What is Compound (COMP)?

What is Compound (COMP)

Compound is software running on Ethereum which aims to encourage a distributed network of computers to operate a traditional money market.

One of an emerging number of decentralized finance (DeFi protocols), Compound uses various crypto-actives to provide this service, enabling necessary borrowing and borrowing without a financial intermediary such as a bank.

Simply put, Compound allows users to deposit cryptocurrencies into loan pools for borrower access. Creditors then earn interest on the assets they deposit.

Once the deposit is made, Compound grants the lender a new cryptocurrency called cToken (which represents the deposit). Examples of cTokens include cETH, cBAT and cDAI.

Each cToken can be transferred or traded without restriction, but can only be redeemed for the cryptocurrency initially blocked in the protocol.

This entire process is automatic and controlled by the Compound code, which means creditors can withdraw deposits at any time.

To encourage this activity, Compound uses another native cryptocurrency in its service, called COMP. Each time a user interacts with a composite market (borrowing, withdrawing or repaying the asset), he is rewarded with additional COMP tokens.

Although complex, the model has so far proven to attract users and encourage other cryptocurrencies. DeFi to adopt your model.

By 2020, more than $500 million in assets were blocked in the Compound protocol, according to data site DeFi Pulse.

What is Compound (COMP)

Who Created the Compound?

Compound was founded by serial entrepreneurs Robert Leshner and Geoffrey Hayes, whose previous company, Britches, aggregated inventory from local stores to be sold at PostMates.

In 2018, Compound raised $8,2 million in financing from notable venture capital firms Andreessen Horowitz and Bain Capital Ventures, the venture capital arm of consulting firm Bain.

Compound raised an additional $25 million in 2019 from many of the same investors, along with new entrants like Paradigm Capital, a fund started by a Coinbase co-founder.

A portion of the total COMP cryptocurrency supply was initially distributed to investors in the company and employees.

Why Does Compound (COMP) Have Value?

To distribute its operations, Compound is programmed to reward users with COMP tokens.

Anyone who has Tokens COMP can participate in decisions affecting the software by voting on proposed rules governing the use of the platform.

A COMP holder may also assign his voting rights to another person to vote on his behalf.

This means that someone who is not a COMP holder — such as a legal expert — can be asked to vote on behalf of the COMP holders when a specific issue arises.

It is noteworthy for investors that new COMP tokens are issued by the network every day.

By 2020, around 2.880 COMP tokens are given daily to creditors and debtors, meaning that anyone using the Compound can earn COMP tokens, proportional to the amount borrowed from the protocol.

Compound price

How Does Compound Work?

Compound connects creditors and debtors using a combination of smart contracts running on Ethereum and incentives paid in cryptocurrency.

The two main users of the platform include:

  • Credores — Anyone wishing to borrow a cryptocurrency in the Compound can send their tokens to an Ethereum address controlled by the Compound to earn interest.

 

  • Borrowers — anyone who posts guarantees on the Compound in the form of a cryptocurrency. They are allowed to borrow Composite-backed cryptocurrencies at a percentage of the posted amount.

Compound rewards lenders with COMP tokens based on the amount of cTokens held in their wallets based on a variable interest rate depending on the available supply of that asset. The more liquidity in a market, the lower the interest rate.

Users who lend assets to the protocol can make a loan in any other cryptocurrency that the Compound offers, up to the value of the deposited guarantee.

Importantly, borrowers can be liquidated if the asset they lent increases in value and becomes more valuable than the collateral posted.

Why use Compound (COMP)?

The Compound may be of interest to anyone who wants to earn additional income by borrowing or borrowing cryptocurrency.

In addition, users have a built-in incentive to keep the token, as anyone who owns the COMP can make decisions about the future platform.

This includes being able to vote on Compound interest rates and other important options that could affect your revenue or profitability.

Investors may also find COMP of interest if they want to gain exposure to emerging DeFi currencies that offer exposure to the protocol's cash flow.

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