I continue to review Compound by applying “Tokenomics” (Sustainability- Value -Engagement- Transactions) sub-scale.
Lending / borrowing on that EVN contracts platform is done only via cTokens, which role is crucial to maintain the economic stability of the system. Also, each asset (or “market” as they call it) has its own “collateral factor” (from 1 to 0 reflecting the level of risk or volatility), which defines how much (% vise with regards to collateral sum in ETH) of this assets can be borrowed.
However, there’s still a risk for borrowers associated with sudden appreciation of the underlying assets in which case the outstanding amount of borrowers cTokens might be repaid using the collateral.
Additionally, the supply / demand factor affects each assets interest rate. More liquid assets has higher interest rate (it used to be 15% now it ranges from 5 to 8%).
Extract: “The protocol does not guarantee liquidity; instead, it relies on the interest rate model to incentivize it. In periods of extreme demand for an asset, the liquidity of the protocol (the tokens available to withdraw or borrow) will decline; when this occur, interest rates rise, incentivizing supply, and disincentivizing borrowing.
Both of those mechanisms add to the overall “Sustainability” (“b”) of Compound and increase cToken usability (“Value” is “b”). However, it doesn’t increase the level of users’ “Engagement” (“c”) with cTokens outside of the Compound platform and creates multiple frictions on a “Transaction” level (“c”).
Result for “Tokenomics” (Sustainability- Value -Engagement- Transactions): b/b/c/c
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