The Compound protocol launched their COMP governance token on June 16 2020 and introduced a new concept of liquidity or yield farming. This is something that caught the DeFi community by surprise and helped kick off the DeFi Summer farming craze.
How does COMP farming work?
The Compound protocol gives out COMP token rewards to users of the protocol (those providing liquidity to it). These rewards can be so attractive, that people create special positions solely for the purpose of maximizing the amount of COMP they receive.
In order to do that, users started creating same asset leveraged positions, since borrowing the same asset that you already have supplied is something that the Compound protocol allows (though their default app at https://compound.finance/ actually doesn’t).
This works by increasing your overall liquidity mining capital - for example, if you have 100,000 Dai you can supply them as such, but if you leverage that you could arrive at 380,000 Dai supplied and 280,000 Dai borrowed, making your total liquidity mining capital 660,000 Dai and greatly increasing your allocated COMP rewards.
How do I maximize COMP rewards?
So far, the best options for this have been DAI/DAI or USDC/USDC leveraged positions, though this may change with future Compound governance proposals.
A leveraged same asset position is something that can be created in a single transaction using DeFi Saver, with the steps being:
0 - You have a Smart Wallet created or create one for your account. (This is the only requirement)
1 - You enter wanted position details at Compound Create position, as shown in the example below.
As soon as the transaction completes your COMP rewards will start trickling in. Once you’re ready to claim a certain amount of COMP, you’ll be able to do so with access to a few additional options, such as claiming and supplying COMP into Compound in one transaction, or claiming and instantly swapping for a different asset.
One important recommendation when doing this: do not mix any assets. Doing so will expose your position to much greater liquidation risks, while having only this one and the same asset both supplied and borrowed makes it very safe for even very high levels of leverage. The only exposure to potential liquidation is due to borrow interest rate being added to your debt.