This article covers the following:
- What is Compound?
- What is the COMP Lending Protocol?
- How does COMP voting work?
- What’s in store for Compound
What if you could spend the money you earned while still saving? This is one of many ideas that decentralized finance (DeFi) has the potential to realize, and Compound (COMP) which was created in mid-2017 provides this exact service.
Compound is an Ethereum based DeFi protocol, which allows its users to act as lenders and provide loans for other users on the network – simply by locking digital assets that the lenders own into the Compound network; Lenders can accrue interest rates by participating in this loan process.
COMP is an ERC-20 governance token that runs on the Compound protocol.
COMP transitioned to “community governance” in May 2020 which gave token holders ownership of Compound and allowed them to decide the direction of the protocol. Token owners can also delegate voting rights to any address of their choice: to another user, an application, a DeFi expert, and including their own address. Any adjustments made to the delegate’s token balance will automatically impact their voting rights on all changes made to Compound.
With Compound, anyone can be a supplier of assets and earn interest rates simultaneously.
DID YOU KNOW: In 2019, Compound raised $25 million in its Series A funding round, which was led by prominent venture capital firm Andreesen Horowitz. This was one of the largest investments in a decentralized finance (DeFi) startup back then.
The loaning process differs as well, as you don’t lend money directly to the borrower when you act as a lender on Compound. Instead, you provide the funds for Compound’s “liquidity pool” when you lock up assets on the protocol. You will be given an equivalent amount of cTokens in exchange for supplying liquidity and these cTokens can be redeemed at any time with the interest earned.
Borrowers can gain access to the assets they want to borrow from the liquidity pool where they will pay varying interest rates every Ethereum block; Lenders (or suppliers) on the Compound protocol will earn from the interest paid.
The difference they offer is the tokenization of the assets locked in their system. When a user deposits their funds in Compound, they get an.
Each asset has its own market and the amount of supply or demand in that market determines the interest rates–how much money your cTokens will accumulate over time.
Compound is supported on Coinhako and our users can buy COMP with fiat currencies available in their account or with other cryptocurrencies that are supported in their country of residence.
And what if you don’t agree with the current framework?
Anyone can make a proposal to replace the framework in place. Proposals refer to codes that can be executed on the network.
When someone makes a proposal, there will be a 3 day period for all COMP owners or delegates to vote on it. If there is sufficient support, the proposal will automatically be enacted after 2 days in the Compound Timelock contract.
A person is unable to send in a new proposal if they have a pending or an active proposal at hand.
The borrowing/lending rates are algorithmically determined by market dynamics. When the asset supply increases in conjunction with deposits, borrowing/lending rates decrease.
As of this writing, COMP has a circulating supply of 2.5 million
You can view Compound's Whitepaper to learn more about the digital currency
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All opinions expressed here by Coinhako.com are intended for educational purposes, taken from the research and experiences of the writers of the platform, and should not be taken as investment or financial advice.