A lot of analysts have urged the meteoric worth efficiency of the Compound Governance Token (COMP) power have been musical group utilizing derivatives.
After at the start fixing fingers for roughly $80 every upon its June 18 itemizing on Poloniex, COMP shortly rallied 500% to publish highs above $380 June 21 as information of a Coinbase itemizing appeared to lure patrons.
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Since the excessive, COMP has shed 34% of its worth and is at the moment buying and marketing for $253.
Was COMP's rally pushed by natural demand?
In a June 25 clause, unbiased crypto blogger and Decentraland product lead Tony Sheng illustrious that many merchants over the previous week around believed that triple-figure priced COMP was extraordinarily overvalued, leading to bears paying from 5% to 10% in every day charges to quick the plus utilizing derivatives.
Despite this discouraged thought and the truth that COMP tokens will be attained by means of yield farming, COMP costs continued to rally aggressively, with Sheng suggesting that disproportionate amount on FTX's derivatives for the most part fuelled the rally.
While spot listings on FTX and Poloniex generated $1.5 million in 24-hour amount main as a mint like COMP's Coinbase itemizing, greater than $6 million price of perpetual swap contracts have been listed on FTX over the identical interval.
With COMP comprising a extremely illiquid market upon launch, the clause means that merchants power have been capable of drive up spot costs with comparatively small purchase orders to make a point income on a mint large extended positions taken utilizing FTX's contracts:
"The long and short of it (haha) is that because of the comparatively large size of the COMP Perpetual Swap market, it would be profitable to buy the Perp so buy spot in significant enough size to move the price, amplifying gains in the Perp and squeeze the shorts."
On June 24, the innovation father of crypto plus superordinate program Carbono, Raul Marcos, tweeted:
"Trading $COMP futures right now is a masterclass on market manipulation."
Derivatives incentivize manipulating illiquid markets
While Sheng notes that "it's not even clear whether anybody actually manipulated the market," he asserts that COMP's worth motion presents "a very clear warning of what's to come if teams continue to release tokens 'Compound style' with an illiquid AMM listing [...] combined with yield farming."
"Then other teams have an incentive to release derivatives products to capture some of that attention," he added.
.Balancer has simply launched its governance token BAL, which adopted the mannequin used by COMP and has seen equally violent worth motion pushed by each optimistic and discouraged momentum.
Centralized governance?
Compound has additionally come below hearth for the extremely centralized present distribution of its governance tokens, which closely favors the mission's founders and the enterprise capital companies that dowered in Compound's $25 million Series A in November 2019.
The votes of simply three entities - Polychain Capital, A16Z , and Compound CEO Robert Leshner - are adequate roughly 130% of the mixed votes of all different COMP holders.
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