Decentralized finance has change into the discuss of the cryptocurrency market in 2020. The most up-to-date buzz phrase surrounded in hype is “yield-farming,” and on the middle of it, a DeFi token known as Compound (COMP).
But what precisely is Compound and yield-farming, and if it’s such a sizzling subject, then why is one choices dealer so bearish on the token?
What is Yield-Farming? Learn About The Latest Craze in Decentralized Finance
It was the DeFi craze of late 2019 that helped the cryptocurrency market discover a backside. From the beginning of 2020 to round mid-Feb, Bitcoin rallied, bringing the remainder of the market with it.
Ethereum outperformed the main cryptocurrency by market cap, particularly because of the rising quantity of ETH locked up in decentralized finance functions.
Investors feverishly shopping for up the Ethereum provide to lock it away in functions brought on the asset to develop over 100% earlier than Black Thursday erased all positive aspects.
While costs haven’t returned to earlier highs, the frenzy round DeFi actually has.
Related Reading | Fund Manager: DeFi Will Propel Ethereum To $1 Trillion Market Cap
But Ethereum isn’t taking the middle stage anymore. Tokens residing on its protocol geared toward completely different types of DeFi have stolen the limelight. In explicit, Compound (COMP) has change into the most popular cryptocurrency token round.
When it involves DeFi, Compound in lower than month captured a lion’s share of the market share, even beating out Maker and different high DeFi altcoins.
Compound can be utilized for one thing known as yield-farming. It’s a brand new development taking crypto by storm. Yield-farming leveraging a DeFi services or products to farm curiosity rewards by lending out different crypto tokens. In one instance, somebody was in a position to earn 45% APY by leveraging their Basic Attention Tokens utilizing Compound.
Not solely did Compound spike, however so did most of the property that can be utilized to leverage for yield farming additionally noticed rallies not too long ago.
1/ I'm quick on $COMP, the basics of the 'governance', given the general public data, don't make an excessive amount of sense right now.
Won't be stunned to see it fall under $100 until a income mannequin is proposed quickly. – Read full thread..
— Theta Seek (@thetaseek) July 2, 2020
Why Is This Options Trader Shorting Compound, The Hottest Crypto Token Going?
So why then, if there’s a lot buzz surrounding not solely DeFi, however Compound and yield-farming, is one choices dealer so bearish?
For one, what goes up, should come down. And Compound has loved explosive positive aspects since first being listed on Coinbase final month. Listings of this type don’t usually have a lot influence today, however sometimes it results in a pump.
The preliminary buzz sporting off might result in a short-term pullback for indicators to reset. But this choices dealer is making ready to “quick” Compound as a consequence of complicated “governance” fundamentals.
Compound COMPUSD 4H | Source: TradingView
His reasoning is that the token’s underlying protocol is an AUM enterprise, which stands for property below administration. Because the asset’s market cap is at $2 billion and $1 billion of it’s property below administration, the dealer says the honest market worth of the asset is way much less.
COMPUSD is presently buying and selling at $180, after buying and selling almost $100 greater only a week in the past. This choices dealer says, nonetheless, the honest market worth is nearer to $50, and the asset is due for a steep drop.