How Did Basic Attention Token Become the Most Used DeFi Token?

According to recent research from blockchain analytics firm Flipside Crypto, Brave's Basic Attention Token became the most used ERC-20 token in the decentralized finance sector from June 19 to July 2.

According to Dapp.com, "There was a transaction volume of $931 million generated from BAT token, more than the combined volume of Ether and Dai".

BAT is the token used to incentivize and reward advertisement viewing by Brave Browser users.

For the past few weeks Compound has been the center of attention in the DeFi space and the recent release of its COMP token caused a stir as it rallied 233% in its first week of trading.

Compound's reward mechanism allows users to borrow tokens by depositing an equivalent amount of another token as collateral for said loan.

At the same time, the lenders earn interest on the tokens locked in exchange for supplying liquidity to the Compound lending ecosystem.

According to data from Flipside Crypto, this was the reason for the surge in activity because tokens like BAT have a high interest rate of 30% for lenders and borrowers.

The surge in activity is created because users can simply borrow a token and resupply it to the lending protocol to earn COMP tokens for performing both roles.

Flipside Crypto noted that this sort of activity can also cause serious liquidity issues for tokens with a relatively-small market cap and trading volume.

Users are now rewarded on the basis of the dollar value of assets borrowed, rather than the interest earned which has led users to shift to stablecoins like DAI. However, the most recent pump in BAT's volume and spot price shows just how fragile the DeFi ecosystem still is, and also how easily it can be intentionally or unintentionally manipulated.