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COMP’s bullish rally could have been manipulated through the use of derivatives

June 26, 2020

Several analysts suggested this The rapid price development of compound (COMP) may have been manipulated with derivatives.

After an exchange rate of initially around USD 80 per token at Poloniex on June 18 COMP rose rapidly by 500%, reaching a high level above $ 380 on June 21. when the news came that Coinbase added the cryptocurrency to its platform to attract buyers.

COMP / USDT on Poloniex, 1 hour chart

COMP’s bullish rally could have been manipulated through the use of derivativesCOMP’s bullish rally could have been manipulated through the use of derivatives

Hourly chart of the COMP / USDT pair on Poloniex. Source: TradingView

Since the increase, COMP has lost 34% of its value and is currently around $ 253.

Was the rally really driven by demand?

In an article dated June 25, Decentralands freelance blogger for cryptocurrency and market leader in the product industry reported: Tony Sheng noted that many traders in the past week believed that the three-digit price of the COMP was extremely overpricedThe bears paid between 5% and 10% of the daily rates acquire the asset using derivatives.

Despite this downward trend and the fact that COMP tokens can be obtained through Yield farming, also known as agricultural yield, COMP prices continued to rise aggressivelyand Sheng suggested that the disproportionate volume of FTX derivatives This has largely fueled the upward trend.

While the spot market listings on FTX and Poloniex generated a volume of USD 1.5 million within 24 hours, this led to COMP’s Coinbase listing. Over the same period, FTX traded multi-year exchange contracts worth more than $ 6 million.

Since COMP understands a very illiquid market at the start, the article says suggests that traders may have been able to raise prices on the spot market with relatively small buy orders to make FTX contracts much larger for long term:

In short (haha), due to the size of the COMP Perpetual Swap market, it is profitable to buy Perp and then buy on the spot market an amount large enough to move the price, which increases Perp’s profit and opportunity a short press.

On June 24, the founder of Crypto Asset Manager Carbon, Raúl Marcos, tweeted::

“Trading in COMP futures is currently a master class for market manipulation.”

Derivatives promote the manipulation of markets without liquidity

While Sheng notes that “it is not even clear whether anyone has actually manipulated the market,” he claims that the COMP price action “provides a very clear warning of what will happen if teams continue to token in the” compound Style “with a list of” AMM without liquidity […] combined with performance farming. “

“Then other groups will have a reason to bring derivative products to the market to get some of that attention,” he added.

Balancer has just announced its BAL token, which followed the model used by COMP and saw an equally aggressive price move driven by both a bullish and a bearish trend.

Central government?

Link was also criticized for highly centralized current distribution of your government tokensThis benefits the project’s founders and venture capital firms, who invested $ 25 million in Compound’s A series in November 2019.

The votes of only three companies (Polychain Capital, A16Z and Compound CEO Robert Leshner) correspond to approximately 130% of the combined votes of all other COMP owners.