Compound is an algorithmic, anonymous interest rate protocol. It is expressed as a series of decentralized interest rate markets allowing users to supply and borrow Ethereum tokens at variable interest rates. It aims to overcome the existing limitation of trading the time value of the assets and offer users the system based not on trust but technology.
The project was started in 2017 by Robert Leshner and Geoffrey Hayes. The headquarters of the project is based in San Francisco, Los Angeles, USA. In 2018 the project went for a funding round and managed to raise $8.2 million with big investment firms such as Andreessen Horowitz participating The WhitePaper for the project was released in February 2019 and after that it entered another funding round, where it managed to raise $23 million.
The Compound protocol establishes money markets which are pools of assets with algorithmically derived interest rates, based on the supply and the demand of the assets.
Al the users of the platform are divided into lenders and borrowers. The lenders lend cryptocurrency on the platform by sending the assets to the Ethereum address managed by the community. Borrowers share the cryptocurrency collateral and can borrow Ethereum tokens at variable interest rates.
Suppliers and borrowers interact directly with the protocol, paying and earning a floating interest rate or collateral with a peer or counterparty. Each money market is unique to the Ethereum asset. It also contains a transparent and publicly-inspectable ledger, with a record of all transactions and historical interest rates.
Compound protocol aggregates the supply for each user, so each asset supplied by the user becomes a fungible resource on the Protocol, thus providing more liquidity than traditional lending, unless all the assets on Compound are lent. The advantage of the project is that users can withdraw their assets at any time without waiting for any specified period.
The users that have long-term investments in the assets like Ethereum can get additional returns on it by supplying their tokens to the Compound protocol and earning interest without managing the asset, fulfilling the loan requests, or taking speculative risks. The protocol also allows dApps, exchanges, and virtual machines with token balances to use it as a source of monetization and returns, allowing them to sweep the balances.
All the assets on the protocol are integrated through a cToken contract. cTokens can be minted, allowing users to earn interest via its exchange rate. It increases the value of the underlying asset and users can use cToken as collateral.
A cToken contract is the main way how anyone can communicate with the Compound protocol. It’s necessary for minting, redeeming, borrowing, lending, repaying a borrow, or transfers cToken on the platform. A cToken contract integrates all the assets supported by Compound. There are 2 types of cTokens: CErc20 and CEther, both of them employing the same EIP-20 interface that allows reusing any Ethereum token by third-party applications such as exchanges and wallets, etc.
COMP is a native ERC-20 token of the Compound protocol that enables the governance of the project. The voting rights change once the user acquires the token. The users can offer the proposals and vote on them; the proposals can cover numerous aspects of the protocol from changing system parameters to adding entirely new functionality to the protocol. Voting rights should be delegated. The users can delegate them to themselves or any other holder of the COMP tokens.
To create a proposal the address needs to have at least 65000 COMP tokens delegated to it. Once the proposal is submitted, there is a two-day review period before the voting starts and lasts for 3 days.
COMP tokens can’t be minted and can be only issued by the Compound Labs team. 280 new tokens are issued every day and then distributed equally between lenders (50%) and borrowers (50%). The total supply of the COMP tokens is 10 million.
How Much Is the Average Fee on Compound Protocol?
There is no additional fee for the users to deposit and withdraw the assets (only the standard gas fee of the Ethereum network), but the protocol charges users for the transactions on the network. There are also no trading fees or slippage on Compound.
The standard gas fee is implied also when users borrow, lend, mint, transfer, liquidate or repay the borrow.
What are Popular COMP Wallets?
As an Ethereum asset, the COMP token can be held in any wallet that supports ERC-20 assets. It includes the most known wallets in the crypto industry, such as Coinbase, Alpha Wallet, Infinity Wallet, Exodus, Freewallet, Ledger, etc.
