Deposit ExitHandler's DAI in Compound Money Market

[TimDaub]

Abstract

It might be possible to lend non-utilized tokens and ETH from LeapDAO's ExitHandler. Information taken from the Compound whitepaper:

• When lending a Token/ETH, a ERC20 representation is sent back to the user. In the case of DAI you trade through lending to cDAI (cDAI = DAI that currently gives you 7-12% annual interest). Imagine when someone deposits DAI to the LeapDAO ExitHandler, it automatically swaps DAI to cDAI
• Apparently only the borrower gets "slashed" when their borrowing falls below the collateralization ration e.g. 150%
• So essentially, for every DAI a user puts into Compound, one can guarantee that they'll get the same amount of DAI out at any time by burning their cDAI. If that assumption holds true, we'd consider it safe to use for the LeapDAO ExitHandler
• Of course there's various other risks: Compound's contracts could get hacked, markets can be "suspended" by admins, etc.
• LeapDAO is very interested in implementing this idea as a "business model/revenue source" for itself. We'd like all bridge-deposited DAI to be instantly converted to cDAI such that our users get a fast DAI on Plasma and reap 7-12% interest of their DAI on the mainnet

Compound writes in the whitepaper:

"dApps, machines, and exchanges with token balances can use the Compound protocol as a source of
monetization and incremental returns by “sweeping” balances; this has the potential to unlock
entirely new business models for the Ethereum ecosystem."

Initial Resources

• Compound Whitepaper: https://compound.finance/documents/Compound.Whitepaper.v03-a457878fa6c97a53d81c275f867982f3.pdf?vsn=d
• @TimDaub has talked to https://twitter.com/brockjelmore on this topic already. He mentioned that he'd be interesting in participating in this project. He also had lots of interesting things to say
• https://dydx.exchange/

Questions we'd like to have answered

• What are the risks of storing the ExitHandler's DAI in Compound?
• Is the abstract indeed a correct description of what Compound offers or does it contain flaws?
• How would such an implementation influence the ExitHandlers design, performance and affordance?
• Can dx/dy additionally be used to achieve the same?

Deliverables

• A working prototype
• Documentation (preferably text)

Gains for the project

• If our hypothesis turns out to be true, we can make the user lots of money through the burner-wallet, but additionally also take a small fee on the users' profits such that we can further fund the LeapDAO project.

Roles

bounty gardener: @TimDaub / 15%
bounty worker: name / 70%
bounty reviewer: name / 15%

[TimDaub]

One idea we had today was that instead of the bridge trading DAI to cDAI via Compound's Money Market, we could instead just make cDAI burner's default currency. Definitely something, we should explore as it's easier and more secure to implement.