Compound V3 Economic Audit Report

TL;DR

This paper presents a comprehensive risk assessment methodology for Compound V3, utilizing simulations to optimize risk parameters and improve protocol stability in decentralized finance.

Contribution

It introduces a novel simulation-based framework for calculating key risk metrics and optimizing parameters of the Compound V3 protocol.

Findings

Evaluation of Value at Risk (VaR) and Liquidations at Risk (LaR) through millions of simulations.

Recommendations for parameter adjustments to mitigate systemic risks.

Enhanced understanding of Compound V3's risk profile and stability measures.

Abstract

Compound Finance is a decentralized lending protocol that enables the secure and efficient borrowing and lending of cryptocurrencies, utilizing smart contracts and dynamic interest rates based on supply and demand to facilitate transactions. The protocol enables users to supply different crypto assets and accrue interest, while borrowers can avail themselves of loans secured by collateralized assets. Our collaboration with Compound Finance focuses on harnessing the power of the Chainrisk simulation engine to optimize risk parameters of the Compound V3 (Comet) protocol. This report delineates a comprehensive methodology aimed at calculating key risk metrics of the protocol. This optimization framework is pivotal for mitigating systemic risks and enhancing the overall stability of the protocol. By leveraging Chainrisk's Cloud Platform, we conduct millions of simulations to evaluate the protocol's Value at Risk (VaR) and Liquidations at Risk (LaR), ultimately providing recommendations for parameter adjustments.