The COMP token builds the road to yield wars
The recent events surrounding the launch of the Compound token seem to have been noticed by many other projects in the Decentralized Finance Ecosystem or DeFi.
In an interview with Cointelegraph, Framework Ventures co-founder Michael Anderson said the success of the token may provide an example for other DeFi projects to follow, which may begin to engage in „yield wars.
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The result of this could be a greater interest in the DeFi space itself, argues Anderson. Some of those results can already be seen in the exponential price increases of other tokens, such as Aave’s LEND, and Synthetix’s SNX.
While Compound’s reward system is not the first of its kind, its extremely rapid success puts it ahead of the previous examples.
Putting a Price on Future Success
Anderson compared Compound to a „mid-stage startup that is achieving revenue growth,“ which generates a lot of interest in the traditional investment world:
„You assume that the operations are growing and the infectivity of those revenues is increasing, which means that they can eventually become, you know, as profitable as some of the big guys like Google and Facebook that went through that transition.
According to him, investors in the Compound token believe in „whatever can happen“ and how the growth of DeFi, and the recognition of the platform, could turn multi-billion dollar valuations into something concrete.
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That establishes a favorable cycle for venture capitalists, who see the Andreessen-Horowitz staking of $40 million reach a valuation of $2.5 billion. „So, what this is going to do is attract attention to the space, bring more assets into the DeFi space,“ he added.
Yield Farming Wars
The decentralized exchange (DEX), Balancer, already launched a similar incentive scheme and saw its valuation go through the roof. Its incentive scheme was reportedly planned by the exchange, FTX, and the project informally enacted a change to reduce this.
But despite this problem, Anderson believes that many projects will implement this strategy:
„I bet this token approach will be something that stimulates high Crypto Cash to drive more assets into the platform, this is what we’ll see over the next six, nine and twelve months.
Sustainability in COMP’s yield agriculture depends entirely on the price of the token, which „has a long way to go (downwards)“ before interest rates return to average values. At the same time, competition from similar incentives by platforms such as, Balancer, „could be something that drives away COMP’s assets“.
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Kava, a DeFi project, where Compound CEO Robert Leshner and Framework are investors, seems ready to implement similar systems. In a conversation with Cointelegraph, Chief Engineer Kevin Davis said that while they can avoid over-participation, it is difficult, „some factors will lead to a cooling off in this market cycle, and COMP’s crazy pricing behavior is not something represented by the yield farming trend.