- “Yield farming, Liquidity mining, Compound, Balancer, DeFi, governance tokens”
In the last few weeks, the cryptocurrency community was caught up in a new frenzy similar to the ICO mania of 2017. It’s more likely than not you may have come across a couple of terms mentioned above as the decentralized finance (DeFi) industry blossoms.
Compound (COMP) and Balancer (BAL) tokens have witnessed multiple times growth only a few days following their respective launches. COMP currently trades at ~$240, signifying a significant 160% growth rate since launching ten days ago. The price set an all-time high price of $373 on Jun 21 and currently ranks as the top DeFi platform in total value locked.
BAL only launched three days ago, has already broken into the top 100 coins in market capitalization, gaining 115% from a launch price of $6.95. The platform ranks sixth in total value locked as per Defi Pulse.
However, it is not the prices only that is causing the Defi frenzy. Most of the participants are fascinated by “yield farming or liquidity mining,” a process of lending or borrowing assets to receive a governance token. While the concept has been around for a while, COMP is the first openly tradable token.
It’s a simple process on paper but gives way to complex funding structures and profit-making possibilities hence the craze. For example, in the most conservative yield farming scenario, which is lending and borrowing stable coins to avoid volatility e.g. locking USDC stablecoin – you’ll earn 0.18% APY as at the time of writing.
Compound offers COMP token rewards to both borrowers and lenders to keep the market afloat. This is in an aim to move the platform towards decentralization the company says.
To increase their profits, yield farmers do both. Hypothetically given you lock your assets for a year (which is very long in Defi) – for computation sake let’s say you lock 10,000 USD at a collateralized fee of 75%, then you borrow another stablecoin (safety option) DAI at the maximum 7,500 DAI. You can then again lock this DAI hence, offering double COMP rewards.
Given the current price of COMP, the trade is more profitable than having only your USDC locked with the cost to earn COMP lower. Volatile cryptocurrencies such as BAT and ZEC offer higher rewards but at a higher price.
Coinbase adds COMP
The majestic rise of COMP’s market activity in the past week or so, set a number of exchanges rushing to list the token. Coinbase Pro and FTX exchange have both listed the defi token with the former’s parent exchange announcing further support of the COMP token on its main retail platform. Customers can directly buy, sell, convert, send, receive, or store on the Coinbase.com platform or on the Android and iOS mobile apps.
Additionally, Coinbase users can now earn COMP rewards through the Coinbase Earn project that allows “customers all around the world to educate themselves about new developments in crypto and earn assets as rewards.”