Compound's COMP Becomes Most Valuable DeFi Token, but There's a 'But'
Just days after it first entered into circulation, decentralized lending and savings platform Compound’s new token COMP has positioned itself as the most valuable token in the decentralized finance (DeFi) space. But it's high valuation may not show the complete picture, as more then 7 million coins are yet to enter circulation, says an industry insider.
As of press time on Wednesday (10:29 UTC), COMP traded for 0.31 ETH, or USD 72.58 on the decentralized token trading platform Uniswap. According to ranking site DeFiMarketCap.io, the current price gives the COMP token a market capitalization of more than USD 735 million if the entire token supply of 10 million COMP is counted, well ahead of MakerDAO’s MKR token with its USD 551 million valuation. However, the last 24 hours have seen a drop in COMP price of over 20%.
Additionally, per Uniswap, there were 777 transactions in the COMP-ETH market in the last day, with a reported volume of USD 412,489.
However, according to Anthony Sassano, SetProtocol product marketing manager and author of the Ethereum-focused newsletter The Daily Gwei, the lofty valuation may not provide the best representation of the real situation.
In a newsletter published on Tuesday, Sassano wrote that although the total token supply will eventually be 10 million COMP, “the current circulating (free float) supply is around ~2.4 million COMP” (or USD 174.2 million), which is the amount that has already been distributed to shareholders of Compound Labs, Inc.
A large portion of the remaining tokens are reserved for the liquidity mining program, and have thus yet to be distributed.
This means that 7.6 million COMP should eventually enter circulation and this is bound to affect the price. Generally speaking, an increase in supply usually means a drop in price.
We contacted Compound's General Counsel Jake Chervinsky for comment and will update should he reply.
Initially unveiled in late February, the COMP token first entered circulation on Monday this week, with community governance for the protocol launched at the same time. Unlike other platforms, Compound is issuing its token through a new mechanism known as “liquidity mining.” What this means is essentially that tokens are issued to people who either supply liquidity to, or borrow funds from the platform, instead of being sold through an initial coin offering (ICO) or similar process.
The goal of this process is to provide a direct incentive to grow the usage of the platform itself, rather than just speculating on the price of the tokens. And judging by the massive increase in the total USD value locked on Compound over the past few days, the incentive seems to be working for now.
Meanwhile, benefiting from Compound’s token launch is also a new decentralized exchange known as Curve, which saw a massive spike in trading volume on Tuesday this week of USD 214 million, self-reported data from the exchange showed. According to Curve founder Michael Egorov, the sudden growth in volume is largely driven by the way COMP works by rewarding users for making transactions on Compound.
Last week, major crypto exchange Coinbase also said in an announcement that it is “exploring the addition” of COMP, among several other new digital assets, for listing on its exchange.
COMP does not currently trade on any major centralized exchanges.