The COMP token is one of the hottest DeFi topics of the summer, and everyone is talking about it. If you haven't heard of the COMP token, then this article is for you. In this article, I want to give you a brief overview of what the COMP token is, how you can earn some free COMP, and, most importantly, what you can do with your COMP.
What is COMP?
Let's start off with the basics. At its core, the COMP token is an ERC-20 compliant token that is designed to enable decentralized governance of the Compound protocol. What this means is that holders of COMP tokens can propose, vote on, and approve proposals that change the way the Compound protocol operates. Typically, when a new decentralized financial protocol is launched, it isn't actually totally decentralized. It typically has a dedicated administrative team that benevolently guides the newly-developed protocol towards maturity and hopefully towards full decentralization. With the introduction of the COMP token, the Compound team has finally given that power to the people who actually use the Compound protocol on a day-to-day basis, and is transitioning to a more pure version of a truly decentralized DeFi protocol.
How Can I Get COMP?
The short answer is that you can earn free COMP by lending or borrowing any of the supported assets on the Compound protocol. The slightly longer answer is that there is an incredibly fair distribution mechanism that distributes COMP according to a user's involvement on Compound. One of the most fascinating aspects of the COMP token is the way that it is distributed. Most of the time, new tokens are distributed through either an airdrop or an ICO. By contrast, the COMP token is distributed to the people that actually use the Compound protocol in proportion to their contribution. I think this is a very innovative and incredibly fair method of distributing these tokens because they ensure that the tokens go to the people who actually use the compound protocol.
Each day 2,880 comp tokens are distributed. As it currently stands, Compound offers eight different cryptocurrency assets that are available for lending and borrowing. A certain amount of COMP tokens per day are allocated to each asset based on the borrowing demand in that market. Although this might sound a little bit confusing at first, it basically means that you will earn more COMP tokens for supplying an asset that is in high demand then you will by supplying an asset that is in low demand. The more of the asset you supply, the more COMP you receive. Again, this is an incredibly fair method of distribution because it ensures that the people who provide the most needed assets (as determined by borrowing demand) and the largest volume of assets are the people who are given the most rewards and the most control over the direction of the platform.
In my opinion, one of the best things about the COMP token is that it is freely distributed for interacting with the Compound protocol. You can earn COMP tokens by supplying OR borrowing an asset on the protocol. I put in some Basic Attention Tokens a few days ago, and have already received .0003 COMP. While my BAT was deposited in Compound, it was still accruing interest as normal, but it was also generating these COMP tokens. In other words, I was earning passive income in two different ways. If you are already planning on lending cryptocurrency, this is a great option because you earn your normal interest rate, but you also get some free COMP tokens as somewhat of a bonus. Just a heads up, you also earn COMP by borrowing assets, I'm just focusing on the lending side as that is what I'm more familiar with.
Now that you have got a few free COMP tokens, what can you do with them? The intent of the COMP token is that you can use them to vote on or propose changes to the way the Compound protocol operates. As you can see by logging in to your COMP account and clicking "Vote", several proposals have already been implemented based on the feedback and voting of the community through the COMP governance token. All you have to do to vote is "set up voting" under your Compound dashboard. You can either choose to vote on your own or delegate your votes to someone who will vote on your behalf. To do this requires interacting with the Ethereum blockchain, so you will have to spend a little bit of gas. Since I only have such a small amount of COMP tokens at the moment, it's not really cost-effective for me to go through the process, but its nice to know its there.
Although the primary intent of the COMP token was to enable decentralized government of the protocol, it is an ERC-20compliant token, and therefore, it can also be traded on an exchange as a token in its own right. On Uniswap, the token is worth about $165 , so earning COMP tokens by lending on Compound can be quite a lucrative proposition depending on what asset and how much you are supplying.
Compound Finance was one of the first decentralized financial protocols that I used, and I'm happy to be a continued supporter. I think the implementation of decentralized governance through the COMP token was a huge step forward and a net positive for the entire DeFi ecosystem. Not only is the idea of the token itself a good thing, but I think the distribution model is incredibly fair and ensures that the people who are making the most use of the platform are also given the most say in the future of the platform.