The value of COMP–the native token that belongs to Ethereum-based DeFi platform Compound, which acts as an autonomous interest rate protocol built for developers–is currently down roughly 46 percent from its peak of ~$372 (CoinGecko) last month. Over the weekend, the coin was down to $165, a decrease of roughly 55 percent; at press time, the price had recovered to roughly $198. What’s going on?
According to CryptoSlate, much of the fall in the price of COMP occurred after the token was listed on Coinbase Pro on June 23rd.
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It has been theorized that because Coinbase was one of the first “mainstream” exchanges to have listed the COMP token, it’s possible that the listing gave an opportunity for numerous COMP holders to sell their tokens for the first time.
According to some analysts in the crypto space, COMP may be poised to fall further: a Twitter analyst that posts under the name @ThetaSeek said on July 2nd he (or she) is “short on $COMP”, citing a belief that Compound’s “the fundamentals of the ‘governance’, given the public information, don’t make too much sense today.”
“[…] The value of the Protocol is an AUM business and AUM businesses are normally valued at less than 1/3 or 1/4 of the companies’ AUM,” ThetaSeek said, pointing to BlockFI as an example: “@realblockfi is valued at around 200M when their AUM was 650M. (This is generous as Goldman Sachs is valued at less than 1/50 of their AUM),” he said.
3/ The value of the Protocol is an AUM business and AUM businesses are normally valued at less than 1/3 or 1/4 of the companies’ AUM. E.g. @realblockfi is valued at around 200M when their AUM was 650M. (This is generous as Goldman Sachs is valued at less than 1/50 of their AUM) pic.twitter.com/tbyeFmHmjn
— Theta Seek (@thetaseek) July 2, 2020
Part of the reason that DeFi has been increasingly described as a bubble is due to the fact that there have been a number of price surges on DeFi governance tokens over the past 12 months, including COMP: in June, CoinDesk reported that COMP’s price had double in less than 24 hours in “DeFi Mania.”
“The apparent runaway success of the token offers a glimpse into just how frenzied the speculation has become over the future of decentralized finance, or DeFi – blockchain-enabled systems, mostly using the Ethereum network, that allow for the lending and trading of cryptocurrencies and other digital assets, without the need for trusted intermediaries like banks and centralized exchanges,” CoinDesk reported.
Finance Magnates reached out to Compound for commentary, but did not receive a response. Comments will be added to this story as they are received.