Change in COMP distribution Rules by Compound

Change in COMP distribution Rules by Compound

It is thought because of the enforcement of Compound governance proposal #11, yield farmers will depart the riskiest markets of basic attention token (BAT) and Ox (ZRX) and shift their actions into safer assets. The purpose of this proposal is to distribute Compound to liquidity providers and borrowers on Compound, a decentralized lending application developed on the Ethereum blockchain.

The impact of the distribution on incentives was so powerful that astonished Compound team and community. In a poll that was closed Tuesday, the equivalent of 26% of all liquid COMP voted in favor of the change. Compound started distributing COMP tokens on June 15.

Changes of COMP

According to the rules,  users are given Compound depending on the amount of interest meaning if one is paying a lot in interest or earning a lot in interest has skin in the game. There is a gap between the cost of yield farming COMP and the price of Compound on the market to shift dramatically which wasn’t actually according to expectation. This was an attraction to those investors who were looking to find ways to game the system. A huge change was seen in the usage patterns on Compound.

Occurrence to see

As per expectation of stakeholders, with the new system through which COMP is allocated based on dollars, overall interest in COMP yield will not drop, but assets will almost certainly shift to different markets. The incentive to self-deal in niche assets pools highly get famished as distribution is done depending on the total borrow.

The distribution was mainly focused to allocate Compound to users creating value for the protocol whether by paying interest on borrow or by supplying capital.

MakerDAO’s concern

MakerDAO is tensed about the change saying the change could lead to a spike in demand for dai. It is said because USDC and Dai because of their interest rate curves will be the most popular farming assets. Investors have the advantage to extend their yield farming to dai which are much less exposed to underlying volatility in their investments. If plan is run accordingly and COMP’s price can go upward if Compound users start earning more Compound each day. COMP holders and long-term believers will more likely to get the distributed COMP. The Compound price is $215 and there is presently $977 million in assets supplied to Compound and $361 million borrowed.

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