• According to the numbers: Has Compound met or exceeded expectations?

  • Over the last few months, the DeFi space has seen its fair share of ups and downs. The crash in May was also brutal for tokens from this space, but they managed to sail through and recover in time.

    COMP, on the other hand, has been desperately attempting to regain its previous highs. Unfortunately, it has not been able to do so, and a number of fundamental factors have stymied its recovery.

    As a result, examining the same would provide us with a better understanding of where Compound stands at the moment.

    First, brush up on the fundamentals.

    Compound is a DeFi lending protocol that allows users to earn interest on their cryptocurrency deposits by depositing them in one of its pools. Essentially, when users deposit tokens into a Compound pool, they receive cETH in exchange, and the exchange rate of these tokens to the underlying asset rises over time. This is essentially how users are compensated.

    Borrowers, on the other hand, can choose a secured loan from any pool by putting down some collateral. The basic LTV ratio varies depending on the collateral asset, but it currently ranges from 40% to 75%. In practice, the interest rate paid varies according to the borrowed asset. Borrowers in this country are usually subject to automatic liquidation if their collateral falls below a certain maintenance threshold.

    assessing its performance

    Compound’s platform has gained a lot of traction and popularity since its launch in 2018. On this platform, people have consistently locked up their assets. The increase in TVL from $1 billion to $11 billion in the last year demonstrates this.

    In June and July, the compound’s activity gradually increased. Indeed, according to Messari data, Compound reached a new high in loans and outstanding deposits near the end of the third quarter of this year.

    revealing the figures – Outstanding loans increased by 57 percent in the third quarter, owing to increased liquidity in the COMP market. During the May crash period, however, the same had massively shrunk due to the liquidity and interest rate factors acting as spoilsports.

    However, in recent months, favorable market conditions and attractive borrowing rates have managed to entice people to return to the market. In effect, COMP’s token value increased slightly. During the same period [Q3], outstanding deposits increased by 48 percent.

    The aforementioned figures would have been even higher if the entire distribution bug episode hadn’t occurred.

    Here’s the inverse:

    Nonetheless, the aggregate utilization ratio has decreased from 58 percent to 38 percent since the beginning of 2021. Simply put, this ratio indicates the extent to which Compound is being used. The fact that this metric is deteriorating is clearly not a good sign.

    Depositors are currently receiving the least amount of interest in the history of Compound. This could be one of the reasons for the drop in utilization.

    Despite strong loan and deposit growth, borrowing and deposit volume have both decreased significantly over the same time period.

    Despite the fact that Compound had a relatively ‘quiet’ quarter in Q3, it has the potential to turn positive in Q4. There is a lot to look forward to in the Compound community. For example, the launch of Compound Chain will aid in the influx of new people into the Compound ecosystem. In effect, this will improve the utilization metric’s state.

    Similarly, one can expect the protocol’s revenue to return to previous highs. Only if the aforementioned factors all play out as expected should market participants expect COMP’s valuation to return to its $900 May highs.

    If that doesn’t happen, the DeFi token will struggle to break through the $300 barrier.

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