Compound’s governance token only needed one day being negotiated to lead the decentralized finance rankings. And despite the swings, it’s still on top. For Vadim Koleoshkin, chief operating officer of Zerion, a DeFi interface (or decentralized finance) provider, the success is explained by investors’ interest in a new type of investment. And this new one is about the income offered by Compound.
A governance token gives its holders the right to give their opinion in company pools. In this way, it is promoted the decentralization of decisions on the platform. The technology therefore fits into the DeFi movement. This, in turn, is defined by Forbes magazine as the idea that digital asset entrepreneurs “can recreate traditional financial instruments in a decentralized architecture, outside the control of companies and governments”.
Governance token price may drop
Looking at the success of Compound’s governance token, the diretor of Zerion believes that COMP “is cool because it’s programmable”. And even though tokens don’t offer a yield payment, Koleoshkin points out, in conversation with Cointelegraph, that they guarantee the possibility to participate in the company’s decisions, which can be valuable. In addition, Compound was one of the first Web 3.0 companies to go public.
However Koleoshkin makes a remark: COMP’s success does not mean that the price will maintain a bullish trajectory. He states that the broader distribution is made, “the market will determine a fair price for it”.
What is offered by Compound?
Just as banks allow you to deposit money that will yield interest, the Compound enables something similar, but with cryptocurrencies. The income will come from loans made to other users, who borrow capital and pay interest for it. However, there are two differences.
The first is that the protocols generated when the deposit is made can be used as collateral for a loan, and continue to yield interest even if they are spent. The second difference is that the interest on each contract is imposed by the relationship between supply and demand. Thus, if the proportion of people interested in a loan grows with respect to the basis of who offers the resources, interest will increase. The idea is attracting more users interested in providing capital.