According to the latest research, one of the largest defi protocols in the industry is facing an incentive crisis as Ethereum researcher Alex Kroeger found that most complex liquidity miners mostly have no economic benefit for the protocol and do not participate in the governance protocol.
The report analyzed the top 100 accounts COMP has amassed from liquidity mining to demonstrate liquidity mining on Compound that requires serious fixes.
The compound was one of the first to introduce liquidity mining and quickly became a defi powerhouse totaling over $ 12 billion and also became the fifth largest defi protocol, according to Dapp Radar. The use of user incentives for liquidity contributors to the protocol comes with a price to pay, as Kroeger argues that liquidity incentives dilute the offering and reward of tokens. The user does almost nothing to manage the log.
Compound and Kroeger Analytics also analyzed the top 100 accounts by accumulating COMP from mining and found that they have amassed a total of 808,925 COMP tokens, which is $ 270 million, which is 69% of the total COMPs and the majority of holders make up tokens. However, some of these accounts actually contain the tokens. According to the report, about 19% of the accounts hold more than 1% of the COMP amount they claimed and sell 99% of their Authenticity Incentive in the market, with 7% of the accounts holding more than 50% of the Liquidity Incentive amount. .
When it comes to participation in the governance of the Protocol, the numbers paint a bleak picture, as one out of 100 addresses has once voted for a proposal. The report concludes:
“Liquidity mining programs are more notable in terms of broader DeFi governance – will they achieve their intended goals? In the case of Compound, it is clear that incentivizing liquidity mining is a terrible way to make users the guardians of the protocol. “
4. Give users a clear voice in governance
An alternative to government grant. User tokenization is designed to give users a clear voice in governance.
A certain right to vote (e.g. ⅓) can be granted to users in relation to their economic share (e.g.
– DeFiCorgi.eth (@alex_kroeger) November 15, 2021
There is a solution, however. Kroeger suggested that lending incentives under the protocol would discourage miners from borrowing and lending. Lenders are generally more interested in passive income returns and are committed to good governance over the long term. In order to better regulate the incentives of liquidity miners, a test plan for accumulated tokens was proposed, the combat plan of which can be tokenized and has rights.