Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Can Compound (COMP) add Interest to Cryptocurrency?

Compound (COMP) is the most interesting cryptocurrency project I have seen in a while.

The idea behind Compound is simple to get cryptocurrency and stablecoins to pay interest. To achieve that goal, the Compound Protocol can add interest to any altcoin. For example, the Compound Protocol was earning 0.11% interest on $18.0836 million in Basic Attention Tokens (BAT) on 19 July, 2020.

Moreover, they claim the Compound protocol was earning 1.86% interest on $891,052,905 in Dai (DAI) stablecoins on the same day. Overall Compound claims its protocol was paying interest on $1.669 million worth of digital assets in nine markets.

Cryptocurrencies that pay Interest

The hope at Compound is to encourage ordinary people to buy cryptocurrency by paying interest. Developers add the protocol to existing cryptocurrencies such as Ethereum (ETH).

I think Compound could have some value because it enables stablecoins to pay interest. Notably, the Compound prototocol pays 1.52% interest on Tether (USDT) and 1.65% interest on USD Coin (USDC).

I think the ultimate goal at Compound is to create a blockchain product that functions like a bank account. For example, Compound could help stablecoins pay interest.

Why Cryptocurrency cannot compete with Banks  

However, I think cryptocurrencies lack one of banks’ most attractive attributes. To elaborate governments insure bank accounts in many countries.

In the United States; for example, the Federal Deposit Insurance Corporation (FDIC) insures all checking, savings, and money market deposit accounts and certificates of deposit (CD) for amounts up to $250,000. I think FDIC insurance gives banks a market advantage in finance.

To explain, people put money in the bank because they know they will get it back. In contrast, you can lose everything you put into cryptocurrency or stablecoins. Hence, I think crypto cannot compete with banks as an investment.

Cryptocurrency’s Killer App

I believe ordinary people will not put money into crypto until they think they will get it back. Therefore, I think cryptocurrency will be a rich person’s playtoy until it gets insured.

Thus, Compound and its competitors need to figure out how to insure cryptocurrency. Note: today’s stablecoins sort of solve this problem by linking stablecoins to fiat currency held in trust accounts at banks. They back the Gemini Dollar (GUSD) with funds held in a State Street (NYSE: STT) trust account.

In detail, a decentralized app (Dapp) in a stablecoin makes a payment in fiat currency from a bank account when you spend the stablecoin. Thus, the technology to create a stablecoin they link to a bank account exists. Yet you will need a stablecoin that releases payment from a checking or a savings account.

However, most cryptocurrencies do not pay interest. Hence I think the killer app for stableoins will be an insured product that pays interest. I think this killer will be a cryptocurrency or a stablecoin with some of the attributes of a bank account.

Hence, Compound has one part of that killer app: it pays interest. However, Compound has not solved the insurance part.

What Value Does Compound Have?

Mr. Market thinks Compound (COMP) has some value. For instance, CoinMarketCap estimates Compound had a Market Capitalization of $407.206 million and a 24-Hour Market Volume of $31.574 million on 21 July 2020.

Consequently, CoinMarketCap gave Compound a $158.99 Coin Price on 21 July 2020. That made Compound CoinMarektCap’s 31st most popular cryptocurrency on 21 July 2020. They based those prices on a Circulating Supply of 2.561 million COMP and a Total Supply of 10 million COMP.

Given these numbers I think Compound (COMP) is worth investigating. I like Compound because it solves a real problem and tries to make cryptocurrency better for ordinary people. However, Compound is still a speculative cryptocurrency. Yet it could have some of the tools necessary to create a cryptocurrency Killer App.  

If you want cryptocurrencies that solve real world problems, Compound is worth investigating.