DeFi Token in the project management

The role of governance tokens

The Tokens of blockchain projects have their own purposes.Some are stores of value, such as Bitcoin, which can be used to store and circulate value.

In addition to Bitcoin, some tokens can pay transaction fees, and ETH is used to pay gas fees; some are used for work rights, and only a certain number of tokens can be pledged to participate in the network block generation, such as various PoS tokens(such as EOS, Harmony, etc.); some can acquire transaction fees, such as kyber to obtain value by burning tokens; some tokens are based on governance, such as MKR, 0x and other tokens.Of course, most tokens serve more than one purpose.Some tokens can be used for both fees and governance, such as MKR and Kyber.

The premium of DeFi governance tokens is mainly due to the scale of assets locked by the project itself, which is also related to security.As the scale of locked assets increases, so does the gaming demand for governance.

MakerDAO vs. Compound
MakerDAO's governance token is MKR.MKR is a voting right.Similar to EOS, the head project of DPOS, holding EOS, can participate in the election of 21 super nodes, and super nodes initiate proposals and vote on behalf of the community.MKR has a similar function.MKR holders vote to determine risk parameters in the system, such as collateral selection, liquidation ratio, stability fee, etc.After thinking about it a little, you can see that the voting rights of retail investors are basically useless, and the big players have the right to decide.

MKR enjoys project bonuses.When users redeem their mortgage assets, they need to pay interest with MKR, and this MKR will be destroyed.If the MakerDAO project works well, the speed of MKR destruction will help increase the unit price of MKR.

The "3.12" black swan event caused MakerDAO to generate about $5 million in system bad debt and caused the price of MKR to drop to $200 at one point.To this end, it is necessary to auction more platform coin MKR to make up for the loss of the platform.These MKRs are sold as DAI, which is destroyed until the system handles bad debts.Bidders bid for a fixed amount of DAI and buy less and less MKR until the highest bidder wins and the debt of the system is paid.

Assuming the impact of the black swan continues and the bad debts of the system continue to increase, then the decline of MKR will continue.In addition, in terms of liquidity, the market is very lack of DAI to participate in the MKR auction, so Maker quickly opened the USDC over-collateralization channel to make up for the lack of DAI liquidity in the market.

Compound's governance token

The total amount of COMP tokens is 10 million, and 4.23 million COMP tokens (accounting for 42.3% of the total) are rewarded to protocol users every day and will be put into a "Reservoir" smart contract, and each Ethereum block will beTransfer out 0.5 COMP (about 2880 COMP per day, which means that 4.23 million COMP will take 4 years to distribute) and wait for the agreement to distribute.

Half of the daily COMP is distributed to asset providers and the other half to borrowers.The most active assets also receive the most compensation on a daily basis, so the distribution changes with the market.

Any community member can propose changes to the Compound protocol.Changes may include adding new assets, changing the model used to set interest rates on a given asset, or canceling assets.

Is governance token worth investing in?

Since most DeFi projects allow token holders to share some of the benefits generated by the protocol, whether by participating in governance, being a liquidity provider, or simply holding the token, the token has an economy that shares the benefits of the protocolright.Therefore, we can use the price-earnings ratio valuation model (Price-to-Earning Ratio for short PE) of the traditional financial market to value the tokens of various DeFi protocols.

PE is calculated by "price per share (P) divided by earnings per share (EPS)", which is one of the most widely used indicators in the securities market today.It reflects the value of the company through the ratio of stock price to earnings per share, reflecting the company's future profitability.An asset with a high price-to-earnings ratio usually means that the asset is either overvalued or that the market has high growth expectations for it.Vice versa, if an asset has a low P/E ratio, it means that the asset is either undervalued or has low expectations for its future growth.

Calculations show that among all token-attached DeFi projects, there are two clear outliers: Augur (REP) and 0x (ZRX), with ratios of 16,761 and 6,935, respectively.This phenomenon may indicate that investors have large growth expectations for both liquidity and derivatives protocols.

In traditional financial markets, it's normal for many high-growth tech stocks to trade between 50 and 100: Netflix, for example, currently trades around 86.Therefore, those DeFi protocols with P/E ratios below 100 imply that current token prices are relatively fair relative to current earnings.