Compound (COMP) token outperforms the market as DeFi TVL climbs to $ 14.4 billion

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The price of COMP, the governance mark of Decentralized Financial Giant Compound (DeFi), has increased while the broader crypto market has made a correction. Despite the ongoing slump in the cryptocurrency market, the token has gained 56% over the past week.

COMP / USDT 4-hour chart. Source: TradingView.com

Unusually low funding rate and spot market accumulation

There are several possible reasons for COMP’s sudden rally. Traders have noted the unusual market dynamics on futures exchanges, where the token’s funding rate remained heavily negative.

The refinancing rate of an asset in the futures market decreases when sellers aggressively sell it. However, when the price of the asset rises with a negative funding rate, the door opens to a brief press.

COMP’s recent rally was likely fueled by brief pressure on the major futures exchanges. This suggests that although the futures market was betting against the token, the traders on the spot market were busy accumulating it.

This trend suggests that some investors might be speculating about a partnership or a major network upgrade in the near future. Otherwise the COMP futures market would short-circuit strongly while the spot market buys the token, which seems unusual.

A pseudonymous trader pointed out that COMP’s negative funding rate resulted in short positions paying 0.021% of their positions every hour. If a trader had a long position of $ 100,000 on COMP, the funding rate at that rate would have been $ 21 per hour. The dealer said:

“Financing $ COMP is insanely negative. Shorts pay longs 0.021% per hour. And did I mention that $ COMP is up double digit% today while the rest of the market is dumping? Absolutely unreal. “

Compound has not announced a high profile partnership yet, but recently Robert Leshner, the founder of the Protocol, praised a proposal from a developer called “Gauntlet”, describing it as “a significant improvement on Compound”.

The proposal submitted by Gauntlet aims to achieve three things. First of all, unused code is removed from the “Comptroller”, which is the risk management layer of the Compound Protocol. It also adds a “grant” feature that allows the compound governance community to submit COMP for grant. In the last part of the proposal, a “Contributor” function is added that allows the Governance COMP to stream to other addresses.

Regarding Gauntlet’s proposal, Leshner said the proposal was exciting and meaningful to Compound. He said:

“This proposal is exciting for two reasons. Upward trend graph It is a significant improvement in the compound banknote with yen symbol. The developer (@gauntletnetwork) will receive $ 1000 COMP (~ $ 170,000) for working on this and upcoming proposals. Expanding the protocol is more rewarding than ever. “

However, it would be unusual for a community proposal to cause a massive price spike for a key DeFi token within a few days.

What is causing the rally?

Due to the market trend, a combination of three factors should have resulted in COMP recovering within a short period of time.

Many traders on the futures market appeared to have shorted COMP in the past few days. This catalyzed a brief squeeze and consequently pushed the price of COMP higher.

The total value set in DeFi has also increased to $ 14 billion, and since Compound is the third largest DeFi protocol, the overall growth of the room could have benefited COMP.

Traders may also expect an announcement or network upgrade soon, but there is still no sign of it.