Compound Finance Price Analysis – Nearly US$3.5 billion locked in

Compound Finance (COMP) is an open-source non-custodial protocol for decentralized lending and borrowing on Ethereum (ETH). Compound’s lending and borrowing interests rates are algorithmically derived based on the supply and demand for the asset.

Assets supplied to a market are represented by an ERC-20 token balance (cToken), which entitles the owner to an increasing quantity of the underlying asset. As the money market accrues interest, which is a function of borrowing demand, cTokens become convertible into an increasing amount of the underlying asset. In this way, earning interest is as simple as holding a ERC20 cToken. There are currently nine supported cryptocurrencies available for borrowing and lending on the Compound Finance platform.

Source: app.compound.finance

The Compound Finance protocol was founded by Robert Leshner and Geoffrey Hayes in 2017 and launched on ETH in September 2018. The project was initially funded in May 2018 via seed equity totalling US$8.2 million, led by Andreessen Horowitz’s a16z, Bain Capital Ventures, and Polychain. An additional series A funding round totalling US$25 million, led by Andreessen Horowitz’s a16z, occurred in November 2019. V2 of the protocol launched in May 2019, with COMP token distribution occurring in June 2020.

A total of 10 million ERC-20 COMP tokens were minted and distributed as follows; 4,229,949 tokens sent to users of the protocol over a 4-year period, 2,396,307 tokens sent to shareholders of Compound Labs, Inc., 2,226,037 tokens sent to founders & team members with a four-year vesting period, 372,707 tokens set aside for future team members, and 775,000 tokens allocated to advance community governance.

Compound is managed by a decentralized community of COMP token-holders and their delegates, who propose and vote on upgrades to the protocol. Any address with more than 100,000 COMP delegated to it may propose governance actions, which are executable code. When a proposal is created, the community can submit their votes during a three-day voting period. If a majority, and at least 400,000 votes are cast for the proposal, it is queued in a timelock contract, and can be implemented after a two-day waiting period.

Source: compound.finance/governance

The estimated current circulating COMP token supply is nearly 4.3 million. COMP currently has a market cap of US$1.5 billion, placing it 31st on BraveNewCoin’s market cap table, with US$145 million in trading volume over the past 24 hours. Nearly US$3.5 billion is locked within the COMP protocol in a mixture of assets, including BTC, ETH, and dai. The total value locked into contracts on COMP is third, behind the MakerDAO and AAVE.

On-chain COMP stats reveal ranging transactions per day since July 2020 with rising average transaction values since December. Transactions per day have mainly ranged between 2,000 and 6,000 over the past six months. Transactions per day hit an all-time high of 15,000 on August 12th, with the average transaction size reaching US$80,000 on September 11th.

Source: CoinMetrics

The weekly Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line) has ranged from 50 to 300 over the past few months. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Weekly active addresses have ranged from 1,500 to just over 5,000 since July 2020 and hit an all-time high of 5,600 on December 18th.

Source: CoinMetrics

On the development side, the COMP GitHub account has 35 repos. There have been 50 commits on the main repo over the past year by 13 devs. Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Source: GitHub – compound-finance/compound-protocol

Technical Analysis

Roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pivot Points, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.

COMP has a limited trading history and needs to be analyzed on lower timeframes, as opposed to the daily chart. On the twelve-hour timeframe, the 50-period Exponential Moving Average (EMA) and 200-period EMA crossed bullish on December 12th, which has resulted in a 140% increase. Upside resistance while in price discovery, based on yearly pivots, sits at US$450 and US$550.

Price is currently 2x from the 200-period EMA and has not touched the 200-period EMA since January 2nd. If horizontal yearly pivot resistance at US$370 is successful, the next significant support sits at US$260 to based on yearly pivots and the 50-period EMA. Additionally, a subtle bearish divergence has formed on RSI to suggest waning bullish momentum.

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Cloud metrics on the twelve-hour timeframe, with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$185. Kijun support also sits at US$250.

On the twelve-hour COMP/USD pair, trend metrics are also bullish as price sits above both the 200-period EMA and Cloud. Upside resistance, based on yearly pivots, sits at 0.013 BTC and 0.021 BTC. Kijun, VPVR, and 200-period EMA support sits at 0.0067 BTC to 0.0076 BTC. Additionally, a growing bearish divergence has formed on RSI to suggest waning bullish momentum.

Conclusion

Similar to other crypto-based borrowing and lending platforms, COMP has quickly become an integral part of the DeFi ecosystem. COMP is third in total value locked, behind the MakerDAO and AAVE, cementing the three platforms as the market leaders and crowd favorites. On-chain stats for COMP show ranging token behavior over the past few months with an uptick in activity, coinciding with a rise in token price, over the past few days.

Technicals for both the COMP/USD and COMP/BTC pairs show a bullish trend with prices over the 100-day EMA and twelve-hour Cloud. Upside resistance sits at US$450 and US$550 and 0.013 BTC and 0.021 BTC for the COMP/USD and COMP/BTC pairs, respectively. The COMP/USD pair shows strong support at US$250 based on the yearly pivot, 25-day EMA, and twelve-hour Cloud. The COMP/BTC shows strong support at 0.0067 BTC to 0.0076 BTC based on VPVR, 100-day EMA, and twelve-hour Cloud.