversight
• Limited Scalability: Only deployed on OP Mainnet
• Restricted Community Visibility: Guardian model provides minimal delegate oversight

This proposal implements Optimistic Governance as a transparent alternative to MarketAdmin for market parameter updates. Optimistic governance reduces proposal lead times by >80% (from ~20 days to ~5 days) while maintaining DAO oversight and improving transparency.

Background

Current State

Compound parameter changes occur through:

1. Full DAO Vote: 30+ days to complete
2. MarketAdmin: Mid-2024 solution, only on OP Mainnet

The Problem

• Inefficiency: Monthly cycles create delays for time-sensitive decisions
• Voter Fatigue: Routine changes consume governance bandwidth
• Lack of Transparency: Opaque process with limited visibility
• Limited Scope: Only deployed on OP Mainnet

The Solution: Optimistic Governance

Optimistic governance assumes proposals are approved unless explicitly vetoed by delegates. This streamlines decision-making while maintaining oversight for maintenance upgrades, technical changes, and parameter adjustments.

Key Benefits

1. Transparency: All proposals publicly visible on Tally
2. Efficiency: 4 day lifecycle vs 20+ days (>80% reduction)
3. Maintained DAO Control: Token holders retain veto authority
4. Reduced Voter Fatigue: Delegates engage only when disagreeing
5. Faster Risk Response: Adjustments in days, not weeks
6. Accountability: Clear attribution to council members

Proposed Implementation

Phase 1: Pilot on Arbitrum, Base, and Optimism

Deploy optimistic governance for market parameters on three established networks with appropriate risk profiles before mainnet deployment.

Council Composition

5 key stakeholders with 3 of 5 votes required:

1. Gauntlet (main proposer)
2. Compound Foundation
3. WOOF
4. ChainSecurity
5. Certora

Governance Parameters

• Council Quorum: 3 of 5 members
• Proposal Expiration: 1 week
• Veto Voting Duration: 3 days
• Veto Quorum: 400,000 COMP
• Veto Quorum Extension: 3 days (at 200K COMP votes)
• Timelock Delay: 1 day

How It Works

1. Proposal Creation: Council member creates proposal visible on Tally. 3 of 5 votes advances to veto stage. Expires if quorum not reached in 7 days.

2. Veto Period: 3 days for COMP delegates to review and cast veto votes on Tally.

3. Execution:

   • Veto quorum NOT reached → proposal passes, enters 1-day timelock
   • 200K COMP veto votes → 3-day extension for more delegate review
   • 400K COMP veto quorum → proposal canceled

Clickable Demo

End-to-end lifecycle demo available here (pw: onchain)

Scope of Authority

Market admin authority over Arbitrum, Base, and Optimism including:

• Adding/removing collateral assets
• Adjusting risk parameters
• Setting interest rate models
• Configuring supply/borrow caps

Transparency & Monitoring

All proposals will be:

• Displayed on Tally with full details
• Announced in Discord and forum
• Subject to same transparency standards as regular governance

Implementation Details

Cross-chain optimistic governance system:

• Runs on Ethereum mainnet
• Council membership assigned to 5 parties
• COMP delegates can veto proposals
• Timelock contracts on Arbitrum, Base, and Optimism accept cross-chain messages from L1
• Main Compound governance can add/remove council members

On execution: Assign admin permissions to timelocks on Arbitrum, Optimism and Base.

Future Expansion

If successful:

1. Expand to Ethereum Mainnet
2. Expand to all chains

Cost

$40k for complete implementation (partnership discount from typical $100K+ market cost).

Covers:

• Smart contract development and deployment
• Security review and testing
• Tally integration
• Documentation and education materials

Comparison: MarketAdmin vs. Optimistic Governance

| Feature | MarketAdmin | Optimistic Governance | |---------|-------------|----------------------| | Transparency | Opaque | Fully visible on Tally | | Timeline | Variable | 4 days (consistent) | | DAO Oversight | Guardian veto | Delegate veto (400K quorum) | | Chains | OP Mainnet only | Arbitrum, Base, Optimism | | Engagement | Minimal | Active veto opportunity |

Success Metrics (3 months)

1. Average time from proposal to execution
2. Proposals reviewed vs. vetoed
3. Community feedback on visibility
4. Contentious proposals and veto rate
5. Volume processed through optimistic governance

Voting Options

• FOR: Deploy Optimistic Governor on Ethereum mainnet covering Arbitrum, Base, and Optimism
• AGAINST: Maintain current MarketAdmin for Optimism, full governance for other chains
• ABSTAIN

Next Steps

1. Community Discussion
2. Snapshot Vote
3. Security Review by Certora and ChainSecurity
4. On-Chain Vote on Tally
5. Deployment if approved

Optimistic governance enables Compound to be more responsive to market conditions while reducing governance overhead without compromising transparency and DAO oversight.

https://snapshot.org/#/comp-vote.eth/proposal/0x32334a7a89b6f2f08cf6975a77270c45e197bb4a2ef68309cb2ef736809f767a