COMP Price Swings Wildly Following Announcement of Plans to Establish a Dedicated Foundation

The native token of Compound Finance, COMP, experienced dramatic price swings

The price of Compound Finance’s native token COMP has swung wildly following the announcement of plans to establish a dedicated foundation. The token is currently changing hands at around $43.68 after an initial drop and a brief but substantial recovery.

The team behind the popular DeFi lending protocol, Compound Labs, revealed on April 1 that they are considering creating a foundation to better manage the protocol’s development and operations.

In June 2020, the Compound protocol was decentralized with the launch of COMP and the full transfer of control to the community through governance. As a foundational piece of decentralized finance infrastructure, Compound is designed to exist in perpetuity—open, autonomous, and …

Compound is one of Ethereum’s leading DeFi lending platforms with approximately $2.5 billion in total value locked (TVL), according to DefiLlama data.

Initially, the COMP token fell by about 6% to reach a local low of $42 following the announcement.

However, the market reaction took a surprising turn as the price then surged dramatically, rising by as much as 102% during intraday trading on Tuesday.

This rally proved short-lived as investor skepticism took hold again, bringing the price back down to its current level of $43.68.

Foundation Plans Explained

Compound Labs explained that establishing a foundation has become standard practice across major DeFi ecosystems. The move aims to bring greater stability, legal clarity, and community alignment to the protocol’s operations.

The team acknowledged that their early operational model was basic, reflecting the experimental nature of DeFi in its early days.

As the platform matured, the absence of a central structure made managing critical processes increasingly difficult.

Despite outsourcing areas like risk assessment to Gauntlet and security auditing to OpenZeppelin, the lack of a formal foundation has created unnecessary complexity in protocol management.

“With the upcoming development of Compound v4 and growing engagement in the community forums, along with the progressive decentralization of the Compound ecosystem and the pullback of involvement from Compound Labs, we’ve seen the growing need for more consistent structure,” the team stated.

Investor Reaction

Market data indicates that investors have responded cautiously to the foundation announcement.

The Chaikin Money Flow (CMF) indicator has reached an all-time low, signaling substantial outflows from the token.

This suggests investors are not just reacting to short-term price movements but are concerned about the broader implications for COMP’s future.

The “Age Consumed” metric recently spiked to its highest level in 17 months, indicating that long-term holders have started selling their positions.

This movement of previously dormant tokens is typically considered a bearish signal, especially when occurring outside of a broader bull market.

The selling by long-term investors may signal eroding trust in the project’s future prospects.

Technical Outlook

From a technical perspective, COMP now faces stronger bearish signals than it did before the announcement.

Despite the temporary price rally, the failure to secure $44.60 as support suggests that further declines may be likely.

If current trends continue, analysts suggest COMP could fall to around $37.62.

For the bearish outlook to be invalidated, Compound would need to regain and maintain $44.60 as support.

If this happens, the price could potentially rise through $48.44 and surpass the $50.00 mark, which would signal a reversal in the current trend.

The proposed Compound Foundation would be independent of Compound Labs and any existing entities. Its goal would be to provide a model similar to what the Uniswap Foundation offers its community, facilitating governance, development, and communication among contributors.

Before proceeding with the foundation plan, Compound Labs intends to gather community feedback through its forums.