Behind the skyrocketing COMP: The amount of platform loans increased by 60%, and the wool party went crazy for arbitrage
2020 is a bright moment for Defi, and the number of applications and pledged tokens in the Defi field ushered in explosive growth. The development of the Defi ecosystem has injected fresh blood and energy into the lending platform. Among them, the tokens of the Compound platform can be said to have attracted a lot of attention.
On June 16, the decentralized lending platform Compound announced that it has begun to distribute the governance token COMP to users. It was traded online for the first time yesterday. The price of the currency rose from 0.08 ETH to 0.41 ETH on Uniswap, an increase of nearly 95 US dollars. According to the current price of ETH 230 US dollars, the value of 1 COMP token has risen to about 94.3 US dollars.
Affected by this, the total market value of COMP tokens soared all the way, taking the top spot in the DeFi market value, and Compound once surpassed Maker, the largest project in the DeFi field, to become the new "King of DeFi".
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Compound becomes the leader of DeFi
Only one day after its launch, the market capitalization of Compound has "overtaken" Maker, the former champion of DeFi.
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Total market value of DeFi projects and TOP5 projects Source: DeFiMarketCap
The current circulation of COMP is not clear. According to Compound CEO Robert Leshner, the Compound governance token COMP has been issued as early as a few months ago. Before that, there were nearly 2.4 million COMP Already distributed to Compound Labs stakeholders. In addition, there are 4,229,949 COMP belonging to users of the Compound protocol.
In the early hours of June 16, Compound users began to receive the governance token COMP, which meant the beginning of community governance. Subsequently, the decentralized trading platform Uniswap launched the COMP/ETH trading pair. The price of COMP rose by more than 62% on the day of listing, and the price of COMP rose to $98.36 on the evening of June 16. Although the current price of the currency has fallen back (temporarily reported at $65.29), the huge increase is enough to attract the attention of investors.
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Total dollar value of tokens locked in Compound Source: DeFiPulse
Before the issuance of tokens, the Compound platform was already a very well-known Defi platform. The investment institutions behind it include top capital such as a16z, Coinbase, Polychain Capital, and Dragonfly Capital. The loan volume of the Compound platform ranks among the top five Defi platforms. . In February of this year, Compound announced plans to launch the community governance token COMP, which has become something that everyone is looking forward to. After the launch of COMP, the amount of deposits and loans on the Compound platform increased by leaps and bounds. Within 13 hours after COMP started lending and mining, the amount of deposits on the platform increased by 51%, and the amount of loans increased by 64%.
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Discussion of "COMP" mining in the community
Recently, the participation rate of deposit lending on the Compound platform is so high, and many of them are contributed by the Wool Party.
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Compound lending and issuance model
Compound is a mortgage lending platform running on Ethereum, and it is also one of the mainstream lending platforms in the DeFi lending market. The core of Compound is to make the value of assets exchangeable in time, which is simply mortgage lending. When you need to use an asset, you don’t need to spend 100% of the cost to hold it. You only need to bear a little interest to obtain the right to use it for a certain period of time, and then return it after use.
On the Compound platform, users can mortgage one token to lend another token, such as mortgage ETH to lend USDC. Six tokens are currently supported: ETH, DAI, USDC, BAT, REP, and ZRX. In layman’s terms, it’s similar to your bank, Compound lends your money to borrowers and earns interest over time.
But unlike a bank, your interest is compounded from the moment you deposit into Compound's smart contract. Because this is a smart contract, there is no middleman in the whole process, so the interest rate will be higher than that of traditional banks. Similar to MakerDAO, Compound's loans are over-collateralized. Borrowers deposit tokens into Compound to increase their "borrowing power", and if a borrower's borrowing power falls below 0, their collateral will be sold to pay off the debt. In addition, the loan interest rate is different for each asset, which is determined according to the demand of the asset.
COMP is a community governance token issued by Compound, which allows holders to vote or delegate in governance decisions, and supports users to obtain it through participating in lending. COMP will be rewarded to protocol users daily for 4 years based on usage. Half of the daily COMP is allocated to asset suppliers and the other half to borrowers.
According to Compound’s official information, there are nearly 4.3 million COMP issued through user loans, accounting for 43% of the total. Each Ethereum block will produce 0.5 COMP, so the calculation is about 2880 COMP every 24 hours Generated, that is, 2,880 COMP are allocated to users who deposit and borrow on the Compound platform every day, of which 1,440 are allocated to depositors and 1,440 are allocated to borrowers.
