Summary

The Compound v2 USDC market will be phased out from the IPOR USDC Index and removed from the whitelisted asset management strategies.

Theme/Problem/Issue

Compound continues to deprecate its v2 market. In the last few months, the collateral factors for long tail assets have been gradually lowered, which will continue in the coming months. Compound also wants to actively encourage its users to migrate their USDC supply and borrow positions to Compound v3. For this purpose, the reserve factor has already been increased several times, most recently on January 22, 2024. The reserve factor is currently 60%. This leads to a large spread between supply and borrow rates.

The size of the USDC v2 market has continuously decreased in recent months.

It currently only makes up around a quarter of the composition of the IPOR USDC index.

With the expansion of the IPOR USDC index to include AAVE v3 and Compound v3 (IIP-12), its share will decrease even further. At the same time, it is expected that the volatility of Compound v2 USDC market interest rates will continue to increase as the size of the market continues to decrease.

Solution

The Compound v2 USDC market will be phased out from the IPOR USDC Index. The phase out period is 2 weeks.

Due to the low supply rate, the market is also removed from asset management whitelist.

Discussion

A phase out of the USDT and DAI markets is not necessary at this time as Compound has not yet started deprecating these markets. However, this may become necessary in the future. Compound is working on a USDT v3 market.

The relatively short phase out period, which corresponds to the phase in period selected in IIP-12 for the v3 markets, was chosen to ensure that the Compound v2 USDC market is no longer included in the IPOR USDC index at the next reserve factor increase .

Pros/Cons

Pros:

• Cleanup of the index.
• Reducing the risk posed by increasingly volatile interest rates in a contracting market.

Cons:

• Slightly smaller market cap of the IPOR USDC index.

KPIs

To evaluate the success of this proposal, the following should be taken into account:

• Volatility of the IPOR USDC Index

Timeline/Steps

1. Discussion: Discussion in the open governance forum for 3 days.
2. Vote: After this period the proposal will be moved to #formal-governance and a Snapshot vote will be held.
3. Implementation: as soon as possible
4. Monitor and evaluate the changes: After the changes have been implemented, it will be important to monitor their impact on IPOR and the community. This will involve tracking the KPIs mentioned earlier.

Resources

Technical

• Development tools
• Testing and deployment infrastructure

Financial

• Development budget

Skills/Budget

Skills

• Solidity and smart contract development skills
• Familiarity with DeFi protocols and concepts such as lending and borrowing and IRS
• Experience with Ethereum and the IPOR protocol

Budget

• Development costs for implementing the updates

Cost Estimation

The IPOR Labs team has already signaled that the costs considered for implementing these proposals fall within the software development scope and services rendered and paid for from the protocol’s initial funding.

Commitment

Transparency: The contracted developer will have a commitment to being transparent about the development and implementation of the proposal. This will include providing regular updates on the progress of the changes and sharing any relevant data or information with the community.

Community engagement: The contracted developer will actively engage with the IPOR community throughout the development and implementation of the proposal. This will include soliciting feedback from the community and incorporating their suggestions and concerns into the proposal.

Responsiveness: The contracted developer will be responsive to any questions or concerns raised by the IPOR community about the proposal. This will include providing timely and accurate responses to any inquiries from the community.

Accountability: The contracted developer will be accountable for the impact of the proposal on the IPOR Protocol and its community. This will include tracking the KPIs mentioned earlier and making any necessary adjustments based on the results.