DeFi startup Compound unveils governance token in decentralization push

Michael McSweeney

Open Finance startup Compound has announced a new initiative that's aimed at decentralizing the governance process for its non-custodial lending protocol.

As detailed in a blog post published Wednesday, the Compound governance token, or COMP, will allow holders to "suggest, debate, and implement changes to Compound — without relying on, or requiring, our team whatsoever." 

In the post, CEO Robert Leshner stressed that the token is not intended to raise funds for the startup. "COMP empowers community governance — it isn't a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public," he wrote.

According to DeFi Pulse, which tracks Open Finance projects, Compound's platform currently has $146.8 million in total locked value out of a total of $934.3 million presently accounted for by the site. The startup raised $25 million last fall from a group of investors that includes a16z, Bain Capital Ventures, Polychain Capital, and Paradigm, among others.

The decentralization process will be gradual, according to Leshner.

"During an initial sandbox period, a portion of the governance tokens will be distributed amongst our company’s shareholders, who can delegate voting weight to themselves or the public as they see fit; the majority of COMP will be escrowed, and will not participate in governance," he wrote, going on to explain:

"Developers building on top of Compound are encouraged to actively participate in governance, which will be tested in the open. As a failsafe, our team will have the ability to suspend the governance system (though not the protocol's 2-day timelock) during the sandbox. When the governance system is operating in a reliable, distributed manner, we'll suggest that the failsafe be removed — and that the remaining tokens be distributed to Compound protocol users."

"We'll be releasing more details of this plan in the coming months — stay tuned!" he added.

According to the post, users who possess 1% of COMP tokens can submit a governance proposal. Leshner cited examples like adding a new asset or instituting changes to a market's interest rate model.

"Proposals are executable code, not suggestions for a team or foundation to implement," he explained. 

"All proposals are subject to a 3 day voting period, and any address with voting power can vote for or against the proposal. If the majority of votes (and a 4% quorum) vote for the proposal, the proposal is queued in the Timelock, and can be implemented after 2 days," Leshner continued, adding: "And if you don’t like the governance framework, great! You can vote to replace it with a new model."

Today's announcement brings with it a test launch on the Ropsten network (a testing ground for Ethereum projects). Compound also published the code connected to the initiative on GitHub