This means that as long as a deposit or loan is made on the Compound platform, both the depositor and the borrower will receive COMP tokens with a unit price of tens of dollars. Therefore, this distribution mode of COMP is called "borrowing is mining" in the industry.
Does this gameplay mode look familiar? It is very similar to EIDOS, a wool-sweeping project on EOS in November last year. The "transfer is mining" model at that time directly let hundreds of thousands of idle EOS in the EOS loan pool at that time be borrowed; The centralized trading platform uniswap adopts the "liquidity mining" model, and users can obtain benefits by becoming liquidity providers.
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Is "borrowing and mining" worth participating?
By analyzing COMP's "mining" logic, let's see if this model is worth participating in.
First of all, the amount of COMP obtained by users is not directly proportional to the number and amount of deposits and loans. According to the mykey team, the current allocation of COMP tokens is mainly based on the interest of deposits and loans. The more COMP you have, the more interest you pay on the loan, and the more COMP you get.
Among them, the USDT deposit rate and lending rate are the highest among all currencies, which means that the more you can get COMP if you deposit or loan with USDT. The real-time data of the DeFi wallet Debank shows that as early as the morning of June 14, before the launch of COMP, the USDT deposit rate on the decentralized lending agreement Compound surged to 46.17%, and the USDT lending rate was 46.6%. The current utilization rate of USDT funds on Compound It is close to 100%.
According to the data provided by the DeFi wallet DeBank in the above picture, the block rhythm is simply calculated. If the user deposits 10,000 US dollars, and other variables remain unchanged, 0.3186 COMP (10.6396/33.39 million) can be dug out in 24 hours. According to the highest COMP Calculated at the price of 100 US dollars, it is about 31.86 US dollars.
In this case, if the user borrows USD 10,000, how many 0.5163 COMP (10.6396/20.6 million) can be mined in 24 hours under the premise that other variables remain unchanged. Calculated on the basis of USD 100, it is approximately USD 51.63. The interest paid is approximately $4.17 (10,000 / 20.6 million * 8694.38).
Assuming that a user uses 10,000 US dollars to import and export for arbitrage, based on the above quantity and price calculation, he can get a net profit of 65 US dollars, which is really attractive for users who want to "sweep wool" without cost and low risk Not small.
However, there are certain risks in pulling wool, such as the risk of interest rate fluctuations in mortgage lending, and the risk of smart contracts being hacked. After all, there have been several incidents of stolen coins on DeFi platforms this year.
For existing users who are familiar with DeFi lending operations, they may already have psychological construction on this point, but it is actually a matter of luck and probability. However, for users who do not know much about and have contact with the DeFi platform, if they do not understand the logic, it is very likely that they will not understand the game, so try to think carefully before participating.
In addition, the impact of COMP's model on DeFi and the blockchain market has both advantages and disadvantages.
First of all, the FOMO sentiment caused by COMP can promote the development of the DeFi industry to a certain extent, and the total market value of DeFi breaking through 3.2 billion US dollars is a manifestation. The price bubble will allow many users outside the circle to enter the DeFi field, and at the same time, it will also make DeFi more and more out of the circle. And we believe that the original intention of Compound's vision is also to promote the development of DeFi, as its founder Leshner said: "We believe that DeFi is in its early stages and hope to see the maturity of the industry in the next few years."
However, at present, the main motivation for users to participate in compound's deposit and loan currency is to obtain additional COMP tokens, which has deviated from the original concept of DeFi, and is not a sustainable development model.
In the end, projects with a large number of wool-sweeping behaviors cannot escape the process of de-bubbling prices. When the value of COMP can no longer support the cost of wool-sweeping, the data on the Compound platform may return to normal levels.
"I am personally not optimistic about the distribution model of Compound token COMP." Jeff, the head of the Chinese community of dForce, a decentralized lending platform, said in an interview with Block Rhythm that, in his opinion, the lending and mining mechanism of COMP will make There is unlimited selling pressure in the market, and more than 40% of COMP tokens are distributed in this way, and the rules are all on the chain, basically written to death. We take history as a mirror, and this mining model does not end well.
In any case, even if it is a false demand, this "mining" mode is still tried and tested for users. Perhaps only when the tide passes and there is nothing left, can we see the true value of COMP; or perhaps only through continuous trial and error, after the false demand fades, DeFi can gradually explore a better token issuance model.
