Liquid mining is not a panacea

Content

The amount of assets locked in Compound surpassed Maker, becoming the project with the largest amount of locked assets in DeFi. In addition, the market value of COMP tokens has also surpassed MKR. A week ago, Compound's locked assets were less than a quarter of Maker's. The driving force for all this comes from the liquidity mining of COMP. So, is liquid mining a panacea? The ancestor of the mining concept is Bitcoin, not Compound or Synthetix Bitcoin is the true source of the entire crypto world. It not only laid the first source of funds for the crypto world, but with the development of Bitcoin, there was the source of funds for Ethereum, the development after smart contracts, and the rise of DeFi. Not only that, Bitcoin has laid a series of conceptual foundations for the development of cryptocurrency. One of them is the mining mechanism. Mining is not only a game mechanism and an incentive mechanism to ensure network security, but also a token distribution mechanism. There is at least one stone and three birds in it. Liquidity mining is essentially an incentive mechanism and token distribution mechanism. It is not a completely innovative concept, but a derivative development of the mining concept based on Bitcoin. Compound today's success is built on the crypto world created by Bitcoin and Ethereum. The success of Compound is not just that Rome brought about by liquid mining was not built in a day. Compound's success today is also accumulated step by step. The exploration of decentralized lending models such as Compound has gone through many key stages:

The borrowing model of the liquidity pool

Compound launched Compound V1 in September 2018, building a liquidity pool model, an algorithmic interest rate model based on the relationship between supply and demand, and interest rate guidance measures.

The launch of cToken

Compound V2 introduced the concept of cToken. This tokenization measure makes it more flexible and can enhance its embedded depth in the DeFi ecosystem and increase its usage.

Financing and cooperation

Compound raised $8 million in seed rounds and $25 million in the second round of financing. The VC figures behind it include crypto exchange Coinbase. This is conducive to the realization of COMP on Coinbase and the morning market. This time to market is almost perfect, because the scalability of Compound lending business largely depends on the value of COMP itself, and Coinbase provides it with an extremely strong initial impetus. Although this driving force is only a boost, it can detonate the market at a critical time.

The launch of COMP

COMP is the governance token of Compound, and the pioneer of DeFi governance token is Maker's MKR. MKR brings inspiration to the development of Compound. At the same time, Synthetix's derivative development of the Bitcoin mining mechanism combined its business development with SNX, which was an important inspiration for Compound's later launch of its COMP governance token. This combination has a strong stimulus for the development of its lending business. So it came to where it is today. In the future, the price of COMP may fall, and the amount of its borrowed funds may also decline. However, this measure has brought more users and businesses, and a strong siphon effect. Even if some users will be lost, it will be a long-term Look, there will be some users and funds left. Moreover, because the value of COMP is supported by its business, as long as no major emergencies occur, its sustainable development is strong. In general, the Compound team is good at iterative upgrades and has done a good job in the selection of key points. The success of Compound does not mean that other liquid mining projects will also succeed. In Blue Fox's view, liquid mining is a token distribution mechanism and incentive mechanism, which is a good catalyst, but only when the project itself has a basic business , This mechanism makes sense. If it is over-consumed or improperly designed, it may lead to a situation where it is impossible to recover. This has also been demonstrated in some projects before Compound. If Uniswap and Curve conduct liquidity mining, this mechanism makes sense because they are not castles in the air. And many projects may not even verify the basic product and market fit, and put their hopes on liquid mining, which may be just wishful thinking.