Compound (COMP) surged by 10% today as most cryptocurrencies turned bullish, with Bitcoin hitting a three-month high.
At the time of writing, COMP traded at $143.91, up 10.19% after a brief pullback from the day’s high of $148.10.
Why is the coin rallying? This article examines the key drivers behind the current Compound rally.
What is Compound (COMP)?
In short, COMP is the native token of the Compound protocol. Compound is a decentralized finance (DeFi) lending platform that allows users to supply crypto assets to the protocol to earn interest or borrow against supplied collateral.
Why is Compound’s price rising?
Two main factors appear to be driving the recent surge in COMP’s price: an announced protocol upgrade and the market’s positive reaction to that announcement.
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Announcement of a protocol upgrade
The platform recognized that its previous rewards distribution program was negatively affecting COMP’s price. Rather than allowing rewards to be sold off in ways that do not benefit existing token holders or the protocol’s long-term growth, the team proposed upgrades designed to align incentives and support sustainable development.
The new rewards program begins by cutting existing rewards by 50%. Depending on the outcome of community votes, COMP farming incentives will likely be phased out or significantly reduced.
@compoundfinance Proposal 92: COMP Rewards Adjustments – Kickstart Rewards: Step One
This proposal is the first step towards launching the new rewards program – existing rewards are being cut by 50%.https://t.co/bQdxqskr7g
— Tyler Loewen (tylerether.eth) (@tylerether) March 18, 2022
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The community embraces the new proposal
The community has broadly welcomed the proposal. Many supporters argue the 50% reduction will curb the rampant inflation the network experienced previously and improve the token’s long-term value proposition.
With investors viewing the upgrade as a net positive for the protocol’s sustainability, buying activity increased as some market participants accelerated token accumulation in anticipation of improved fundamentals.