What is Compound?

Compound is a popular choice among investors looking to trade altcoins. However, before you Trade COMP, it is essential that you know what you are investing in. Let's find out what's Compound and how it works.

Compound is a DeFi lending protocol that enables users to earn interest on their digital currencies by depositing them into one of the platform's several supported pools.

Users are rewarded with cTokens if they contribute tokens to a Compound pool. These cTokens are the individual's claim to the pool's cryptocurrency and can be exchanged for the cryptocurrency at any moment. For instance, if you put ETH into a pool, you will get cETH back. The interest is distributed by gradually raising the exchange rate between these cTokens and the underlying asset so that you may withdraw more of the underlying asset in exchange for your cTokens over time.

Alternatively, borrowers can get a secured loan from any Compound pool if they are willing to put up collateral. Depending on the asset being used as collateral, the maximum loan-to-value (LTV) ratio might be anywhere from 50% to 75%. The interest rate paid changes according on the asset used as collateral, and borrowers risk involuntary liquidation if their collateral falls below a certain maintenance level.

The platform's popularity has risen since the introduction of the Compound mainnet in September 2018, and it just crossed more than $800 million in total locked value.

How is Compound different?

Compound claims most cryptocurrencies lay dormant on exchange systems, contributing nothing for holders. Compound is an open lending platform that aims to alter this by making it simple for anybody with Ethereum tokens to earn interest on their holdings or take out a secured loan without relying on any third parties.

When compared to other blockchain systems, Compound stands out due to its community-driven governance. By holding the platform's native governance token, COMP, users are able to independently propose protocol improvements, argue the merits of such changes, and vote on whether or not to implement them. This may involve deciding which cryptocurrencies to support, adjusting the collateralization parameters, or redistributing the COMP tokens.

COMP tokens can be acquired through third-party exchanges or earned by engaging with the Compound system, such as depositing assets or borrowing funds.

How many COMP tokens are in circulation?

Like many other digital assets, COMP coins will only exist in a limited supply. The total supply is limited to 10 million COMP, with less than a third (3.3 million) already in circulation.

4.2 million tokens will be distributed over 4 years to Compound users. Compound Labs, Inc stockholders will get over 2.4 million COMP, with 2.2 million tokens allocated to the Compound founders and current staff on a 4-year vesting plan.

A total of 775,000 COMP tokens have been set aside for future incentive programs related to community governance, while the remaining 332,000 tokens will be distributed to the team's current and prospective members.

Voters have the power to raise or lower the current rate of COMP emission by voting on a proposal through community governance, making the current emission rate dynamic over time.

Network Security

Smart contracts automate every aspect of Compound, from minting cTokens once Ethereum and ERC20 assets are deposited to allowing users to redeem their investments using their cTokens.

The protocol imposes a collateralization factor to guarantee that any platform-supported pool is always overcollateralized. When collateral falls below the required minimum, it is sold to liquidators at a discount of 5%; the proceeds are used to reduce the loan amount and bring the collateralization factor back up to a safe level.

This setup is beneficial for all parties involved since it encourages borrowers to keep their collateral amounts stable, protects lending institutions, and gives liquidators a chance to profit.

Founder

Robert Leshner and Geoffrey Hayes, who met while working in high ranking positions at the online meal delivery service Postmates, launched Compound in 2017. Leshner is currently the CEO, and Hayes is the Chief Technology Officer, of Compound Labs, Inc, the software development business behind the Compound protocol.

Robert Leshner, in particular, has been very active in helping to build the blockchain field, and has openly invested in famous crypto platforms including Argent Wallet, Opyn, and Blockfolio, despite the fact that both founders have experience founding successful businesses.

Where Can You Buy COMP?

COMP is available on the licensed cryptocurrency exchange CryptoForce and several other national and international exchanges.

Disclaimer: Cryptocurrencies are highly volatile and subject to market, technical, and regulatory risks. Crypto trading requires one’s own diligence, and Cryptoforce will not be responsible for any losses incurred. Any information provided here should not be regarded as Cryptoforce’s technical or financial advice.