A user-reward scheme to distribute the new Compound Governance token (COMP) has resulted in a dramatic increase in the value set in the Decentralized Finance Protocol, as traders tried to „cultivate“ (mine) the token Bitcoin Future, as it is affectionately called by the fans of this practice.
According to Defi Pulse, the total blocked value of the Compound protocol rose from about $100 million to a maximum of over $600 million since June 15, the start of the COMP token distribution.
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The COMP rewards plan works by periodically depositing the token to all balances that interact with Compound. This includes the protocol lenders and, crucially, their borrowers as well.
The amounts involved are significant, with the protocol currently distributing 2,880 COMPs per day worth about $668,000 at the time of publication. More than 4 million tokens remain to be distributed from an existing supply of just over 2.5 million.
Meanwhile, the price of the token rose parabolically once it was revealed that Compound’s investor, Coinbase, would put COMP on its Pro platform.
The trade was due to be activated on June 23rd, but that didn’t stop traders from raising its price to a high of $371, from just $78 the day before the announcement.
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The high issue and high price, along with the way the reward system is designed, led to the emergence of massive „COMP farming“. Speculators were encouraged to borrow and lend protocol money on a large scale, leveraging their positions through the recurrent „borrowing“ of tokens they borrowed.
The annual interest rate of some Compound tokens, such as BAT and wBTC, reached up to 33% and 27% respectively at the time of publication. Generally, high interest rates are associated with high COMP performance.
The earnings machine appears to be unwinding on Monday, as COMP fell to a price of $264.