Until recently, MakerDAO was dominating the DeFi ecosystems on the Ethereum network, but recent data shows that the Compound platform has now surprisingly surpassed it.
Compound is an open-source platform designed as a mechanism that allows users to request loans in various cryptocurrencies; for example Ether (ETH) DAI (SO), Augur (REP), ox (ZRK) and Basic Attention Token (BAT), which are 5 of the most important cryptocurrencies and of greatest interest to users who carry out their activities within the ecosystems of Ethereum.
Thanks to the platform implementing the use of these 5 cryptocurrencies, it experienced surprising and exponential growth that even led it to surpass MakerDAO. According to the records of DeFiPulse MakerDAO held over $480 million in tokens locked compared to $97,7 million locked in Compound tokens. Now, recent data from DeFi Pulse shows that Compound has seen sustained and exponential growth of over 600% compared to MakerDAO; Compound currently has a total of $590,7 million in tokens locked in DeFi, while MakerDAO’s token lockup has decreased by almost 2% as of this writing.
The growth experienced by this platform in just a few days highlights the importance of the Ethereum network within the current financial industry. However, other important figures in the industry consider that this exponential growth may be risky for the development of decentralized finance, due to the fact that a possible bubble may arise that could negatively affect the ecosystem in the long term.
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Compound at the forefront of DeFi
The Compound platform was designed to allow users to offer liquidity in markets through their tokens, or request and access loans by offering said tokens as collateral; in addition, Compound allows Ethereum users to generate profits through the interest of their deposits and stored tokens.
Therefore, thanks to the diversity and variability offered by this platform, Ethereum users have been attracted by its excellent features for interacting with DeFi ecosystems, which has favored the accelerated growth of the platform. Thus, in just one day Compound became the most used token in DeFi, and in addition to surpassing the market capitalization of MakerDAO it was also able to take out USD Coin (USDC) of the top 5 of the main stablecoins used in these ecosystems, according to data from DeFiMarketCap.io.
The versatility offered by this platform will undoubtedly have a huge impact on building a community whose success will depend on how it continues to grow.
In this sense, the enormous growth that Compound is experiencing is due to a trend called “yield farming”, which aims to take full advantage of the different protocols to receive large profits. In some cases, these yield processes are carried out cyclically, in which users use their own assets to obtain greater resources, so the risk of loss and decline is extremely high. If the natural balance that exists between collateral and the value of the asset is broken, then the losses can be monumental when cryptocurrencies and tokens lose their value.
DeFi's uncontrolled growth could trigger an ICO bubble
In reference to this, Sasha Ivanov, CEO of Waves, mentioned that the growing popularity of DeFi ecosystems may affect the future development of decentralized finance. Ivanov believes that the hype surrounding DeFi at present around prices may lead to an “ICO bubble in DeFi.”
Ivanov also believes that although DeFi has a mechanism that undoubtedly gives it value, it is also true that it is much more sophisticated and complex in nature than ICOs themselves. Therefore, it is much more likely that DeFi will experience greater volatility in its prices that could undermine the vision of many users to massively adopt this type of finance.
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