Compound Interest

Compound interest values DeFi lending platform above MakerDAO

In the space of just a few short days, Compound has leapfrogged MakerDAO in locked value and in its governance token’s market cap

Sputtering MakerDAO is no longer the world’s largest decentralized finance protocol after being overtaken by Compound, figures from DeFi Pulse show.

Just a week after it roared off the starting line, $583 million in value was locked in Compound’s protocol, substantially more than the $471 million entrusted to Maker.

This amounts to an overnight success story for Compound, as the total value locked in its ecosystem has surged by 475% in the space of a week.

And the good news doesn’t end here. The COMP governance token, which gives owners the right to vote on decisions that affect the DeFi protocol, has soared in value since it launched last week. COMP was trading at about $61 on its first day of trading last Monday—at the time of writing, its value has risen by more than 464% to hit $283 (and had cracked $300 briefly), according to CoinGecko.

The hubbub of activity subsequently means that COMP has overtaken MKR, Maker’s governance token, in CoinGecko’s rankings. While COMP is ranked No. 22 with a market capitalization of $764 million, MKR is at No. 29 and worth $465 million. That said, at $515, MKR was nearly double the price of COMP at press time.

Compound interest

Compound supports nine cryptocurrencies including Ether, USD Coin, Basic Attention Tokens, and Wrapped Bitcoin.

Lenders can contribute their assets to a liquidity pool in order to earn interest. Interest rates are determined algorithmically based on supply and demand. Borrowers can also take out loans by posting collateral—and as with other DeFi protocols, the maximum amount that can be borrowed is limited to take into account the risk of potential price fluctuations.

The momentum behind Compound is bad news for MakerDAO, which has been having something of an annus horribilis.

In April, disgruntled borrowers filed a class action lawsuit against the Maker Foundation—demanding $8.325 million in compensation as well as $20 million punitive damages—after March’s “Black Thursday” crypto crash exposed fundamental flaws in the lending platform.

The Maker Foundation has been accused of “misrepresenting the actual risks” that investors face in the event of a sudden price drop.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.