The introduction of the COMP token appears to have led to a massive rise in DeFi participation

The amount of value locked up in DeFi protocols has more than doubled in the latest quarter of 2020, hitting a record $2 billion. There are a few things that could be driving this boom — but COMP token looks like a significant factor.

The massive growth of assets in the DeFi sector began on the same day that COMP governance tokens were distributed.

Jack Purdy, a crypto researcher, commented:

“Currently there’s around $25 million of tokens being distributed every month through yield farming opportunities on DeFi It’s proven to be an incredibly effective mechanism for building liquidity.”

The goal of COMP is to utilise idle crypto assets and put them to work. COMP was introduced to encourage users to take advantage of the platform and has clearly led to a big rise in DeFi utilisation.

What does DeFi do?

DeFi, short for Decentralised Finance, utilises blockchain, smart contracts and cryptocurrency. This new system is meant to run autonomously without government intervention and removes the need for the intermediaries in the traditional financial system – effectively cutting costs between end-users by removing the middleman.

With fresh waves of demand, there will likely be more investment into DeFi platforms, so investors must keep a close eye on the risks involved.

Some risks remain

When borrowing money, a late interest payment at a peak price may cost an investor a lot if they don’t have the asset they borrowed on hand.

Some commentators are also warning about potential security risks. Deposited assets are held and controlled by wallets. Wallets need keys which are a potential security risk.

Experts warned that when individuals with malicious intent gain access to wallet keys, they will be able to bypass security countermeasures on the blockchain. This isn’t a new risk, and is a part of any decentralised system.

Whatever the risks may be, it is clear that there is a growing market for DeFi products.