【Guide】Compound mining is hot! Use this method to mine and double your earnings instantly

The liquidity mining on the decentralized lending platform Compound is currently hot, with many people participating and sharing tutorials on lending mining. However, did you know that there are more efficient ways to profit than just lending? Eagle, the founder of Taiwan blockchain media Zombit, was consulted for tips on liquidity mining, as well as the future outlook of the COMP token. Don't miss out if you're interested!

Profitability Exceeds Expectations

Decentralized lending platform Compound launched its governance token issuance plan in the early hours of the 16th. Any lending transactions executed on the platform will receive governance token COMP. On the other hand, the decentralized token exchange protocol Uniswap saw COMP's initial price at around $18.4 (0.08 ETH) when COMP trading was opened. Before the deadline, due to the positive news of COMP listing on Coinbase exchange, the COMP price on MXC exchange once approached $200.

Previously, we discussed how investing $3,000 in Compound could yield profits, but at that time, we underestimated the market's speculative fervor.

We initially estimated the price of COMP to be $7 USDT, but currently, the market price of COMP has exceeded $100 USDT. In other words, the total market value of the token is over 10 times what we originally anticipated, and the profit potential from the operation is several times higher than initially projected. Therefore, utilizing Compound for lending mining is currently a very profitable operation in the market.

Recently, many people have been sharing methods for mining COMP, but most are using the more conservative "pure lending" method. While this method is also profitable, with an annualized return rate of 11.85% for USDT lending (floating data before the deadline), it is better than many centralized exchanges. However, the amount of COMP that can be obtained is relatively less. If you want to increase mining profits, there are better approaches.

COMP Mining Operation Steps

To increase profitability, one must not only engage in pure lending but also borrow through Compound. The reason is that COMP is distributed with each block issuing 0.5 tokens, with 0.25 tokens allocated to borrowing and lending respectively. Normally, there are more lenders or funds on the lending side than on the borrowing side, so borrowing can receive more COMP. As long as the profits from selling COMP can cover the cost of COMP (borrowing interest), it is generally profitable.

So practically, how do you operate? First, you need to prepare a sum of "USDC" and then deposit the assets into Instadapp (a DeFi investment management platform) to interact with Compound's smart contracts. Taking 100 USDC as an example(actual operations may not be cost-effective), the steps are as follows:

1. Transfer 100 USDC to Instadapp and deposit it into Compound
2. Use the 100 USDC in Compound as collateral to borrow up to 75 USDT (based on the collateral ratio)
3. Exchange the borrowed 73 USDT into 73 USDC. (This example is slightly lower than 75 USDT to avoid liquidation risk)
4. Transfer the 73 USDC back to Instadapp andrepeat the above steps.
5. Through multiple cycles of collateralization and borrowing, you can maximize the use of funds and maximize the COMP share obtained through accumulated borrowing.

(Costs of the above process should still consider USDT/USDC exchange losses, interest on borrowed USDT, and transfer fees)

Many may wonder why not just use Compound directly and go through Instadapp? Eagle, founder of Taiwan blockchain media Zombit, explains:

"Compound's current interface (website, app) does not support borrowing USDT, but the protocol itself does support it. Either you must write a smart contract yourself to borrow USDT, or find another platform to interact with Compound as a supplement, hence the need to choose Instadapp to execute the above operations."

Profit Calculation and Risks

For profit calculation, it is recommended to use this page for calculation. By entering lending and borrowing amounts, you can automatically calculate future COMP yields, unit COMP costs, interest payments, and annualized returns based on current market conditions.

However, it should be noted that the above values are calculated based on current market conditions. Many factors can affect the calculation results, such as the ratio of your lending/borrowing fund pool, block issuance speed, COMP market price, and changes in lending/borrowing rates, which are constantly changing. Therefore, when executing this operation, occasional attention to the current market status is necessary.

In addition to the above points, another important risk factor when executing this operation is your "collateral ratio".

According to Eagle:

"In our operation, we use USDC as collateral to borrow USDT. The collateral ratio of USDC is 75%, meaning that approximately 100 USDC can borrow about 75 USDT. If you tighten the collateral ratio too much and the price of USDC suddenly drops (even though the probability is low), your collateral will be liquidated, resulting in losses."

If you look at the data of these decentralized lending platforms, you will find that even when the market is not experiencing severe fluctuations, there are cases where users have been liquidated for over a million dollars on Compound because a previous investor did not control the collateral ratio within a normal range and was liquidated.

Should COMP Tokens Be Held Long-Term?

Eagle believes that at the current stage, besides participating in governance, COMP tokens have no other use. Even the usual profit-sharing model and token burning mechanisms that governance tokens typically have to generate cash flow are absent. In this scenario, demand is limited:

People don't even attend community board meetings, so how many would want to buy tokens to participate in Compound governance?

However, Eagle also emphasizes not to ignore the speculative ability of COMP in the market. Currently, COMP produces around 2880 tokens per day, valued at approximately $460,000 at the current rate. Unless early token holders (23.96%) and the team (22.26%) start selling, the daily supply of $460,000 worth of tokens is unlikely to have a significant impact on the market. Moreover, many major exchanges have yet to list COMP, providing ample room for speculation, and there is still upward potential in the short term.

As user liquidity mining continues, most users will choose to liquidate at high prices to secure profits. Although short-term speculation offers profit opportunities, it is not recommended to hold COMP tokens long-term until the team assigns more functionality to COMP (such as profit-sharing or token burning).

However, it must be acknowledged that Compound's issuance of governance tokens is indeed an effective strategy. After the token issuance, the platform's total assets surged from $90 million to $350 million, and the number of protocol participants exploded.

In addition, this has driven the focus on the entire DeFi sector, benefiting projects like Instadapp, Uniswap, Aave, and Kyber Network. This issuance plan will continue for 4 years, but with more people participating in mining and the uncertainty of COMP prices, the golden mining profit period may be much shorter. If you want to participate, seize the opportunity; in a few months, the return rate may not be as high.

This article does not constitute investment advice and is for experimental purposes. Evaluate the risks on your own.