Compound Breaks $100 Million TVL

By Andy Hao

Success for DeFi (Decentralized Finance) projects has typically been determined by the total value locked up in a project’s smart contract. This figure, known as TVL, is often seen as a better measurement for a project's success than the number of users, simply because not all users are created equally. 

A user with $1 million of investable assets is far more valuable to DeFi projects than 100 users who only have $100 to invest. Therefore, it makes sense for most projects to track TVL as a north-star growth metric. Also, almost all projects in the DeFi space operate with a commission-based business model, where they take a small cut of all transactions happening on their platform, which aligns well with TVL as a north-star metric.

Since the beginning of the DeFi movement in early 2018, almost no projects have been able to crack the $100 million TVL mark, with Maker being the obvious exception. At one point in 2018, Maker accounted for over 90% of all value locked into DeFi projects, with a grand total of a few hundred million dollars locked into their contract.


But lately, MakerDao has seen some serious competition in the lending space, chiefly from Compound Finance. Compound recently cracked the $100 million TVL mark, continuing the rocketship growth it has seen this summer. In June of 2019, Compound Finance only had $25 million locked into their contract, so it has jumped more than $75 million in just a couple of months.

There are now 6 lending applications with over $10 million locked in their smart contracts, leading to a competition for user funds. This competition has gotten more fierce in the last few months, as the TVL of the entire DeFi space hasn’t grown since late June. Projects are increasingly trying to steal market share from others instead of growing the existing base of DeFi users, a strategy that can’t lead to long-term success for DeFi.

Pay close attention to the changes in DeFi usage in the next few months. If DeFi is going to fulfill its promise of transforming the existing financial system, it will need to branch out from existing crypto users to absorb new capital.

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