What is Compound?
Compound (COMP) is a DeFi (Decentralized Finance) protocol, and like most DeFi
protocols, it can be described as a system of publically available smart contracts built on the Ethereum
Compound focuses explicitly on allowing borrowers to take out loans and lenders to provide these loans. Borrowers provide collateral to give the lender with certainty that the investment will be returned. As is standard with loans, the borrower pays interest to the lender. This interest is based on the supply and demand of the specific cryptocurrency. The interest is adjusted with every new block.
What are cTokens?
Compound also has its own token, the cTokens. With these tokens, users can generate interest on their holdings, in addition to standard functions for cryptocurrencies like trading
, sending and receiving.
The cTokens are ERC-20 tokens which basically represent a user's funds deposited in the Compound protocol. For example, when you deposit ETH
, the protocol generates cETH on which you will automatically start earning interest.
Since every cryptocurrency has its own market, the interest you will generate is dependent on the supply and demand of that market. You are free to withdraw your funds out of the Compound protocol at which you will receive your initial funds plus interest.
How can I use Compound?
You can use Compound (COMP) in various ways. The most straightforward is to deposit funds into the protocol and earn interest on it. Another way is to use Compound to borrow cryptocurrencies
, essential to note is that when doing this you have to make sure that your collateral remains above a particular value. If the collateral drops too far, it will be automatically sold to repay the loan.
Compound versus other cryptocurrencies
DeFi solutions and protocols are on the rise. Compound, therefore, finds itself in a heated segment with a large number of competitors, most significant are Aave
(LEND) and Maker
(MKR). Compound, however, distinguishes itself by its cTokens. At the moment of writing, Compound has surpassed Maker as the DeFi protocol with the most locked-in value.
Who founded Compound?
Compound was founded in 2017 by Robert Leshner, a former economist based in San Fransisco. Since 2017 the company has raised $33 million in funding from venture capitalists like Coinbase Ventures and Andreessen Horowitz. The company currently employs around 20 people.
Can I earn money with Compound?
You can earn money with Compound (COMP
) by trading the cryptocurrency. Another way is to deposit funds into the protocol and make interest on your holdings. Keep in mind that Compound has shown to be volatile. Like with any other investment (for ex. stocks), trading Compound is not without risks. Be aware of the potential risks and always trade responsibly. Buy and trade Compound COMP at Coinmerce