Compound

Compound is a decentralized, blockchain-based platform that allows users to lend and borrow crypto coins and tokens without the need for a financial services intermediary, similar to Aave.

What is Compound?

Compound is a protocol on the Ethereum blockchain that establishes liquidity pools of crypto assets with algorithmically derived interest rates, based on the supply and demand for the particular asset.

Suppliers and borrowers of crypto coins and tokens interact directly with the protocol, earning and paying a floating crypto interest..

How does it work?

Compound supports the borrowing and lending of a specific selection of crypto coins and tokens. The services and crypto assets are accessible through the Compound Finance app, to which a user can connect via his extension coin wallet.

If a user owns the available cryptocurrencies, he can deposit any amount in the Compound protocol. When he locks his crypto, it is similar to depositing money in a savings account. The user can earn interest on his crypto just like he would get interested in his savings account deposits in banks.

When a user sends crypto to Compound Finance, it goes into a liquidity pool of similar tokens in a Compound protocol smart contract.

Use in practice

Compound is primarily used as a cryptocurrency borrowing and lending platform. Users can deposit one of the supported tokens and coins into a shared pool and receive interest. After depositing their tokens, they can borrow a smaller amount of tokens or coins and pay crypto interest.

When depositors put their crypto assets in the market, they receive the native token of Compound called a “cToken.” The token value of the cToken is equivalent to the token that was placed in the pool, which means that the interest a user earns is denominated in the same token that he lent.

For example, if you lock a certain amount of USDT in the protocol, you will get the same amount of cUSDT tokens which will then begin growing in value. cTokens are also being able to transfer, trade, and use in other dApps.

When a user needs to get his crypto back, all he needs to do is pay back his cTokens, and he will receive his original tokens in return plus interest.

When it comes to borrowing, once users have locked their crypto to Compound, they are able to borrow against it. Like many DeFi projects, Compound also operates on the principle of over-collateralization. This means that users who want to borrow have to provide collateral that is more than what they want to borrow.

What is COMP token?

COMP is an Ethereum-based token that allows the community to govern the Compound protocol. COMP token-holders propose and vote on changes to the protocol and oversee the protocol. Proposals can change system parameters, support new markets, or add entirely new protocol functionality.

COMP tokens are not minable. Only the Compound Labs team issues new COMP tokens every day in a predetermined amount. These newly issued tokens are then distributed equally amongst borrowers and lenders.

Website

Visit the official cryptocurrency website. It contains detailed valuable information about the coin and the project. You'll also find answers to frequently asked questions, various support and training tools, or interesting coin news and articles.

WhitePaper

WhitePaper is a basic informative document that contains a detailed description of a crypto project, its purpose, the idea of its creation, technical specifications, statistics, diagrams, roadmap, and other important facts, including information about the coin and its use and future potential. It is usually created by the founders or developers of a crypto project.