The rise of Compound (COMP) has sparked intense debate across the decentralized finance (DeFi) space. While many celebrate its meteoric ascent, others sound cautionary notes—drawing unsettling parallels between COMP and the now-defunct FCoin, a once-hyped crypto exchange that collapsed after a short-lived boom. This article explores why the two projects evoke similar concerns, how Compound works, and whether its current success is sustainable—or just another speculative bubble in disguise.
What Is Compound?
Launched in September 2018, Compound is a decentralized lending and borrowing protocol built on the Ethereum blockchain. It allows users to lend or borrow a range of supported cryptocurrencies, including ETH, USDC, DAI, USDT, WBTC, BAT, REP, and ZRX. Interest rates fluctuate in real time based on supply and demand for each asset.
One of Compound’s standout features is its 15-second interest accrual mechanism—interest is calculated and compounded every time a new Ethereum block is mined (approximately every 15 seconds). This rapid compounding enables lenders to earn compound interest almost instantly, enhancing yield generation.
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The platform generates revenue through the interest rate spread: it pays lenders a lower rate than it charges borrowers. For example, if USDT is lent out at 17.68% but deposited at 12.33%, the 5.35% difference goes to the protocol. Prior to the launch of COMP, Compound ranked second in total value locked (TVL), behind MakerDAO.
The COMP Token: Governance and Distribution
In February 2025, Compound announced the launch of its governance token, COMP, an ERC-20 token designed to decentralize control over the protocol. Unlike stablecoins such as DAI or utility tokens tied to transaction fees, COMP serves solely as a governance mechanism.
Holders can propose, discuss, and vote on changes to the protocol—such as adjusting interest rate models or adding new collateral types. This shift marked a pivotal moment in DeFi’s evolution toward community-driven platforms.
Key Features of COMP:
- Total supply: 10 million tokens
Distribution model:
- 24% (2.4 million) to investors in Compound Labs
- 22.25% (2.22 million) to founding team members (vested over four years)
- 42.5% (4.23 million) distributed to users via liquidity mining
- 7.75% (775,000) reserved for governance participation rewards
- No tokens were retained by Compound Labs
The most controversial aspect? The user distribution model. Approximately 2,880 COMP tokens are distributed daily to users who supply or borrow assets on the platform. Rewards are split evenly: 50% to lenders, 50% to borrowers, proportional to their activity.
By June 22, over 20,000 COMP had already been distributed—with USDT markets receiving the lion’s share (15,707), followed by BAT, USDC, and DAI.
This model creates a powerful incentive: the more you transact—whether depositing or borrowing—the more COMP you earn. At a market price of $330 per token, even small loans generate significant additional income.
Why Does COMP Feel Like FCoin All Over Again?
The explosive growth of COMP—its price surging from $63 to over $330 in just four days—has triggered memories of FCoin, a Chinese exchange that popularized the “transaction mining” model in 2018.
FCoin’s Rise and Fall
FCoin rewarded traders with its native token, FT, based on trading volume. Initially successful, FT’s price spiked to $1.26 before collapsing to $0.43 within ten days. The exchange artificially inflated volumes with fake trades, promised unsustainable dividends (80% of fees), and ultimately failed due to lack of real revenue and mass sell-offs by early participants.
Sound familiar?
Like FCoin, Compound rewards user activity with a finite supply of tokens. While not identical, the psychological and economic mechanics are strikingly similar:
- Users engage not for intrinsic utility but for token rewards
- Early adopters benefit disproportionately
- As rewards diminish, so does incentive to participate
Ethereum co-founder Vitalik Buterin echoed these concerns, tweeting:
“The nature of high-yield DeFi products is often short-term arbitrage,”
“accompanied by silent risks.”
Critics argue that once all 10 million COMP tokens are distributed—expected within four years—the incentive structure collapses. What happens then? Will governance alone sustain value?
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Market Reaction: FOMO vs. Caution
Despite concerns, major exchanges rushed to list COMP:
- CoinBase Pro announced COMP listing on BTC/USD and USD markets on June 22
- South Korea’s CoinOne launched COMP/krw trading days earlier, even before releasing full project details
These moves reflect a broader trend: exchanges prioritizing speed over due diligence during bull markets. The announcement alone sent COMP’s price soaring—a classic sign of market hype.
Meanwhile, Compound’s TVL tripled from $200 million to $600 million in days, surpassing MakerDAO and making it the largest DeFi protocol by locked value.
But growth came at a cost. As users chased yields, borrowing rates spiked—some assets saw loan rates exceed 30%. This wasn’t organic demand; it was yield-chasing behavior, driven by COMP emissions.
Frequently Asked Questions (FAQ)
Q: Is COMP a stablecoin?
A: No. COMP is a governance token with no intrinsic value or peg. It does not function as currency or collateral within the protocol.
Q: How do I earn COMP tokens?
A: You earn COMP by supplying assets to or borrowing from the Compound protocol. Rewards are distributed automatically every 15 seconds and can be claimed at any time.
Q: Will COMP keep increasing in value?
A: Price depends on market demand and perceived utility post-distribution. Once emissions end (~4 years), long-term value hinges on governance participation and protocol adoption.
Q: Can I lose money using Compound?
A: Yes. While deposits earn interest and COMP rewards, borrowers face liquidation risk if collateral values drop. Smart contract vulnerabilities also pose potential risks.
Q: How is COMP different from MakerDAO’s MKR?
A: MKR is used to pay stability fees and govern the DAI system; holders absorb debt if the system becomes undercollateralized. COMP has no fee or liability function—it's purely for governance.
Q: Could COMP suffer the same fate as FCoin?
A: Not exactly—but similar dynamics exist. If user incentives vanish after token distribution ends and no real utility emerges, demand may plummet.
The Road Ahead
The success of Compound highlights both the innovation and fragility of DeFi incentive models. While liquidity mining has accelerated adoption, it also introduces Ponzi-like dynamics: new users fund rewards for existing ones. When emissions slow, growth stalls.
Sustainable protocols must transition from speculative incentives to real-world utility—whether through institutional adoption, integration with traditional finance, or novel use cases beyond yield farming.
For now, Compound remains a leader in DeFi—but its position rests not only on technology, but on market confidence in COMP’s long-term relevance.
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Final Thoughts
Compound has redefined how decentralized protocols can distribute power and incentivize participation. Yet its resemblance to FCoin serves as a sobering reminder: growth fueled by token rewards is fragile. Without ongoing utility and trust, even the most innovative platforms risk fading into obscurity once the mining ends.
As DeFi evolves, the industry must ask not just how fast a project grows—but why it endures.
Core Keywords: DeFi, Compound, COMP token, liquidity mining, decentralized lending, Ethereum blockchain, yield farming