The proposal received almost unanimous approval through a vote. The new method will prevent users from taking advantage of interest rates on various platforms.
The decentralized finance (DeFI) platform Compound will change in the way of allocating and distributing its token, COMP. The change arises in response to the recent growth of the practice known as Yield Farming.
Last June 2nd, the update approved on June 30th came into effect, through a vote on the platform. In the said vote, more than 711,000 COMP were put in favor of approving the proposal. The “no” option only received the support of 1 COMP.
According to the proposal, the idea of this update is to stop the Yield Farming method of those who are seeking higher interest rates in “any market” within the Compound platform. In the list, it is possible to see higher interest percentages for assets like BAT or ZRX.
As the distribution based on those interests, users took advantage by removing all the liquidity of the asset on the platform. Then, they returned it through another account and inflated the total interests, taking most of the issued COMP. This practice has yielded “unequal rewards”, according to the text that exposes the problem.
The update “modifies the allocation of COMP through the markets, eliminating the loan interest rate as a weighting mechanism,” as explained in the text put to the vote since June 27th.
Compound will now distribute COMP based on “loan demand” (in the equivalent in US dollars). The text adds that there is an equal division allocation between providers and borrowers.
There will now be a daily distribution of a total of 2,880 COMP tokens. The platform will distribute these tokens equally between those who offer loans and those who request them through the system.
According to Brendan Forster, from Dharma, a company that offers Compound-based savings accounts positioned itself in favor of the new modality. In his opinion, it best meets the objective of distributing COMP. He said that the supply of the token seeks to reward “users who generate value for the protocol, either by providing capital or by paying interest on loans.
Recent Yield Farming and COMP Explosion
The recent boom of the Yield Farming method experienced a clear sample from the launch of DeFi Compound token, last June 15th. During the first days since its release, COMP gained close to 200% in its market value.
Despite the drop in the valuation of the token valuation, Compound outperformed MakerDAO in terms of total capitalization between DeFi platforms. Updated data from DeFiMarketCap show that Compound remains at the top of that list, tripling the capitalization of MakerDAO and Synthetix, which is currently in second place.
This method of “reaping” interest allows users to generate returns of up to 100% on their funds, according to analyst Tony Sheng.
The method unleashed interest as a result of COMP’s release, which even led the Ethereum network to exceed one million daily transactions for the first time. This blockchain is the base of Compound and other DeFi platforms.
By Alexander Salazar
