Surge in DeFi sector pushes Compound (COMP) value

Written by: Ali Raza
December 9, 2020
  • The cryptocurrency sector is experiencing a slight slump but DeFi’s COMP token is waxing stronger.
  • The negative funding, as well as the rise in the DeFi sector, is causing a surge in the COMP token.
  • Frenzied speculation in the DeFi sector can give room for more surge in the COMP token.

The governance token of the decentralized finance (DeFi) giant Compound (COMP), has increased in value as the wider crypto market is experiencing a correctional phase.

A recent report shows that the recent slump of the crypto market has not affected the COMP token by any means. As it stands, the token has grown by 56% while DeFi’s growth reaches up to $14.4 billion in the past week.

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Experts and crypto analysts are pointing at different potential reasons why the COMP token has rallied to this level.

One of the reasons is the unusual market dynamics on futures exchanges, as COMP’s funding rate is negative.

Surprisingly low funding causes COMP surge

Generally, the short sell on assets in the futures market leads to a drop in the funding rate of an asset. However, when the asset is experiencing a negative funding rate amidst price increases, it leads to an increase in the value of the asset. Experts have explained that the COMP token is currently experiencing a similar process.

DeFi’s growth has also contributed greatly to the surging experience with COMP token, as the movement of the DeFi sector is in line with COMP’s rise.

And the short squeeze experienced by major future exchanges is another reason for the recent rally of the COMP token, according to experts in the industry.

It shows that traders are seriously getting more of the COMP token while the futures market was busy placing trades against it.

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Frenzied speculation can lead to more surge

Ever since the COMP token was launched in June this year, the speculation surrounding the token has helped it rise beyond expectations. The token is now being offered on top crypto exchanges, which some older tokens have not been able to achieve.

The sudden rise of the token shows the impact of DeFi and the new direction the digital asset industry is heading.

There has been a high frenzy on the speculation surrounding the future of DeFi, and that speculation is beginning to grow stronger. The blockchain-enabled platforms using Ethereum (ETH) blockchain offers traders the opportunity to carry out crypto transactions without the need for intermediaries such as centralized exchanges and banks. And it seems tokens like COMP are some of the biggest beneficiaries in the new system.