Compound, the Decentralized Finance protocol, reached the billion dollar mark in funds borrowed from its protocol on June 13, with its three main markets being stablecoins DAI and USDC followed by Ether (ETH).
Currently, MakerDAO’s DAI takes the lead with 79.88% of the value borrowed from its protocol. Stablecoins appear to be popular in Compound due to its reward mechanism that gives users COMP tokens according to the value of the dollar borrowed.
Compound allows users to deposit certain crypto currencies to earn interest and to borrow different tokens or stablecoins, while providing users with rewards in the form of COMP tokens for participating in both activities.
In recent weeks, this system made the COMP protocol very popular and currently has $1.6 billion in blocked assets in its liquidity funds. At this time, several DeFi protocols are also showing significant increases in the amount of funds borrowed and blocked. For example, Aave currently has over $250 million in its liquidity funds, according to Aavewatch.
Framework Ventures and Three Arrows Capital invest $3 million in Aave
DeFi tokens top the price lists
DeFi is making great progress in terms of visibility, especially after the disproportionate enthusiasm created by the „Coinbase-backed Compound“ project. At least 10 DeFi related tokens have had gains of more than 100% and this is partly due to the COMP’s reward mechanism and the yield farming that allows users to act both as lenders and borrowers to earn COMP tokens for this dual role.
In its first week of operations, COMP rose by 233% and has since been listed on Coinbase and Kraken. Aave’s LEND token has risen over 1000% in the last 3 months, from around $0.02 to $0.24.
DeFi’s earnings fell 42% during the second quarter even with the increase in token prices
Not only is the price of DeFi related tokens rising along with the locked and borrowed value of these protocols, the tokens that are available on these protocols have also been working well overall.
Along with the high interest rates and yield farming possibilities, it is safe to say that DeFi is a gift that continues to be offered to early adopters of the platforms and their respective tokens.
Some examples of this include Chainlink (LINK) which is the largest crypt currency in the Aave protocol after the LEND token itself.
The impact of the DeFI protocols on other tokens became more visible through the Basic Attention Token (BAT) which became the most widely used ERC-20 token in all of DeFi, surpassing even ETH and DAI, for two weeks before the COMP reward mechanism was updated.
Why are DeFi tokens increasing?
While it is easy to understand that DeFi is growing, the increase in price of associated tokens such as LEND and COMP is not related at all. Although tokens like NEXO give users a share of the revenue, LEND and COMP do not.
These tokens, however, give their holders voting rights over the protocol. In other words, they are governance tokens and do not pay any dividends.
Four large companies will become a ‚crucial part‘ of the DeFi ecosystem by 2030
While there is no immediate monetary benefit, having a stake in the future of these platforms can be invaluable, depending on how they scale up over time. In addition, the hype and direct speculation around the DeFi space has certainly helped some of these governance-associated tokens.
As the DeFi sector continues to break records for activity and the amount of blocked and borrowed funds increases, it seems possible that DeFi tokens will continue to outperform Bitcoin Investor, especially as the volume and volatility of digital assets continues to decline.