The token for the decentralized finance (DeFi) app Compound, COMP, hit an all-time high of $231 on Friday. Now startups built on top of the lending protocol are considering what to do about this sudden windfall.
Compound was built from the beginning as a simple marketplace for placing collateral and borrowing money. The intention was always to make it easy for other companies to build products atop it, and several have.
But some startups are in a situation where they have control of COMP earned from funds entrusted to them by their customers. The question then becomes: Do they return that COMP to users immediately or use it to lock in other benefits? And if they do redistribute it now, do they simply give users COMP or convert it first to a more familiar form of crypto?
CoinDesk checked in with companies built on top of the Ethereum-based application this week to find out their plans for using the fresh COMP tokens earned by users of their platforms.
While the startups we spoke with were still exploring which course of action would be best, they generally agreed COMP’s rapid ascent is a positive moment for the DeFi industry.
Dharma CEO Nadav Hollander explained the implications of opening up governance of Compound for a company like his. In an email to CoinDesk, he wrote, “It’s like being a bank and getting to vote at Federal Reserve meetings – only any user of the protocol can do it.”
In fact, Dharma has already been actively taking part. It has a proposal in now to increase the amount of interest earned on tether (USDT) deposits on Compound. Such deposits go into the reserve pool, a sort of security blanket that each liquidity pool creates for itself. As a governance token, COMP is used to stake a person’s or entity’s vote, either for or against.
According to DeFi Pulse, Compound’s total value locked (TVL) now stands at $418 million, $80 million short of overtaking MakerDAO, the dominant protocol in DeFi. Compound has added over $300 million in liquidity since COMP distribution began on June 15.
The COMP token is trading at $218 as of this writing, according to CoinGecko, for a market cap – separate from the Compound protocol’s TVL – of roughly $570 million. The market cap of Maker’s governance token, MKR, currently sits at $466 million.
Meanwhile, Dharma is still sorting out how to handle COMP that its users are earning.
Dharma is a smart-wallet app that lets users deposit dai to earn interest easily. It also allows them to easily pay each other in dai, much like Venmo. While dai has not been the most popular asset on Compound lately (USDC and USDT have), each depositor and borrower on Dharma still earns some COMP each day as it gets distributed.
Dharma’s COO has spoken about the options that Dharma is considering on Twitter. It is considering holding onto the COMP for now so that Dharma can be a stronger voter in governance, but it may also directly distribute the COMP to users or convert it to dai and then distribute it.
Forster tweeted, “We’ve been discussing this internally and in our Discord channel. Haven’t reached a conclusion yet.”
PoolTogether is a lossless lottery. Users deposit their funds with PoolTogether in order to win a chance at winning all the interest earned by everyone else who did the same.
PoolTogether has a weekly dai pool and a daily USDC pool, but their returns have been hammered by the way liquidity mining has changed the market.
“PoolTogether contracts are earning COMP and currently, the value of that COMP is actually greater than the value of the interest accruing to the prizes!,” Leighton Cusack, the founder, told CoinDesk in an email. “However, when we designed the protocol we did not have COMP in mind so there is not a mechanism right now to re-distribute it to depositors or include it in the prize.”
Cusack let his community know that this was a question under consideration the week before COMP started to be distributed.
Like Dharma, it’s considering holding onto COMP so it can vote the tokens in the interest of PoolTogether users. That said, Cusack also wrote, “The most likely scenario though is that we’ll include the accrued COMP in the prize distribution. So longer-term this will be great for users as the value of the COMP will supercharge the prize size.”
Staked is a startup that takes care of the hard part if users have a token on which they can earn a yield. It even has a product that will move assets around to optimize their income, called RAY, for Robo Advisor for Yield.
Staked CEO Tim Ogilvie told CoinDesk, “Any COMP earned is distributed to depositors. Next week we’re going to update our algorithm so the yield attributable to Compound includes both interest and the value of the COMP earned.”
Linen and Argent
Linen and Argent are both wallet applications that make it easy to move assets into Compound and earn interest. Because all deposits in Compound are tokenized, this is simple to do in a non-custodial fashion; if your wallet can hold USDC it should be able to hold cUSDC (the tokenized version of a deposit of USDC on Compound).
Argent posted on its blog Wednesday that its users would be able to keep track of COMP earnings right in their wallet and use it like any other token.
Linen founder and CEO Vitaly Bahachuk told CoinDesk via email that it would do the same. He wrote, “Linen app is powered by a user self-custody wallet and Linen does not have access to members’ assets including access to COMP. We will build an in-app interface where our members can claim their COMP and use COMP however they chose to.”
One choice they might make, HODL the COMP and delegate to Linen to vote their interests. Linen has declared itself as a delegate for voting on Compound protocol questions.
Opyn has also declared itself as a Compound delegate.
The company built a decentralized protocol for hedging risk on ERC-20 tokens. While using Opyn itself does not create a way that users would earn COMP, its application may be more valuable in a highly volatile market like the one created by COMP’s release into the wild.
When Opyn creates a hedge, it also tokenizes it. So if a user buys a hedge against ETH dropping they get oETH. With so many users converting USDT into Compound deposit tokens, cUSDT, the ever-lingering concerns about tether have become salient to Opyn’s community.
“We’ve seen user demand for ocUSDT (protection on USDT deposits in Compound) as lots of DeFi users have been attracted to the COMP incentives for USDT,” Opyn co-founder Alexis Gauba told CoinDesk.
With the price of COMP going so high so suddenly, there has been discussion on Twitter of creating a hedge for the governance token.
Gauba wrote, “The Opyn team does currently have plans for an oCOMP token, however, the protocol is completely open and supports options on any arbitrary ERC-20 token, so anyone could create an oCOMP token!”
The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.
Joseph Spezzano received a Masters Degree in computer science from The University of Massachusetts. Joseph has been working as a full-time blockchain programmer for the past 5 years. In his spare time, Joseph enjoys writing for CryptocurrencyInvestments.com and traveling.