COMP Distribution Exceeds Expectations

Recapping how Compound's native governance token peaked at a $1B market-cap less than 24 hours after launch.

COMP is the talk of the town this week.

For those who missed it, Compound Finance - a leading DeFi lending protocol - is distributing native governance tokens to those who supply and borrow capital from the platform.

Less than 24 hours after listing, the price of COMP spiked on Uniswap from its original value of ~$16/COMP to a peak of $110. Now, it sits at ~$86, giving it a fully diluted market cap of $860M.

Now, while the supply is extremely limited, this places COMP as the #1 DeFi token on the market, outpacing industry giants like Maker’s MKR which have acted as foundational technology for Ethereum and DeFi at large. 

While this article is not meant to place a tangible value on COMP, it does go to show that the concept of Liquidity Mining is playing out in spades.

With COMP price soaring, we’re now seeing Liquidity Farmers doing anything and everything to accumulate tokens by interacting with Compound.

Here’s what you need to know.

What is COMP?

COMP Is a native governance token used to govern important decisions over the Compound protocol.

Since launching a few months back, we’ve seen the community vote to add Tether (USDT) as collateral and phase out the legacy version of Dai - SAI. You can participate in these votes either using your own COMP or by delegating to another protocol politician using the newly added voting dashboard.

Beyond protocol upgrades, the launch of COMP also marked Compound’s transition to a fully decentralized and unstoppable money market who’s future rests entirely in the hands of the community.

Here's a look at how the 10M COMP supply is being broken down:

  • 42.3% reserved for protocol usage 

  • 24% to shareholders of Compound Labs, Inc. 

  • 22.25% to Compound founders & team, subject to 4-year vesting

  • 7.75% reserved for future governance participation incentives

  • 3.72% to future team members. 

The key takeaway here is that for debately the first time in history, we’re seeing users of a product having majority control over how it evolves.

But, that’s not all.

Liquidity Mining Drives New Growth

A few weeks back, we covered Balancer and how BAL Liquidity Mining Program spiked its Total Value Locked.

Well, it looks like Compound is no different.

Now holding the #2 spot on DeFi Pulse, the launch of COMP distribution has spawned a 45% increase in TVL - or roughly a $70M increase in capital locked in the leading lending protocol. 

With COMP price soaring, it’s now estimated that capital suppliers can earn upwards of 200% APY by compiling Compound’s attractive lending rates with the capacity to sell COMP on the open market.

Now, I’m sure you’re wondering - How can I get COMP?

COMP Farming Tactics

To stay up on which assets are currently earning the most COMP/day, check out this tool.

In short, COMP is allocated across all markets relative to the amount of interest being accrued. Stated another way, the asset(s) bringing in the most interest receive the most COMP.

To this, Tether (USDT) is quickly starting to run away with the COMP farming prize. With ~10% APY compared to the next highest return of ~1% on DAI, USDT is drastically outperforming other supported assets in terms of COMP earned per day.

While the logical next step is to supply USDT to Compound to capture a 10% APY + some of the hottest tokens on the market, many are going even further.

For starters, Maker currently lets users borrow Dai with a 0% stability fee. This means that you can lock Ether and receive a loan in Dai with no debt (for now). Using a liquidity aggregator like Curve, users can then swap that Dai for USDT at minimal prices.

No wonder Curve has just experienced its highest 24H volume ever thanks to so many people looking to farm COMP.

Next, for our true DeFi power users, InstaDapp offers a novel feature to borrow stablecoins on margin. In short, users can lock Dai as collateral and borrow USDT with up to 4x leverage. While this is an extremely risky tactic, we’re seen dozens of traders leverage up as borrowing USDT currently yields the most COMP per day. Multiply that by extra exposure and you’ve got yield hacking to the max.

Plus, nothing is stopping you from taking that borrowed USDT and re-locking it back into Compound for extra COMP.

Rational Price Discovery

Coming back down to earth, COMP is trading at an outrageous valuation. With roughly $45,000 in annualized earnings according to Token Terminal, COMP is currently trading at a P/E ratio north of 19,000.

What this goes to say is that while earning COMP through liquidity mining is a sure win, buying it on secondary markets is extremely risky with such a small amount of COMP currently in circulation.

We expect that as the token supply becomes more readily available over the coming weeks, there’s still a fair amount of price discovery needing to take place. Backed by what’s likely to be a listing from Coinbase, we urge you to proceed with caution.

Tying it all together, we’d like to commend Compound for championing the next generation of token distributions.

If you haven’t taken note already - it’s a great time to be putting your capital to work in DeFi!

Next week we’ll be doing a paid-only Token Pick. To be the first to get it, subscribe today!

See you next Tuesday!