Over the course of the past few years, many us have become acquainted with utility tokens which serve little to no purpose.

But what happens when a successful project introduces a token AFTER building a dedicated userbase?

Today, Compound Finance – a sector-leading lending protocol – did exactly that.

 

In this article, we’ll be diving into COMP – Compound’s new native governance token.

The announcement backs the protocol’s stance to gradually decentralize, ultimately allowing all major decisions to rest in the hands of the community.

“We’re proud to introduce a governance system that will replace the Compound protocol’s administrator with community governance — allowing you to suggest, debate, and implement changes to Compound — without relying on, or requiring, our team whatsoever.”

Why COMP?

For those who are sick of hearing the word “governance token” it may be refreshing to note that Compound is approaching COMP with all the right intentions in mind.

COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.”

As far as tangible use-cases are concerned, COMP tokens can be used to:

  • Delegate voting rights
  • Make new proposals
  • Track historical voting weight

It’s important to note that only addresses with AT LEAST 1% of COMP can make new proposals, as to mitigate spam. Similarly, all proposals will undergo a 3 day voting period, with COMP token holders being able to vote for or against that proposal.

Following a majority consensus with at least 4% quorum, the proposal enters a two-day Timelock, as to give Compound users time to make necessary adjustments in the event they are not satisfied with the outcome.

Here’s a flow to visualize this process:

Baby Steps

As we mentioned above, COMP is currently restricted to a limited audience of active Compound enthusiasts. In the meantime, there are a few resources for anyone to experiment with:

To start using COMP for it’s intended utility, kindly request it from the Compound team via the official Discord.

Thanks to OpenZepplin, anyone can view the security audit of COMP.

Why Should I Care?

In an age when true governance is far and few, Compound offers a silver lining to re-engage the Ethereum community in an active and progressive manner.

Over the past few months, the large majority of governance has been dedicated towards DAOs.

With the introduction of COMP, it’s refreshing to see the same mentality making it’s way to DeFi.

For those who are passionate about creation and proliferation of truly distributed financial protocols, COMP can be seen as the first step in the inevitable wave in which DeFi projects are governed by the community.

To highlight the power of COMP, we recommend taking a look at some of the votes which have already been executed as a demo on testnet.


With 22 executed votes and counting, it’s clear that this announcement has been a long time coming, and that there’s plenty more in store.

Better yet, the Ethereum community is loving it!

Moving forward, it’s highly likely that many projects will follow suit – either through the creation of a governance token or advanced coordination mechanisms through tools like DAOs.

If one thing is for certain, governance has taken center stage yet again. It’ll be quite interesting to watch which of these schemas plays out and – as DeFi Pulse co-founder Scott Lewis notes:

Until then, we’ll be keeping a close eye on all things Compound via their official Twitter.