Compound surpasses Maker to become the project with the highest market value of DeFi

Liquidity mining is a booster for Compound's rising valuation

2017 is the era of crowdfunding, but the crowdfunding model has many drawbacks. 2020 will turn to the era of liquidity mining. What is liquid mining? Liquidity mining is mainly to provide liquidity for DeFi projects, so as to obtain incentives for project governance tokens.

COMP is Compound's governance token and is an ERC20 token. It allows holders to delegate the token to others to vote. Any token holder can participate in the governance of Compound. As long as you have 1% of the entrusted tokens, you can initiate governance proposals, including adding new assets, changing interest rate models, and other protocol parameters or variables. At the same time, Compound also stipulates that the proposal is not an implementation recommendation, but executable code. The proposal has a three-day voting period. If the proposal receives a majority of votes and no less than 400,000 votes, it can be implemented after 2 days.

COMP is not only a governance token, but also a token that captures its business value. All debits and lenders on Compound have the opportunity to receive COMP token distribution. The total number of allocated tokens is 4,229,949. These COMP tokens are placed in the Reservoir contract. Each block transfers 0.5COMP into the agreement for distribution, that is, about 2,880 COMPs can be distributed to users every day. These COMP tokens are distributed to all currency markets, and the amount of tokens allocated is proportional to the interest accrued by the currency market. Then, in a single market, 50% of the tokens are allocated to the lender and 50% of the tokens are allocated to the borrower.

It can be seen from the figure that the vast majority of tokens are allocated to the USDC and USDT markets. The USDC and USDT markets receive 90% of the COMP token allocation. The current market demand is not btc or eth, but stable currency.

With COMP, Compound can have more cards to play. For example, under certain circumstances, especially in the early days, users borrow money on Compound, not only do not spend money, but also make money. This means that users can not only use the encrypted assets on Compound for free, but also make money. The secret here is the existence of COMP. As the price of COMP rises, the purpose of people borrowing money is not because they need it, but because they can earn COMP.

The higher the price of COMP, the stronger the motivation of users to save and borrow money. The daily distribution of COMP is about 2,880. According to the price at the time of writing the Blue Fox Note, the value of the tokens distributed every day is as high as US$287,643.2256, far exceeding the daily interest paid. This means that the interest paid by borrowing money is less than the income from borrowing money.

With the further increase in the price of COMP, people will provide more liquidity based on the calculation of income. It is expected that the amount of Compound’s locked assets and borrowing will increase significantly in the future, and it will also generate larger interest income, which in turn further Push up the price of Compound. Of course, once the income of COMP declines, it may lead to a decline in the volume of lending business. It is also worth paying attention to whether Compound can continue its business growth.

Maker's MKR: There is a lot of room for improvement

 Governance tokens represent the community's right to govern the project, which can determine the direction of the project's development and also capture the benefits of the project itself. The Compound model can be said to be the 2.0 version of the governance token. The 1.0 version of the governance token was created by Maker. Maker's MKR token distribution does not have a mining process. The distribution of MKR has nothing to do with the generation of DAI, the holding of DAI, and the use of DAI. Although MKR can also capture some of its business revenue, the current level of capture is not the focus of its concern, and its focus is on expanding DAI issuance and DAI usage.

But for Maker, MKR can not play as many cards as Governance Token 2.0, Governance Token 2.0 such as COMP, BNT, etc., they have the opportunity to bind the issuance of tokens and business development together. Of course, Maker can also do this, but this requires the resolution of the MKR governor to be passed, that is, in the future business development process, MKR can be issued, and the additional issuance is related to the generation, holding, and use of DAI. In order to take care of the interests of the MKR holders before the issuance, the MKR holders who participate in the ecology can also be rewarded, for example, the holders who participate in the MKR lock or vote can be rewarded with additional MKR.

MKR has not fully tapped the value of its project fundamentals. From the perspective of current loan volume, Maker has about 70% market share, Compound has about 10% market share, and the remaining other projects have about 20%. From this perspective, MKR has not been deeply integrated with its fundamentals, and there is room for improvement in its token economic mechanism. If MKR can improve its token economic mechanism, it will have the opportunity to surpass Compound to become the first DeFi market value project, and the value of MKR will also be greatly improved.