Numerous analysts have prompt the meteoric value efficiency of the Compound Governance Token (COMP) might have been orchestrated utilizing derivatives.
After initially altering fingers for about $80 every upon its June 18 itemizing on Poloniex, COMP shortly rallied 500% to put up highs above $380 June 21 as information of a Coinbase itemizing appeared to entice patrons.
COMP/USDT on Poloniex, 1hr chart: TradingView
Because the excessive, COMP has shed 34% of its worth and is at present buying and selling for $253.
Was COMP’s rally pushed by natural demand?
In a June 25 article, unbiased crypto blogger and Decentraland product lead Tony Sheng famous that many merchants over the previous week or so believed that triple-figure priced COMP was extraordinarily overvalued, leading to bears paying from 5% to 10% in day by day charges to quick the asset utilizing derivatives.
Regardless of this bearish sentiment and the truth that COMP tokens might be earned by yield farming, COMP costs continued to rally aggressively, with Sheng suggesting that disproportionate quantity on FTX’s derivatives largely fuelled the rally.
Whereas spot listings on FTX and Poloniex generated $1.5 million in 24-hour quantity main as much as COMP’s Coinbase itemizing, greater than $6 million value of perpetual swap contracts had been traded on FTX over the identical interval.
With COMP comprising a extremely illiquid market upon launch, the article means that merchants might have been capable of drive up spot costs with comparatively small purchase orders to make sure income on a lot bigger lengthy positions taken utilizing FTX’s contracts:
“The lengthy and wanting it (haha) is that due to the comparatively massive measurement of the COMP Perpetual Swap market, it might be worthwhile to purchase the Perp after which purchase spot in vital sufficient measurement to maneuver the worth, amplifying positive factors within the Perp and squeezing the shorts.”
On June 24, the founding father of crypto asset supervisor Carbono, Raul Marcos, tweeted:
“Buying and selling $COMP futures proper now’s a masterclass on market manipulation.”
Derivatives incentivize manipulating illiquid markets
Whereas Sheng notes that “it’s not even clear whether or not anyone really manipulated the market,” he asserts that COMP’s value motion gives “a really clear warning of what’s to come back if groups proceed to launch tokens ‘Compound fashion’ with an illiquid AMM itemizing […] mixed with yield farming.”
“Then different groups have an incentive to launch derivatives merchandise to seize a few of that spotlight,” he added.
.Balancer has simply launched its governance token BAL, which adopted the mannequin utilized by COMP and has seen equally violent value motion pushed by each bullish and bearish momentum.
Compound has additionally come underneath hearth for the extremely centralized present distribution of its governance tokens, which closely favors the undertaking’s founders and the enterprise capital companies that invested in Compound’s $25 million Sequence A in November 2019.
The votes of simply three entities — Polychain Capital, A16Z , and Compound CEO Robert Leshner — are equal to roughly 130% of the mixed votes of all different COMP holders.