COMP, the governance token of the lending platform Compound exploded in value after the US-based cryptocurrency exchange, Coinbase, listed it. In less than two weeks, the token went live on both the Coinbase retail and Pro platform and is now available on the firm's Android and iOS apps.
This explosion was one of the fastest Coinbase listings ever since the launch of a digital asset.
Compound was actually the first-ever investment by Coinbase’s venture fund which was part of the $8.2 million seed round led by VC Andreessen Horowitz, crypto hedge fund Polychain Capital and Bain Capital Ventures.
COMP prices dropped 35% this week only to get a jump after the Coinbase listing and Binance’s announcement of opening trading for COMP/BTC, COMP/BNB, COMP/BUSD, and COMP/USDT.
COMP was launched on June 15 with an initial price of $80 that made an all-time high of $375 last weekend, which even Compound team didn’t expect, and is currently trading around $250.
For now, the token has formed a local top as crypto data tracker Santiment noted, “As is our golden rule, when an asset like COMP enters the top 3 on the @santimentfeed emerging trends list, it is generally indicative of an upcoming local top forming.”
The Long & Short of it
The governance token is awarded freely to both borrowers and lenders to incentivize people to use the Etereum-based platform. This led traders to borrow against themselves to receive free tokens.
In order to increase the prices further, traders were also buying COMP tokens from spot markets along with perpetual swaps, futures with no expiry on crypto derivatives exchange FTX.
“Because of the relatively large size of the COMP Perpetual Swap market, it would be profitable to buy the Perp and then buy spot in significant enough size to move the price, amplifying gains in the Perp and squeezing the shorts,” said Tony Sheng from Multicoin Capital. COMP price dropped the same day.
COM’s success saw its supplied assets growing from ~140M to ~870M and borrowed assets from ~30M to ~320M. And just a few days after the launch, a governance proposal 010 was created, succeeded, and is ready to be executed.
The proposal is to “change the reserve factor of BAT, ZRX, REP from 10% to 50%, and correct the COMP Distribution speed to 2,880 COMP/block as intended,” down from the current 3,297~ / day distributed COMP.
As per the proposal, the network encountered two problems; users concentrating extreme liquidation risk into the BAT (and ZRX) market, “placing the protocol in jeopardy” and the majority of existing users, who are using it “honestly”, are receiving little to no COMP Distribution.
Compound founder Robert Leshner proposed several solutions to the problems, including increasing the Reserve Factor on each asset, making interest rate models across all assets more uniform, and reducing the COMP speed.
He also proposed updating the distribution formula to “totalBorrows * USD Value” from “totalBorrows * borrowingRatePerBlock * USD Value.”
The proposal has been approved with 1,198,438 COMP votes, while 189,177 COMP was not in favor. But those in favor have been the ones that put their money into the project.
Given that, the team and investors of the project hold about 46% of the total tokens compared to mere ~0.03% of tokens issued every day; it was to be expected.
But now the question is, how decentralized is this DeFi (Decentralized Finance) project?