Victor Ugochukwu · Dec 14, 2020 . 5min read
Compound Finance might be making moves to leave Ethereum due to High Transaction Fees
If true, this could trigger mass migration of projects and other DeFi products to other chains.
By Victor Ugochukwu · Aug 21, 2020 . 8min read
Compound Finance, one of the highly successful DeFi protocols out there may be making moves to leave Ethereum which has continued to experience scaling issues necessitating the high transaction fees as of today.
David Kajpust, a blockchain developer at The Graph, tweeted some hours ago about Compound building a secret product and a high possibility it won’t be launching it on Ethereum. He said if true, this could trigger mass migration of projects and other DeFi products to other chains.
“Everyone knows @compoundfinance is building something new in secret. 100% they are considering a different blockchain or a layer 2, as ETH fees are insane. This could be the biggest catalyst for sending people to a new chain to start building DeFi protocols.”
No doubt, the money market protocol wields great influence in the DeFi industry. It contributed to the yield farming craze that has become the new norm within the industry when it distributed the COMP token in June to protocol users as a way of attracting liquidity onto its platform.
According to Kajput’s tweet, a Layer 2 solution or even an outright migration is not out the question. Positing that as Compound is already a big player in the space, Layer 1 blockchain projects like Near Protocol, Solana or even Polkadot should do anything to woo Compound Finance over as it plans to leave Ethereum. And begging Compound to come to them shouldn’t be out of the question.
What factors will Compound Finance consider if it is really making plans to leave Ethereum?
Undoubtedly, Ethereum at the moment can’t scale. But this is not a new phenomenon for projects or those who have been in this space for some time now. Thus many projects in the past dubbed themselves the new “Eth Killer” which of course was never so as history proves. For starters, Ethereum continues to maintain its position as one of the most valuable cryptos in the space by market valuation. Also, ERC20 tokens which are projects built atop of Ethereum continue to see an increase in valuation. Consequently, at some point, ERC20 tokens surpassed Ethereum in valuation. However, a quick look at Coinmarketcap today shows Ethereum sits on a $46 billion market capitalization while Santiment data reports ERC20 tokens at nearly $44 billion valuations.
With huge developer activity on the majority of ERC20 assets which are DeFi tokens, Ethereum already enjoys massive network effect. This is undoubtedly an important factor to consider should Compound decides to move. Additionally, the Total Value Locked – TVL on DeFi protocols recently surpassed $6 billion. Recent data from the DeFi Pulse shows the value at $6.76 billion.
This is a figure to beat any day by other platforms. More than 97% of the TVL volume is Ethereum projects. Clearly, Ethereum has built a moat around itself, shielding it strongly against competitors. So if Compound Finance decides to leave Ethereum, it will have to consider this also.
Compound migrating away from Ethereum is still a possibility as other projects are already testing new waters.
On the flip side, the possibility of Compound Finance leaving Ethereum shouldn’t be totally ruled out. We have seen new blockchain solutions like Solana, Avalanche and others making huge moves. Solana recently attracted Project Serum. The project has been a buzz since announced by SBF, the CEO of both FTX and Project Serum. Solana already claims to be able to process 10,000 times as much as Ethereum, and it’s 1,000,000 times cheaper in fees.
Whichever way this plays out, it will be interesting to see a significant DeFi protocol like Compound pivot away from Ethereum and see how it fares afterwards.
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