Derivatives market and crypto exchange FTX is moving into the storm created by Compound’s new governance token, COMP.
Traders will soon be able to place their bets on which way decentralized finance (DeFi) will go, CoinDesk has learned.
Later Thursday, FTX and FTX US will both list COMP as well as cUSDT, the Compound version of tether (USDT). On the global site, FTX will also open its suite of crypto derivatives, allowing users to take leveraged bets on the token’s prices looking down the road.
“For basically all of DeFi, MakerDAO has been the king of DeFi, and it has had the canonical tokens,” FTX CEO Sam Bankman-Fried told CoinDesk in a phone call. “One thing the markets are implying right now is that Compound is making a serious run for that crown.”
Since users of Compound began earning COMP tokens for borrowing and lending on June 15, the total value locked has shot up over $300 million, from less than $100 million on Sunday.
Incorporating COMP derivatives on FTX, although not in the United States, opens up a variety of positions traders can take.
“These will be the first futures on Compound by a longshot,” Bankman-Fried said.
He expects the most popular product will be the perpetual futures markets. These are futures that let traders take a long or short position on a product without needing to worrying about renewing their contracts.
“It’s a futures contract that never expires,” Bankman-Fried explained, saying it’s one of those products that are relatively unheard of outside of crypto.
Bringing a market for short positions could actually be healthy for Compound’s users.
The arrival of COMP has created a strange situation where users can potentially borrow money and profit, SesameOpen’s Henry He detailed on Medium earlier this month. At some point, the number of people earning COMP and the price of COMP will reach an equilibrium where some users will decide it no longer makes sense to keep going deeper into debt. A market for short positions should help bring some clarity.
Bankman-Fried said he’s been curious about the endpoint of COMP’s runaway growth, too. “I don’t know at what point it stops,” he said.
Besides adding COMP, incorporating cUSDT allows FTX users to use a token for collateral on FTX that actually earns interest.
When users deposit funds in Compound, they get a new ERC-20 that represents that deposit. For USDT, that’s cUSDT. This makes their deposits tradable and it also means users can earn interest on their deposits wherever they hold the token.
So for FTX users that switch from USDT to cUSDT as their collateral token, it creates a small built-in hedge for those users. FTX hasn’t yet determined how COMP earned for any trader holding cUSDT will be managed, but either way holders of cUSDT are earning 0.50% annual percentage yield as of this writing. Further, this is the first time users can easily acquire cUSDT without going directly to Compound.
FTX US does not offer the derivatives product but it does offer a large amount of liquidity and margin trading for certain customers, Bankman-Fried said. FTX US only went live in May.
“We’re really excited to give our users access to Compound’s products . It’s a huge step forward for DeFi and also a really active project right now,” Bankman-Fried said.