【Old Cat Tests 3C】Borrowing is Mining! Compound Launches Governance Token COMP, Soars Above $100 on First Day

This article is authorized and reproduced from Lao Mao 3C. The original author is Josh Lu Zijian, with the original title "First Time Mining: Compound Launches Governance Token COMP, Price Soars Above $100 on First Day".

Compound is a decentralized finance (Defi) protocol, considered one of the early and senior projects in the Defi space, and currently ranks as the third largest protocol by market capitalization. If you are not familiar with Compound, you can refer to this article on decentralized finance Compound tutorial. In the early days, Compound supported only a few lending currencies, but now it even supports USDT, making it more convenient for users who want to participate in Defi. They no longer need to acquire DAI to lend and earn interest.

Compound Launches Governance Token COMP

COMP functions similarly to Maker's governance token MKR. Holding COMP allows participation in Compound's protocol voting and governance. However, COMP is issued through mining. Users can earn COMP by participating in borrowing or lending on Compound, known as "borrowing is mining." Distribution began around 2 am Taipei time on June 16th, with a total supply of 10 million tokens. Approximately 42%, or around 4.23 million tokens, will be distributed to users participating in the protocol through "borrowing is mining."

How is COMP Distributed?

Out of the total 10 million tokens, 4.23 million will be distributed to users through "borrowing is mining," accounting for 42% of the total supply. Approximately 0.5 COMP can be generated per Ethereum block. At this rate, all tokens will be distributed within about 4 years. When the COMP quantity exceeds 0.01, the Compound protocol will automatically transfer it to the users who interact with the protocol through activities such as lending, borrowing, or repayment using Compound.

How to Participate in Earning COMP?

Users can directly use the Compound protocol through a wallet to earn COMP. Common decentralized wallets in the market that can be used for mining COMP include Trust, Math Wallet, imToken, Bitpie, TokenPocket, AlphaWallet, and MetaMask. Personally, Josh often uses MetaMask and imToken. Smart wallets like Argent and MYKEY are also suitable for mining COMP, with MYKEY being one of the first to support COMP.

Users can check how much COMP they have mined directly through the MYKEY interface.

For users unfamiliar with decentralized wallets who want to participate in mining, it is advisable to securely store the mnemonic phrase when installing the wallet for the first time. This phrase is crucial for recovering wallet access in case of a lost password, as losing it may lead to wallet compromise.

COMP Mining Steps

1. Use the Compound protocol. Detailed instructions can be found in the second half of this decentralized financial Compound tutorial.
2. Invest assets to earn interest. Josh, for example, lent USDT to earn an annual interest rate. The interest rate was exceptionally high at over 19% when lending at 2 am on June 16th, allowing for both high-interest earnings and COMP mining simultaneously.

3. Click on the "Vote" button in the upper right corner of the image to access the governance screen and check COMP. It will not display if the quantity is less than 0.001. For queries when mining exceeds 0.001, the "Collect" button can be used, but note that Ethereum gas fees are currently high. If your COMP quantity is very low, the gas fee for a query may exceed the value of the COMP earned through mining.

In Ethereum, gas serves as a transaction fee. Every interaction on Ethereum incurs a gas fee, including queries.

COMP Mining Profitability Test

Josh conducted a COMP mining test by investing 1085 USDT on the 16th and earning 0.035 COMP by 5 pm through "borrowing is mining," resulting in a profit of approximately $3.43 at the current COMP price of around $98. The price of COMP reached over $100 on the first day of trading.

Is COMP Mining Worth Participating in?

Given the current high price of COMP, mining appears profitable. However, if COMP cannot sustain its high price, profits may decline. Moreover, increased participation in mining may dilute profits, as the distributable quantity is fixed. Excluding these factors, besides mining profits, Compound protocol lending also allows for interest earnings. Interest rates have recently surged, but if rates return to 2-4% and mining profits decrease, it may warrant reconsideration. Some traditional CeFi lending platforms offer stable average annual interest rates of over 10%, such as Bitfinex. In conclusion, COMP currently seems valuable, making it worth a try for mining.

Advice for beginners: Due to the need for a decentralized wallet to use the Compound protocol, remember to securely store the mnemonic phrase and consider purchasing a small amount of ETH for gas fees. All interactions on Ethereum incur fees, including those on Compound, such as lending, borrowing, repayment, or COMP queries.

Original article link