Compound crypto is a financial protocol that uses the Ethereum ecosystem as its foundation. The platform’s primary purpose is to create a place for crypto lenders to work with borrowers and enable them to get loans without any regulatory oversight. It’s a transparent, secure network that relies on smart contracts.
Let’s find out what this massive DeFi market has in store. We’ll discuss the core principles of Compound, their use cases, basic features, COMP cryptocurrency, and the team behind the platform. Finally, we will see how the Compound Finance Platform affects crypto communities.
What is Compound?
Compound (COMP), which is a decentralized protocol, provides lending services through its yield-farming features. It was established in 2017 by Robert Leshner (CEO Compound), Compound Labs Inc.
Compound Finance offers its users the ability to save, trade and use the asset through other DeFi applications. Smart contracts lock down collaterals and generate interest based on market demand.
The Compound protocol’s governance token, the COMP token, was released. After its release, the protocol went from being a central protocol to becoming decentralized.
It became the first platform to promote yield farming. COMP is an ERC-20 token; these tokens were created using Ethereum Blockchain for accessing smart contracts and developing them in the blockchain.
Top Recommended Platforms
78% of retail investor accounts lose money trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading forex or CFDs on margin involves a high degree of risk and may not be suitable for all investors. There is a possibility that you may suffer a loss equal to or greater than your entire investment.
CFDs are complex instruments and involve a high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The ERC-20 token was the first Ethereum token that was critical. It has become the standard token on the Ethereum Blockchain.
Funding the system is done by liquidities supplied to large borrowing pools. As a reward, users receive tokens which they can exchange into any supported asset on the network. Short-term loans can be taken out by users to other assets in the network.
They’ll have to pay interest on every loan they take. The interest is shared between the lender pool and the borrower.
Similar to staking pools, yielding pools pay their members based on how long they take part and how much crypto they have. However, unlike the staking pools, the time it takes to borrow from the pooling systems is shorter.
The protocol allows users to borrow and lend up 9 ETH-based assets such as Tether, Wrapped Bitcoin (wBTC), Basic attention Token (BAT), USDT, USD-Coin (USDC) and USD-Token.
The user may receive more than 25% in annual interest at the time this review was done. Compound doesn’t have any regulations like Anti Money Laundering and Know Your Customer.
A high appreciation of the COMP token means that users can earn up to 100% APY.
How does compound work?
Compound runs use the Ethereum blockchain to conduct market trends and assign interest rates for certain coins. There are no regulations and restrictions regarding lending. Additionally, there is an amazing APY for anyone who would like to lend their coin. In contrast to traditional banking, interest rates can’t be agreed upon or fixed by either party. The platform instead uses an algorithm that automatically determines the interest rate on a particular coin.
DeFi Definition
Decentralized finance allows users to obtain financial services without the involvement of third parties. It makes it possible to conduct financial services privately and anonymously over the Internet.
DeFi allows users the ability to perform transactions such as trading, saving and lending. It facilitates transactions that can be done in your local banking system. However, it solves the problem of a centralized system.
DeFi includes cryptocurrency majorly, and not fiat currency. Except for a few stablecoins, all cryptocurrencies are stablecoins. These cryptocurrencies can be pegged from fiat currency values.
DeFi apps rely on the Ethereum Blockchain, just like Compound.
Compound Tokens
cTokens
Compound uses cTokens in order to facilitate interest accrual as well as other functions. Once you have deposited a certain amount of collateral you can withdraw a larger quantity of less-valuable tokens that are tied to the collateral coin’s worth. With the same amount of cTokens, you can acquire a larger amount of collateral assets over time. This is one of the ways you can earn compound interest from your crypto.
COMP Coins
Each coin you have confers the right to vote in Compound matters. A proposal can be made by anyone who has 1% or more of the coin supply. At that point, voting begins. After a waiting period of two days, the implementation process begins once a minimum number has been cast. The future might see the community voting on issues such as coin buybacks, or UI updates to the app. Any decision that has to be made, no matter the issue, will be decided democratically. Comp is earned when you borrow money or lend money.
Use and Features of Compound
Compound networks are an alternative to traditional financial platforms. Its mechanics are however different.
First, ID verification is not required. It is difficult to imagine a bank lending money to an unidentified individual. DeFi, according to many crypto enthusiasts, is the best way to create a fair and open global financial system. Compound doesn’t conduct any KYC checks. No need for identity or sustainability verification, nor risk assessment.
