Posted 10 months ago | by Ben Armstrong
Compound is the Most Shocking De-Fi Pump of 2020
Decentralized Finance (DeFi) has been ruled by MakerDAO for a long time now with an all-time high of $621 million in Market Capital back on June 9th of 2020.
Now, less than a month after this spike, Maker seems to have been dethroned by Compound as It reached $956 million in June 21st days after the start of its governance distribution token.
Now, the question crypto enthusiasts should be asking themselves is if it is possible for the crazy growth curve of Compound to continue? BitBoy Crypto’s will answer this question for you:
Compound is Changing the Entire Decentralized Finance Game
The Compound governance token (COMP) is an ERC20 token built on top of Ethereum’s smart contract platform, a trend that has resurfaced with DeFi’s rise.
Governance tokens are different from utility tokens in the sense that they are not intended to serve a function within the ecosystem but to allow its holders to participate in the process of changing the ecosystem itself.
COMP holders can self-delegate and participate in the decision making or delegate their vote to another token holder, then enabling the delegated individual to vote and propose changes to the protocol.
To get a vote on any proposed change to Compound, 1% of the distributed tokens will need to back the measure, which will then be open for a vote for 3 days and will be applied after 2 days if a quorum of 4% is reached.
COMP Looks Unstoppable Less than a Month After the Distribution
The distribution of COMP started 2 days after the vote’s approval back on June 13th with a total of 2880 COMP being part of the distribution plan.
Now, less than a month after, Compound is coming at #26 in the rankings with a market capitalization of $569,495,408 and $13,315,418 transaction volume in the last 24 hours.
While COMP made it into the top 20 and reached a value of $372 being now at $213, it is normal for a project with this kind of incredible run to experience a pullback.
While the price of 1 compound token is close to 85% of 1 Ether’s price which suggests that even if there is less supply, which is actually beneficial to investors, COMP might theoretically be able to catch up.
The Compound Token Distribution Method
About 25% of COMP’s supply is currently circulating while the rest is in a Limbo of sorts which means there is a current scarcity of the token which will probably result in a value increase if the popularity keeps up with the trend.
Around 2500 to 3000 tokens are being moved daily from the total supply to the circulating supply, gradually increasing the number of tokens available in the market and resulting in a drop if the compound ecosystem didn’t grow.
However, it is important to keep in mind that these tokens are released as an interest to current token holders, which acts as an incentive for holders to keep them instead of cashing out.
This scarcity means that non-holders interested in gaining interest by becoming part of the ecosystem might choose to supply, borrow, or withdraw money from Compound’s market in order to earn interests in the form of tokens.
This combination of factors means that things are most likely to change between token distributions with the ecosystem’s growth being the most likely result, creating value based on the distribution’s conditions and scarcity created from holders keeping their tokens.
Yield Farming is Crypto’s New Buzz Phrase
According to Crypto Briefing, Yield Farming refers to the process of earning a return on capital by putting it to productive use which is exactly what COMP holders are incentivized due to in order to benefit from the distribution
There are little things that may be confusing to a new investors who are interested in Decentralized Finance, as it is a common misconception to think that holding Ether is equivalent to participating in DeFi.
DeFi platforms like Compound require the investor to actively invest and consider transactions in order to make a profit, which is exactly why whales are currently making a killing on Compound’s run.
How to Play the Move?
The best plan of action for smaller or new investors may be to mix their investments in projects like Compound which are already established and still likely to keep growing and try to find the next big DeFi project to invest before it is overrun by whales.
The key may be to remember than the confusion DeFi causes is a testament to how innovative and full of potential it is, those who are early will be able to benefit from it the most.
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