Our Network: Issue #1

Updates from Compound, Synthetix, Uniswap, MakerDAO and Set.

Note from the editor.

Welcome to the first issue of Our Network, a weekly newsletter where top blockchain projects and their communities share data-driven insights about their networks.

My name is Spencer Noon and I lead investments for DTC Capital, a fundamentals-focused crypto investment fund. DTC Capital is stage-agnostic, which means we invest in both early-stage opportunities (equity and future tokens) as well as later-stage opportunities (primarily tokens). I spend most of my time working with entrepreneurs at the earliest stages of the company lifecycle, helping them navigate a space that can be both frustratingly fluid and idiosyncratic.

Every week the newsletter will feature interesting on-chain metrics and analyses of five projects, addressing one purposefully open-ended question: how healthy is this network? You won’t hear about the same networks every week. Instead, in an effort to keep our content fresh, you can expect to hear from projects roughly once per month.

We have assembled an all-star cast of contributors, each of whom will be covering a different project for the newsletter. All of our contributors either work directly for the projects themselves or are active community members, so this will be high-quality coverage. Updates will be in their words, although they may potentially be modified by yours truly for readability. This should provide a fascinating window into some of the industry’s most notable projects.

Whether you work full-time in crypto or are just a casual observer of the space, Our Network aims to deliver compelling data-driven insights from a wide range of networks and also educate readers about on-chain metrics.

Thank you for being a subscriber. This is going to be a lot of fun.

— Spencer

Network Updates

This week our contributors cover the Decentralized Finance or DeFi space:


Contributor: Caleb Sheridan, co-founder of Blocklytics


Contributor: Primož Kordež, part of MakerDAO Interim Risk Team and founder of BlockAnalitica

Set Protocol

Contributor: Anthony Sassano, Product Marketing Manager at Set Protocol


Contributor: Jordan Momtazi, VP Partnerships at Synthetix


Contributor: Calvin Liu, Strategy Lead at Compound

  • Compound’s net supply volume is currently ~$120 million, with net borrowing of ~$30 million. These charts show Compound’s gross cumulative supply and borrowing instead -- checking in at ~$600 million and ~$140 million. This implies 4-5x turnover on assets supplied/borrowed to Compound over the past 31 weeks since Compound v2 launched. These assets are MOVING! It’s clear that the protocol is facilitating sizable economic activity multiples larger than what might be conveyed by the static “ETH Locked” metric.

  • Alongside supply/borrow activity, let’s look at liquidation activity. (Note: For the following three liquidation datasets, I’ve excluded liquidations < $100, as those have a very small economic impact and add noise)

    As a reminder, borrowing positions are required to be over-collateralized; should a borrowing position become insufficiently over-collateralized, anyone can liquidate the borrowing account by repaying a portion of the outstanding borrow and collecting a portion of the associated collateral -- plus 5% as a liquidation bonus incentive.

    We're approaching ~$10 million of liquidated collateral on Compound V2, which implies a captured profit of ~$500,000 by liquidators.

  • This liquidation profit opportunity has attracted a vibrant ecosystem of crypto hedge funds, liquidation bot developers, and individuals to efficiently perform liquidations of inappropriately collateralized borrowers on Compound.

    This snapshot shows the distribution of liquidated collateral across the top liquidators in the Compound ecosystem, over the past 31 weeks. This distribution is not at all static; we see the ecosystem constantly evolving with new strategies emerging and quickly rising to the top of the “leaderboard” every few weeks/months. As Compound grows, we expect to see new and even more sophisticated liquidation strategies emerge.

  • Finally, let's take a look at the effect of the liquidation ecosystem on the health of borrower accounts who become insufficiently over-collateralized. 

    These charts show liquidated borrowers' "account health" 1 block prior to being liquidated, and 1 block after, charted against the size of the liquidation (on log scale). "Account health" is defined as the [borrower's actual collateralization ratio] / [Compound's required collateralization ratio]. So if Compound requires borrowers to be 130% collateralized, and a borrower reaches a 120% collateral level, that borrower's "account health" would be 120/130 = 92.3%. Accounts can be liquidated anytime they dip below 100% account health.

    On the left, you can see that for any size of liquidation, the lowest account health any borrower has dipped to 1 block prior to being liquidated is about 92% (still over-collateralized at 120%, even though below Compound's requirement of 130%). And in fact, the vast majority of accounts are liquidated at account health values much closer to 100%! This implies that the liquidation ecosystem is functioning extremely quickly, and seizing liquidation opportunities as soon as they become available. (NOTE: there is a little bit of noise in these charts around the 100% line for various reasons -- data is never perfect -- but the conclusion holds)

    On the right, you can see account health 1 block after being liquidated. Since it sometimes takes multiple liquidations to bring a borrower's account to full health, some of the data points are still below 100%. However, you can see that for the vast majority of accounts, there is a huge uplift in health post-liquidation. This means liquidations are not just bringing insufficiently overcollateralized borrowers back to healthy status, but are actually bringing them to VERY healthy status -- resulting in a safer and more secure protocol.

Our Network is a weekly newsletter where top blockchain projects and their communities share data-driven insights. Subscribe now to receive a crash course in on-chain metrics and crypto fundamentals, and never miss an issue.

About the author: Spencer Noon leads investments for DTC Capital, a fundamentals-focused crypto fund. He actively tweets about on-chain metrics.

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