Compound, COMP

Compound is a DeFi protocol in the Ethereum blockchain aimed at forming loan and deposit markets. It is driven by pools of assets that have algorithm interest corrected according to demand and supply. Users work directly with a smart contract by paying out a current interest rate or receiving it. They do not have to negotiate loan conditions with a contractor.

Compound differs from exchanges with leverage: it does not match offers from various users but aggregates funds of all users in a single pool following the principle ‘to each according to his needs.’ As soon as a user deposits an asset, it becomes interchangeable, which makes lending more liquid. A user is able to recall their asset at any time. The assets are 11 different ERC-20 tokens. Via the protocol, they are turned into so-called cTokens and become convertible.

Compound startup history

Establishment: August 2017, San Francisco, CA (USA).
Founders: startuppers Robert Leshner and Geoffrey Hayes.
Previous experience: Mr Leshner had worked as an analyst, economist, and web designer; Mr Hayes had been a software engineer and an Ethereum maintainer. Both of them studied at the University of Pennsylvania, launched the Safe Shepherd startup in 2011, and worked for Postmates in 2016–2017.

Company: Compound Labs, Inc.; 2017, California (USA).
Executives: Robert Leshner is CEO, Geoffrey Hayes is CTO.

Project announcement: January 2018.
V1 official launch: September 2018.
V2 public launch: May 2019.

Investment in the startup

1. May 2018: $8.2 million in seed investment from Andreessen Horowitz, Bain Capital Ventures, Polychain.
2. November 2019: $25 million in venture financing from Andreessen Horowitz.

Compound cryptocurrency aspects

For a long time, the project was operating as a protocol without tokens. The Compound Labs team changed and updated it single-handedly. However, it strived to get rid of centralization because it aimed to create an open and independent infrastructure manageable by all participants in a decentralized way. To reach this goal, in February 2020, the executives presented a system for decentralized governance with a transfer of administrative privileges to a community. For its operation, they issued new tokens in free circulation.

COMP token holders get a right to propose changes to the protocol and vote for someone’s ideas. All possible protocol changes, including adding new cryptocurrencies and changing system parameters (collateral criteria, an algorithm for interest calculation, etc.), go through the voting procedure, which is indicated in the governance smart contracts.

COMP holders can use their right to vote either themselves or delegate it to other Ethereum addresses. Those who receive a delegate right to vote—delegates—are fully capable of proposing changes and voting for other ones. The Compound website has a delegate ranking. One COMP equals one vote, so the more tokens a user has, the more considerable is their weight in voting.

Compound (COMP) is a token of Ethereum’s ERC-20 standard. Its main function is access to managing the Compound protocol via voting.

Issue and distribution of COMP tokens

After issuing the first batch of tokens, the team distributed it amongst the Compound Labs Inc. shareholders who were testing governance capabilities with tokens for several months. The following batches were distributed amongst protocol users. Daily, approximately 2300 COMPs are distributed amongst pools of an internal market. Inside each of these pools, tokens are equally distributed amongst suppliers and borrowers. This process is called liquidity mining.

Tokens will be continuously issued in the course of four years. The issue will stop when the total supply will reach 10,000,000 COMPs, and the share distribution will look like this:

The project attracted investment totalling to $33,200,000 and sent 2,396,307 tokens to venture investors. If one divides this amount into the number of tokens for shareholders, it turns out that the initial cost of COMP was $13.85.

Compound price dynamics

Exchanges started listing the token on 16 June 2020 at 93.20 USD. The next day, the price dropped and set an all-time low at 64.64 USD. However, on 21 June, it reached an all-time high at 337.05 USD.

Due to a sharp fivefold price increase, the crypto community deemed the project a scam that uses pumps. But OpenZeppelin’s audit did not confirm suspicions: the smart contract does not have vulnerabilities or any other issues.

Further COMP price change in 2020

Let’s list only uptrends and downtrends with price extremes that are noticeable on the 2020 Compound chart:

1. 📉 Fall from 22 June to 11 July: 280.38 USD ⤵ 175.52 USD.
2. 📉 Fall from 27 July to 4 August: 157.84 USD ⤵ 127.18 USD.
3. 📈 Rise from 6 to 13 August: 135.92 USD ⤴ 217.47 USD.
4. 📉 Fall from 14 to 24 August: 205.07 USD ⤵ 169.34 USD.
5. 📈 Rise from 26 August to 2 September: 165.99 USD ⤴ 257.03 USD.
6. 📉 Fall from 3 to 22 September: 223.59 USD ⤵ 129.16 USD.
7. 📉 Fall from 27 September to 7 October: 144.33 USD ⤵ 105.67 USD.

Compound predictions for 2020-2021 and prospects

In spite of Compound operating on Ethereum, the COMP token rarely correlates with the ETH coin. The chart below shows how the COMP price (green line) followed ether only from mid-August until late September. During all other weeks, there were serious divergences:

Considering this particularity, it is reasonable to predict the price movement during the correlation with ether because the latter is easier to analyse. Token’s prospects are also affected by an increase in asset volumes that users lend and borrow. These indicators should be monitored on the market overview webpage: https://compound.finance/markets

Compound roadmap

There is no official roadmap on the project’s website. The team publishes news only on the Medium blog. Thus, let’s compile our roadmap to analyse events that have affected the Compound price and probably have a chance to influence it in the future:

• 10 August 2018: strategic partnership with 26 financial institutions.
• 27 September 2018: official launch of v1 on the Ethereum blockchain.
• 1 December 2018: implementation of the fist stablecoin — DAI that was selected through voting.
• 23 May 2019: public launch of v2 (after preliminary month-long testing).
• 20 July 2019: brand identity and website update.
• 23 October 2019: update of the protocol to v.2.2 aimed at governance decentralization.
• 26 February 2020: announcement of decentralized governance and the issue of tokens for the community.
• 16 April 2020: transfer to fully decentralized governance.
• 27 April 2020: the first proposal — the addition of USDT, its approval in the course of voting, and implementation (1 May).
• 22 May 2020: successful audit of the COMP distributed system conducted by OpenZeppelin.
• 16 June 2020: launch of an on-chain system that automatically distributes COMP amongst users.
• 2 September 2020: creation of the Compound.js software development kit for a native protocol and Ethereum.
• 10 September 2020: creation of a tool for autonomous proposals in Compound.