The U.S Securities and Exchange Commission (SEC) has started to investigate whether the current token launches by blockchain companies are actually securities or not, and if so how they should be categorized.
The “what is compound crypto” is a cryptocurrency that uses the ERC-20 token standard. The company behind this coin, Compound, has just announced that less than 20% of their liquidity miners hold any COMP tokens at all.
According to new study, one of the industry’s major DeFi protocols is experiencing a motivational crisis. Alex Kroeger, an Ethereum researcher, discovered in his paper that the majority of Compound’s liquidity miners have little to no financial interest in the protocol and do not engage in its governance.
The analysis looked at the top 100 accounts by accrued COMP from liquidity mining in order to show that Compound’s liquidity mining needs to be fixed.
The miners at Compound aren’t hodlers.
Compound was one of the first protocols to include liquidity mining, and it soon rose to prominence as a DeFi powerhouse. According to Dapp Radar, it’s the fifth-largest DeFi protocol, with over $12 billion in total value locked (TVL).
However, rewarding users that give liquidity to the network with incentives comes at a cost. Liquidity incentives, according to researcher Alex Kroeger, diminish token supply and reward users who contribute nothing to a protocol’s governance.
Kroeger looked at the top 100 accounts in terms of accumulated COMP through liquidity mining and discovered that they had amassed a total of 808,825 COMP coins, which is almost $270.9 million. These accounts account for 69% of all COMP mined, implying that they account for the vast majority of COMP holders.
However, only a small percentage of these accounts really own the tokens. Only 19% of the accounts held more than 1% of the COMP they claimed, dumping 99 percent of their liquidity incentives on the market, according to the research. Only 7% of the accounts retained more than half of their liquidity incentives.
Only one of the top 100 addresses has ever voted on a protocol proposal, which paints a far bleaker image when it comes to participation in the protocol’s governance.
“Liquidity mining initiatives need greater attention in DeFi governance in general–are they accomplishing their goals?” “It becomes obvious that liquidity mining incentives are a terrible strategy to transform users into stewards of the protocol in the instance of Compound,” the paper found.
Nonetheless, Compound’s predicament has a solution.
To dissuade liquidity miners from recursive borrowing and lending, Kroeger advocates solely encouraging lending on the protocol. In the long term, lenders are more interested in passively collecting income and engaging in good governance.
He also advocates providing a vesting timetable for accumulated tokens to better match the incentives of these liquidity miners—COMP tokens with a vesting schedule could then be tokenized and maintain governance rights.
Finally, the protocol’s concept might be fully revamped to “governance mining” as an alternative to liquidity mining. Compound might issue tokens based on donations rather than awarding tokens to users who lock up wealth in the network.
Regardless of what you think the purpose of liquidity mining should be, I believe the program’s size necessitates a more thorough assessment of its costs and benefits.
November 15, 2021 — DeFiCorgi.eth (@alex kroeger)
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The “compound coin price chart” is a cryptocurrency that has been around for a while. Recently, the company’s CEO released a blog post saying that less than 20% of Compund’s liquidity miners hold any COMP tokens at all.
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