There is no lower limit for borrowing or lending in the Compound ecosystem. There are no penalties or terms, and you can repay your loan whenever you like. Any time you want, assets can be withdrawn. Lenders receive their interest rewards approximately every 15 seconds when an Ethereum block is created.
The established limit for compound users (relatively to their loan) must be met. The minimum amount is set by the lender and the borrower will be liquidated. In order to repay the loan, their collateral is then sold. Even in this case, any member can repay up to 50% of their loan, and get a percentage of the collateral of the borrower with a discount of 5%.
Compound is used primarily to earn interest by storing cryptocurrency assets on the platform. More information on the Compound’s technical characteristics can be found in its whitepaper.
Liquidity Mining in Compound
The idea of liquidity mining was to induce the borrower and lender to use the Compound protocol. Why? Users who are not available and active on the platform will cause a slow depreciation of the token. This will occur in line with protocols in DeFi.
Both the borrower and lender are paid in COMP tokens to solve this problem. This results in high levels of liquidity and activity.
This is accomplished in a smart-contract. COMP rewards will be distributed using a few parameters (e.g., the interest rate and number of users who participated). At the moment, 2,313 COMP tokens are being shared across the platform. They will be divided into equal halves for both lenders as well as borrowers.
MarkerDAO vs. Compound
MarkerDAO, an Ethereum-based DeFi, was the most well-known project until recently.
MarkerDAO is similar to Compound. It allows users to lend or borrow crypto using wBTC and Ethereum. DAI is an ERC-20 stablecoin that can be borrowed.
DAI can be compared to the US Dollar. DAI is different from USDC and USDT as they are backed by centralized assets. DAI, however, is decentralized and a crypto currency.
Similar to Compound borrowers cannot borrow 100% the Ethereum collateral amount they have put down in DAI. However, they can borrow up to 66.6% USD.
In other words, if one deposits $1000 of Ethereum, one can withdraw 666 DAI. A loan not dissimilar from Compound can be obtained. Users can borrow only DAI assets, and the reserve factor can’t be fixed.
Both platforms employ yield farming. Interestingly, users can borrow from MarkerDAO for Compound to invest or lend. Compound offers higher chances of profitability. There are many differences between DeFi protocols. Here are the main ones:
Users are rewarded with additional incentives when they participate in compound protocols.
MarkerDAO’s sole purpose is to provide support for the DAI stablecoin.
Compound allows you to lend and borrow more assets. MarkerDAO only allows one. This gives Compound an advantage in the area of the yielding function, which is the main driving force for these DeFi protocols.
Compound is also easier to use than MarkerDAO.
Compound Cryptocurrency
Compound (COMP), the native cryptocurrency used by the network, is something you cannot mine. Only the platform’s developer team can give you COMP. The supply of this cryptocurrency is limited to 10,000,000 COMP.
Every day, 2880 COMP are divided among protocol users according to how many transactions they have made using a specific coin. Borrowers and lenders get half of each other’s profits. Once a user has earned 0,001 COMP, the reward will be transferred to their account.
Comp tokens allow community governance. A vote is required every time an important decision regarding the future platform has to be made. All compound users with over 100 000 COMP are eligible to submit their own ideas. The entire community then votes for them. If the idea is voted for by more than 400000 people in a three day period, it will be sent to the Timelock smart contracts and can be implemented within two days.
Verdict
While reviewing the program for Compound, we discovered that there are some significant flaws that could discourage DeFi enthusiasts. The system is secure but it’s still possible for someone to steal information. This is quite a contrast to the anonymity that regular crypto trading affords. While total decentralization is a noble goal, it’s not something the Compound team has achieved yet.
Compound, based on its current features and its future potential, is hard to ignore. This platform has more to offer than any other cryptocurrency liquidity option. It adds an entirely new dimension to your ability to make money with cryptocurrency. It offers compound interest and lending. It is also a solid choice of investment and makes it even more valuable.
Compound can’t be kept alive by government will, even though healthy skepticism may be a good thing. Instead, Compound will be able to live or die according to the value it offers DeFi traders. That is enough to give them a lot of credibility. Every crypto enthusiast should remain open-minded, and be open to the possibility of making a profit by investing in COMP coin or liquid cryptocurrency.
