The COMP effect - How it impacts BAT, ZRX and REP

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Jun 30, 2020

In our previous insight, we talked about the new DeFi craze of yield farming thanks to the release of the COMP token.

Now that It has been 2 weeks or so since the launch, let's take a quick a look at how things went and how the effects of liquidity mining spilled over to other tokens (in particular BAT, ZRX and REP).

Token utilization on Compound

When COMP mining first started, USDT was the best coin to use in order to maximize COMP gains as it gave a yield of 165% APY. That naturally meant there wasn't much demand to engage any other supported coins on Compound.

However, the Compound community were quick notice that people were manipulating USDT to mine COMP and proposed changes to the USDT reserve factor (Proposal 8 & 9) which were swiftly passed.

With that, focus shifted to other supported coins that provided a decent yield and BAT emerged as the winner.

BAT market stats on Compound

At one point, ZRX was providing a decent yield but it gradually dropped as people flocked to BAT.

ZRX market stats on Compound

As for REP, its utilization on Compound remained the lowest amongst the three but yet people were still supplying REP to Compound.

REP market stats on Compound

Like the USDT case, the Compound community stepped in again to implement cooling measures to curb COMP mining for risky assets like BAT, ZRX and REP, which... resulted in a yet another drop in yield.

Price action

The price of BAT, ZRX and REP rose following the USDT reserve factor announcement but was short-lived after a reserve factor adjustment was implemented for BAT, ZRX and REP. It was also the same day that BTC dropped below $9,000 and to $8,800s which caused market-wide selloff.

Talk about double whammy!

Supply on exchanges

Drop in exchange supply

Large amounts of BAT,ZRX and REP have moved out of exchanges since COMP's launch. This likely alleviated any potential sell pressure and provided room for the upwards price action we observed earlier in this insight.

Where might the outflow be going you ask? Well, likely to Compound given the craze. Here's one such address sending BAT from Binance to Compound.

BAT being sent from exchanges to Compound

Top holders

Compound is now one of the largest holder of BAT, ZRX and REP. In the case of BAT and REP, it is now #1 while for ZRX, it is #3.

BAT Top 10 holders. Source: Etherscan
0x Top 10 holders. Source: Etherscan Top 10 holders. Source: Etherscan
REP Top 10 holders. Source: Etherscan Top 10 holders. Source: Etherscan

Daily active addresses (DAA)

BAT, ZRX and REP daily active addresses got a nice boost during this period but it'll likely return back to normal network usage as liquidity mining cools off.

What's next?

A new COMP distribution patch is coming soon and it changes the way how COMP is issued.

According to the proposal:

It modifies the allocation of COMP across markets, by removing the borrowing interest rate as a weighting mechanism. Each market is allocated COMP relative to borrowing demand; the allocation is then split equally between suppliers and borrowers.

While this resolves much of the leveraged liquidity mining issues, it also raises new ones as the Maker community expressed their concerns of potential implications to DAI's peg.

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Jun 30, 2020

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