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Compound Finance COMP a16z

Venture Capital Firm Holds 11% of COMP: Is Compound Finance At Risk?

Dalmas Ngetich
by Dalmas Ngetich
1 year ago
·
Posted in COMP
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

In a recent analysis of Compound Finance’s token distribution, Bubble Maps, a blockchain analytic platform on December 11, reveals that a16z, a crypto-focused venture capital firm, holds 11% of COMP’s total supply.

Bubble Maps notes that a significant stake held by a16z in Compound Finance’s governance model raises concerns over the protocol’s decentralization. A16z’s influence on proposals could outweigh the interests of the community.

Related Reading: Bitcoin Bears Strike Back: $333 Million Crypto Longs Squeezed

Compound Finance is a decentralized finance (DeFi) platform that allows users to lend and borrow various coins. According to DeFiLlama on December 11, the project has a total value locked (TVL) of $2.31 billion.

Its native ERC-20 token, COMP, is used for governance. As such, holders can vote on proposals that involve changes to the protocol’s core rules and parameters.

Compound Finance TVL | Source: DeFiLlama
Compound Finance TVL | Source: DeFiLlama

Venture Capital Firm, a16z, Controls 11% Of COMP’s Supply

However, Compound Finance was a decentralized crypto project, relying on a pool of retail and institutional investors, including venture capitalists, when raising funds in its formative stage. Because of this leeway, a16z and other crypto funds, including Bain Capital and Paradigm, are major investors.

As a result of these investments, Compound Finance, Bubble Maps said, distributed 24 million COMP to private investors, of which a16z initially received 1.34 million COMP. However, the fund has liquidated some over the years, dropping their total holdings to 1.1 million, or 11% of the total supply. 

Related Reading: Justin Sun’s HTX Sparks Bank Run Worries As $200 Million Exits The Exchange

This concentration of power in the hands of a single entity raises concerns about the decentralization of Compound Finance. Decentralization is a core principle in blockchain, and since Compound Finance is a project running on public ledgers like Ethereum, it must ensure that a single entity doesn’t hold that much control. 

If a16z were to use its majority stake in COMP to push through proposals that benefit its interests, it could effectively undermine the community’s power and compromise the protocol’s integrity.

As Bubble Maps observed, Compound Finance is especially susceptible to this, considering their vote quorum requirement is 4%. For a proposal to be effected, at least 4% of COMP holders must support the idea.

Is This A Risk For Compound Finance?

While this vote quorum requirement does provide some protection against the undue influence of a single entity, it is still possible for a16z to exert significant influence over the protocol by coordinating with other large COMP holders.

COMP price trending downward on the daily chart | Source: COMPUSDT on Binance, TradingView
COMP price trending downward on the daily chart | Source: COMPUSDT on Binance, TradingView

Moreover, the fact that a16z holds 11% of COMP’s token supply raises questions about the long-term sustainability of the protocol’s pro-DAO governance model. If a16z continues accumulating COMP in the open market, it could eventually reach a point where it can effectively dictate the protocol’s direction without coordinating with other holders.

Feature image from Canva, chart from TradingView
Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Dalmas Ngetich

Dalmas Ngetich

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Dalmas is an experienced journalist with over a decade in Forex, general finance, technology, and blockchain developments. He is currently a crypto reporter for Bitcoinist, where he covers DeFi, blockchain, DeFi, and latest industry news. His work and that of his partners have been featured in top news outlets, including Forbes, investing.com, CoinTelegraph, and Entrepreneur, among others. He is passionate about technology and politics and is always on the lookout for the latest trends in these fields. He also loves spending time with his family and friends, exploring nature, and traveling to new places. Connect on X: @Dalmas_Ngetich, or message him directly on Telegram here: @Dalmas_Ngetich.

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