Commentary from the Desk: COMP

COMP is up 20% since the start of the week, and 102% since the start of June. On Cumberland’s OTC desk, it’s been the most active alt traded, even surpassing L1 and L2 tokens (which usually tend to trade more than DAO tokens.)

So, what’s going on here? It’s not just market correlation or a sector thing. ETH is essentially unchanged since June 1st. DeFi DAO tokens have done well, but nowhere near the level of COMP. MKR is up 43% on the period, and AAVE is up 20%. Most of those AAVE gains are likely just from the correlation to COMP, since if anything Aave’s Lens plans likely take a hit due to Meta’s pivot, with Threads, to social media with a decentralized focus.

It’s more likely that this rally is being driven by Superstate, the new venture being launched by Compound’s founder, Robert Leshner. Superstate will launch TradFi funds (starting with a money-market fund) that will use the Ethereum blockchain as a secondary record-keeping tool. If this sounds boring, it kind of is, but the boring stuff is what can get very, very big. Superstate, and projects like it (because this will not be the last), are essentially infrastructure plays that connect TradFi assets to blockchain ecosystems. The goal here is to be vanilla enough to compete with the world’s largest asset managers.

The knock-on implications here are fascinating. Currently, DeFi suffers from having lower interest rates than government bonds. USDC on Compound earns 3.95%, but SOFR is currently 5.1%. This disparity has, since the start of 2022, squashed DeFi interest; TVL across all of DeFi has shrunk from 172b to around 44b, a 75% drop, outpacing the selloff in ETH (down about 50% over the same period). It’s also impacted overall Stablecoin issuance, which has dropped from $180b to around $125b. But projects like Superstate should serve to pull the base rates in crypto up to SOFR at a minimum.

Leshner’s podcasts are always gold, and this was one of the better ones: strong recommend. Tune in.