Several analysts suggested that the rapid performance of Compound (COMP) prices may have been manipulated with derivatives.
After an initial exchange rate of approximately $80 per token on Poloniex on June 18, COMP quickly rose 500% to reach high levels above $380 on June 21, when news came out that Coinbase included the cryptomoney in its platform to attract buyers.
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Since the increase, COMP has lost 34% of its value and is currently at $253.
Was the rally really driven by demand?
In a June 25 article, independent crypto-currency blogger and Decentraland product leader Tony Sheng noted that many traders over the past week believed that the three-figure price of the COMP was extremely overvalued, so bearish traders paid between 5% and 10% of daily rates to acquire the asset using derivatives.
Despite this downward trend and the fact that the COMP tokens can be obtained through yield farming, also known as agricultural yields, COMP prices continued to rise aggressively, and Sheng suggested that the disproportionate volume of FTX derivatives largely drove the rally.
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While spot market quotes on FTX and Poloniex generated a volume of $1.5 million in 24 hours that led to COMP’s Bitcoin Rush quote, over $6 million in perpetual exchange contracts were traded on FTX in the same period.
Because COMP comprises a market that was highly illiquid at the time of its launch, the article suggests that traders may have been able to drive up prices in the spot market with relatively small purchase orders to secure much larger long-term gains using FTX contracts:
Simply put (haha) is that because of the size of the COMP Perpetual Swap market, it would be profitable to buy Perp and then buy in the spot market in an amount large enough to move the price, increasing Perp’s profits and the possibility of a short squeeze.
On June 24, the founder of Carbon Crypto Manager, Raul Marcos, tweeted:
„COMP futures trading right now is a master class in market manipulation.“
Derivatives encourage the manipulation of illiquid markets
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While Sheng points out that „it is not even clear if someone really manipulated the market,“ he says that the COMP’s price action offers „a very clear warning of what will come if teams continue to launch „Compound style“ tokens with a list of illiquid MMAs […] combined with performance farming.
„Then other groups will have a reason to launch derivatives to get some of that attention,“ he added.
Balancer has just announced its BAL token, which followed the model used by COMP and has seen an equally aggressive price action driven by both an upward and downward trend.