What is the use of more than 200% of COMP wool?

Thanks to Jeff, Head of dForce's China community, for helping with this article. & have spent & have spent

This could be the highlight of the year for Defi, where the Compound price for the decentralized lending platform has risen from 0.08 ETH to 0.41 ETH, or $95, at Uniswap.

COMP's current liquidity is unclear. With 4.6 million tokens allocated to Compound Labs, project owners, and teams based on official scrip allocation rules, plus 25,000 comPs on Uniswap, COMP's current market value of $460 million is roughly the same as MakerDAO's.

The Compound platform was originally known as Defi. Behind the investment institutions have a16z, Coinbase, Polychain Capital, as well as the Dragonfly Capital and so on top of Capital, in before issuing, the amount of borrowing Coumpound in Defi platform can also be in the top five, such a platform issue governance tokens, this is what we are looking forward to, as you expect Uniswap issuing, but COMP after launch, the evaluation of it is not so ideal.

At the heart of the contradiction is COMP's distribution model, known as "lending is mining," which allows both depositor and borrower access to COMP as long as users deposit or borrow money on the Compound.

COMP distribution mode

According to the Compound of official information, with users of borrowing and issuance of COMP has nearly 4.3 million, accounting for 43% of the total, each etheric fang block will produce 0.5 COMP, this calculation is about 2880 COMP generated every 24 hours, that is every day there are 2880 COMP allocated to users of Compound platform deposits on loans and deposits of party distribution, 1440, 1440 borrowers distribution.

Is this kind of play very familiar? We can say that this mobile mining, providing liquidity for the platform can be rewarded, that is how Uniswap played, two years ago the fire of the FCoin platform is so played; We can say that this is a subsidy, which we also see in the competition of Didi Kuaidi and Mobike ofo.

But when the value of subsidies or rewards reaches a certain point, the game becomes the Wool Party's favorite. All I need is a deposit or a loan to get the Defi domain leader COMP at $100, why not?



As a result, we can see that after COMP was born, Compound deposits and lending started to take off. In the 13 hours after COMP started lending to mine, deposits and lending increased 51% and 64% respectively.



For each currency, we found that the biggest change in deposits and borrowings was in stabilisers, led by fluctuations in the total USDT, which increased 4.5 times in total deposits and 4.6 times in total borrowings.

Why is the Wool party leaning towards the USDT?

COMP arbitrage

Let's understand COM firstAccording to the mining logic of P, the COMP quantity obtained from mining is not in direct proportion to the number of loan pens from deposits, nor is it in direct proportion to the amount borrowed from deposits, but is in direct proportion to the interest on deposits. The more interest you earn on your deposit, the more COMP you get. The more interest you pay on your loan, the more COMP you get.

We look at the picture above, you will find USDT deposit rates between 7.73% and the lending rate is 14.16% in each of the currencies are the highest, in other words, the amount of currency, such as using USDT deposits or borrowing, COMP mining efficiency highest, compared with the other a stable currency USDC USDT deposit mining efficiency is 12 times the USDC deposits, USDT borrowing mining efficiency is 3.7 times of USDC lending.

Why are USDT's interest rates so much higher than other currencies? In fact, this is quite normal. The current USDT consensus has not lost to Bitcoin, with stable value and convenient transfer, which is the first choice for arbitrage.

How profitable is USDT mining at such high interest rates? We did a simple calculation based on the data provided by Defi wallet DeBank.

At around 13:00 on June 16, Beijing time, the COMP price is calculated at $100. & have spent & have spent

So in this situation, let's figure out, if we save $10,000, all other things being equal, how many comPs can we dig up in 24 hours?

COMP quantity = 1063.96/3339 =0.3186, which is about 31.86 USD based on 100 USD.

If we borrow $10,000, other things being equal, how many comps can we dig up in 24 hours?

COMP quantity = 1063.96/20.6 million = 0.5163, which is about 51.63 USD based on 100 USD.

How much interest do we have to pay on the $10,000 loan?

Interest = (10,000/20.6 million) * 8694.38= $4.17

So, we can recycle this money.

How much COMP can We get by borrowing a $7,500 USDT from a $10,000 USDC and putting the $7,500 into the Compound?

75%* (0.5163 + 0.3186)= 0.62 COMP, which is equivalent to $62, plus about 0.05 COMP for 24 hours for 10,000 USDC to mine, which is equivalent to $5. Excluding the gas fee, the cost interest is only 4.17 * 75% = $3.12. We have made a net profit of nearly $65, not including the deposit interest.

This is only $10,000 in import and export, 24 hours can "empty Wolf" to obtain $65 wool, more than 200% annual.

In Compound terms, USDT's high interest rate didn't always exist. USDT's borrowing rate was only 7.5% on June 12, but suddenly jumped to 19% on June 13. The deposit rate jumped from 2% to 14%.

Such wool pulling also brings other Defi platforms, such as Curve, to the top of the DEX platform in terms of 24-hour turnover of $18 million. DAI/ USDC trading pair of Curve platform is one step for the arbitrage trader.

As with all wool harvesting, when COMP values no longer support the cost of wool harvesting, data on Compound platforms will return to normal.

The impact of COMP's schema on Defi

"Think of it as a quick trial and error." "Said Yang Mindao, founder of dForce, a decentralized lending platform. The subtext of this comment is that this must not be the final mode for Defi to issue COINS, there must be a better token model.

The mining model, which is similar to a centralized trading platform, hasn't gotten much positive feedback, and MakerDAO's China head added, 'You should short COMP on Compound lending.' COMP does not have a buyback mechanism, there is no strong value support, the wool collected will be sold in the secondary market.

"I personally don't believe in the Compound COMP distribution model." Jeff, Head of dForce's China community, told Rhythmic BlockBeats. In his view, COMP's lending and mining mechanism would create unlimited selling pressure in the market, and more than 40 percent of COMP's tokens would be distributed in this way. The rules were all in the chain and basically written down. The pattern of trading and mining, similar to a centralised exchange, has not worked out so well.

"But the FOMO sentiment created by COMP, on the other hand, can drive the DeFi industry." The FOMO from the price bubble, Jeff says, will send a lot of outsiders into Defi. "I've heard around me that exchanges have friends who don't normally use Defi trying to mine COMP."

Judging by the growth in funding on the Compound platform, we've increased the amount of money available by 50%. As a result, about a third of the users on the Compound are now owned by non-users. Before then, that one-third of users might not have known about Defi, but the appeal of such subsidies cannot be ignored. That was how FCoin rose to the top of CoinMaketCap, forcing the mainstream exchanges to find a way to deal with it.

So will this model be copied?

The loans-as-mines model is so easy to imitate that you can think of many advanced versions at any time. As long as the benefits outweigh the costs, no one is afraid of FOMO.

But what does this pattern really mean for Defi and Ethereum? Maybe nothing, Ethereum will only get clogged up, and Defi will only get clogged up. No one knows the real Numbers. Maybe CMC will need an "adjusted lending volume" when it launches Defi.

If you remember last November, EOS had a wool-collecting project called EIDOS. At that time, EIDOS solved a problem, that is, there were hundreds of thousands of EOS shelved in EOS's loan pools, and no one borrowed money, so the birth of this wool collecting project directly made the loan pools empty. With the growth of COMP, Compound borrowing will become more and more out of line with deposits, and maybe a different project will be needed to get rid of the savings problem, creating a different kind of Lego.

Otherwise, COMP's current model looks little different from DAPP's 2018 mine.

This article belongs to Rhythmical BlockBeats, if you want to reprint this article, please attach the hyperlink: & NBSP;https://www.theblockbeats.com/news/17115

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia