Latest occasions surrounding the launch of Compound’s token appear to have been seen by many different initiatives within the decentralized finance, or DeFi, ecosystem.
In an interview with Cointelegraph, Framework Ventures’s co-founder Michael Anderson stated that the token’s success could present an instance to comply with for different DeFi initiatives who could begin partaking in “yield farming wars.”
The results of this shall be elevated curiosity within the DeFi area as an entire, Anderson argues. A few of these results can already be seen in skyrocketing valuations for different tokens, like Aave’s LEND and Synthetix’s SNX.
Whereas Compound’s reward system just isn’t the primary, the token’s extraordinarily fast success elevates it above earlier examples.
Pricing in future success
Anderson in contrast Compound to a “mid-stage startup that’s hitting income development,” which generates quite a lot of curiosity within the conventional funding world:
“You assume that operations develop and the infectivity of that income grows, which means that finally they’ll grow to be, you recognize, as worthwhile as a few of the huge Googles and Facebooks that come by that transition.”
In line with him, traders in Compound’s token are believing in “what might occur,” and the way the expansion of DeFi and the platform’s recognition might make billion greenback valuations life like.
That additional units up a virtuous cycle for enterprise traders, who see Andreessen-Horowitz preliminary stake of $40 million balloon to a $2.5 billion valuation. “So what that is going to do is, it brings consideration to the area, it brings belongings into the DeFi area,” he added.
Yield farming wars
Decentralized change Balancer has already launched an identical incentive scheme and noticed its valuation skyrocket. Its incentive scheme was reportedly gamed by the FTX change, and the undertaking informally enacted a change to curtail this.
However regardless of these points, Anderson believes that different initiatives will comply with this technique:
“This playbook of getting the token be one thing that stimulates excessive APR to drive belongings on the platform goes to be what we see for the following six, 9, twelve months, I guess.”
The sustainability of COMP yield farming totally is dependent upon the value of the token, which “has a protracted strategy to go [down]” earlier than rates of interest would return to common values. On the identical time competitors from comparable incentives by platforms like Balancer “could possibly be one thing that drives belongings away from COMP.”
Kava, a DeFi undertaking the place Compound’s CEO Robert Leshner and Framework are each traders, seems to be poised to implement comparable methods. In a dialog with Cointelegraph, lead engineer Kevin Davis stated that whereas avoiding extreme participation is tough, “just a few elements will result in a cool off on this market cycle, and the loopy value motion of COMP received’t be consultant of the farming-yield development.”
Uncertainty on the success stays
Whereas the reward incentives attracted many customers within the short-term, Davis is not sure if sufficient of them will actually have an interest within the governance side. Additionally it is unknown how many individuals will stay Compound customers within the long-term, which in Davis’s view is likely one of the foremost objectives of the initiative.
Whereas he believes it’s additionally a sound instance of progressively decentralizing a platform, it’s nonetheless too early to conclusively name it a powerful success:
“It nonetheless stays to be seen how a lot decentralization is achieved, and whether or not or not the Compound protocol (or the COMP token) has product-market slot in its present type.”