Compound takes steps to decentralize by introducing a new governance token

Compound announced that they will be creating a token to govern the protocol. This will allow holders to propose governance actions such as adding support for a new asset or modifying various parameters. The COMP token will not be used to raise funds but rather a portion will be distributed to existing shareholders, while the majority will be escrowed with plans to release them to users in the future. The governance system has been audited by OpenZeppelin and additional details regarding the token are to be released in the near future.

Why it matters

• DeFi protocols have come under scrutiny for their lack of decentralization as a single company typically controls administrative privileges enabling them to unilaterally alter the protocol potentially impacting user funds. By introducing a governance token, the company can remove itself from this process handing over these functions to a distributed set of token holders.
  
• Up to this point, there has not been a clear path to profitability for the company and thus a return on investment from their investors. However, by inserting a token into the network and initially distributing it to investors, it opens up multiple paths for it to accrue value such as a percentage of fees being distributed to token holders or to buyback and burn COMP on the open market.