The price of COMP, Compound protocol's native token, has recently surpassed $300, prompting startups built on this decentralized lending platform to reconsider their strategies for handling COMP tokens earned through liquidity mining.
Originally designed as a simple decentralized lending protocol, Compound has evolved into a foundational layer for numerous DeFi applications. This rapid price appreciation has created new challenges and opportunities for these ecosystem projects.
The COMP Distribution Dilemma
Startups leveraging Compound's protocol now face critical questions:
- Should they immediately distribute COMP tokens to users or lock them for future benefits?
- If distributing, should they allocate raw COMP or convert it to other cryptocurrencies first?
- How can they balance immediate user rewards with long-term protocol governance?
CoinDesk recently surveyed several Compound-based companies about their strategies for handling COMP earned through user deposits. While approaches vary, all agree that COMP's price surge has positively impacted the DeFi sector.
👉 Discover how top DeFi projects are handling COMP distribution
Governance Power and Protocol Participation
Dharma CEO Nadav Hollander emphasized the significance of Compound's open governance model: "It's like being a bank that can vote in Federal Reserve meetings—except in Compound's case, only users hold this power."
Dharma has already actively participated in governance, proposing to increase USDT deposit rates on Compound. These deposits feed into reserve pools that provide protocol liquidity. As a governance token, COMP enables holders to vote on protocol changes.
According to DeFi Pulse, Compound's total value locked (TVL) has reached $418 million, just $80 million shy of MakerDAO's lead position. Since COMP distribution began on June 15th, Compound has attracted over $300 million in new liquidity.
Platform-Specific Approaches
Dharma's Evolving Strategy
Dharma, a smart wallet application offering Dai savings services, continues evaluating its COMP distribution options:
- Holding COMP to increase governance voting power
- Direct distribution to users
- Conversion to Dai before distribution
COO Brendan Forster noted: "We've been discussing this internally and on Discord, but haven't reached a final decision."
👉 Learn how governance tokens are reshaping DeFi
PoolTogether's Lottery Approach
This no-loss lottery platform faces unique challenges with COMP distribution. Founder Leighton Cusack explained:
"COMP earnings now exceed the interest prizes themselves, but our protocol wasn't designed to handle COMP distribution. The most likely solution involves incorporating COMP into lottery prizes, which would significantly boost winnings."
Staked's Direct Distribution Model
Staked, a yield optimization platform, plans to allocate all earned COMP to depositors. CEO Tim Ogilvie stated: "Next week we'll update our algorithm to include both interest and COMP earnings in user returns."
Wallet Solutions: Argent and Linen
Both Argent and Linen wallet apps enable users to track and use COMP like any other token:
- Argent already implemented direct COMP tracking
- Linen will build an interface for users to claim COMP while maintaining self-custody
Linen's CEO Vitaly Bahachuk noted users can optionally delegate COMP voting power to Linen, which has become a Compound protocol delegate.
Opyn's Risk Management Innovation
This hedging protocol has seen increased demand for products protecting against COMP-related volatility. Co-founder Alexis Gauba explained:
"With COMP's price surge, we're seeing demand for ocUSDT (protection for USDT deposits). While we plan to launch oCOMP tokens, anyone can create them since our protocol supports any ERC20 token."
Frequently Asked Questions
Q: Why does COMP have value?
A: COMP grants voting rights in Compound's governance and represents a share in the protocol's future. Its value reflects both governance utility and speculative demand.
Q: How often do COMP distributions occur?
A: COMP distributes continuously to lenders and borrowers based on their activity, with no set schedule.
Q: Can small COMP holders participate in governance?
A: Yes, through delegation or pooling resources. Many services now facilitate small-holder participation.
Q: What happens if a platform holds COMP instead of distributing it?
A: This increases their voting power in Compound governance, potentially allowing them to steer protocol changes that benefit their users long-term.
Q: Is COMP's price sustainable?
A: Like all crypto assets, COMP's price reflects market dynamics. Its long-term value will depend on Compound's adoption and governance utility.