- MakerDAO’s DeFi crown has just been wrested by Compound with some USD 642 million total assets under management locked in the platform
The Maker Decentralized Autonomous Organization (DAO) has long been the king of the Decentralized Finance (DeFi) sector, but now Compound has dethroned MakerDAO for the #1 spot in the industry, with Compound having USD 642 million of total assets under management, i.e. crypto locked within the platform, as opposed to MakerDAO which has USD 567 million of assets within its platform. The sudden surge of Compound has been caused by the launch of its new cryptocurrency Compound (COMP), which has risen to a market cap of USD 500 million almost instantly and sparked the DeFi yield farming frenzy. In-fact, the yield farming frenzy initiated by Compound is truly bringing the DeFi sector to the next level, and has become the next big thing in the crypto space.
In order to understand the yield farming frenzy and why Compound has suddenly become the king of DeFi, it is important to understand what DeFi is in general. Long term DeFi has become increasingly popular since it offers much higher interest rates than savings accounts at banks. Essentially, users can deposit their crypto on DeFi platforms like MakerDAO and Compound and earn interest rates of 2% to 10%.
Compare this to banks in the United States and Europe, which typically offer interest rates less than 1%, and sometimes even negative interest rates, i.e. interest rates below 0% where bank users are actually penalized for saving.
Since DeFi interest rates are much higher than bank savings rates, using crypto to accrue interest via DeFi has become a new major use case for cryptocurrency. Instead of saving money with fiat and earning meager interest rates, people can save money with crypto and earn significant interest rates. In-fact, this makes cryptocurrency more competitive with fiat than ever before.
DeFi was already becoming quite popular, and was generally thought of as the next big thing in crypto, but the yield farming frenzy has truly taken DeFi to the next level and is bringing a surge of investment and excitement to the crypto space that is reminiscent of the initial coin offering (ICO) boom of 2017.
The yield farming frenzy was started by Compound via the launch of their Compound (COMP) cryptocurrency. The Compound (COMP) cryptocurrency is branded as the governance token for the Compound protocol, and will be used to propose changes to the protocol as well as vote on those changes.
However, the thing that really makes Compound (COMP) unique is the way it’s being distributed. Lenders and borrowers of Compound are receiving a share of 2,880 Compound (COMP) tokens daily, with more lending and borrowing bringing in more tokens for each user.
Apparently this can be extremely lucrative, with Compound users earning interest rates of 100% or more when combining the typical DeFi interest rates yields with the daily Compound (COMP) token bonus.
This has led to an influx of USD 1 billion into DeFi platforms since June 15, which is less than one month ago, and this is led by Compound which has seen an influx of USD 550 million. Essentially, people around the world are rushing to deposit as much crypto as they can into Compound in order to capitalize on the DeFi craze.
Further, like other hot trends in the crypto space, other DeFi platforms are copying Compound’s strategy in order to attract yield farmers.
The yield farming trend is actually quite reminiscent of the ICO boom, and in-fact Compound (COMP) token could be considered a refreshing new twist on the concept of an ICO. Indeed, Compound (COMP) tokens’ near instant surge to a USD 500 million market cap can only be compared to the sort of activity seen during the ICO boom of 2017.
On a final note, the surge in DeFi activity caused by the launch of Compound (COMP) token and the yield farming frenzy is likely causing upward pressure in the crypto market. Basically, people are buying so much crypto in order to use it on Compound and other DeFi platforms that it is causing a significant surge in crypto demand, and buoying the price of Bitcoin and the crypto market in general. Ultimately, the spike in crypto demand caused by yield farming in combination with the slashing of Bitcoin’s market supply following the May block halving may be creating the perfect conditions for a major crypto bull run.
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