A Coinbase Pro Listing and Other Eye-Opening Data Points on Compound’s Surge in Demand

It’s hard to pick just one stunning fact about the market suddenly created by the issuance of Compound’s COMP token.

Since Monday, when the governance token started being released to users of the decentralized lending platform, the total value locked (TVL) on Compound has broken $200 million for the first time, according to DeFi Pulse, and it’s decisively on its way to $300 million. At $283 million as of press time, the prior all-time high for Compound’s TVL occurred Feb. 23 when it reached $183 million.

The question, of course, is why. 

This has been a wild week in decentralized finance (DeFi) as users scramble to earn the daily rewards of COMP, currently priced at $123, according to data site CoinGecko. As previously reported by CoinDesk, users are depositing one token (usually USDC) and borrowing another (usually USDT), because Compound emits fresh COMP every day to both lenders and borrowers. 

In many cases, borrowers turn around and convert the borrowed USDT to USDC in order to repeat the operation and maximize their COMP earnings. 

From 12:00 UTC to 13:00 UTC on Thursday, Compound’s TVL shot up $50 million.

It’s not unfair to say the DeFi market has been completely overtaken by Compound this week. A few relevant data points:

As long as the token’s price remains above $100, the effective market cap of COMP is over a billion dollars, though it should be noted that this price is skewed by the fact that so little of the supply is actually liquid. 

To recap, 2,880 COMP tokens are released to borrowers and lenders on Compound each day. Only 9,231 of the 4.2 million set aside for community members have been released so far, according to the Compound website. 

Haseeb Qureshi, managing partner of Dragonfly Capital, put the long-term prospects of Compound and the short-term reality of its governance token into context in an email to CoinDesk Thursday:

“Given that COMP represents a potential claim on future interest paid, as more collateral onboards to Compound, this should make COMP more valuable as more lenders/borrowers show up. (In the short term though, most of COMP’s price fluctuations are a function of the tiny float. Think Zcash early days. I wouldn’t read too much into the current price.)”