What is Compound (COMP)?

What is Compound (COMP)?

What is COMP and what is the Compound function?

What is COMP? How does Compound Finance work?



Embark on an adventure with us, Bitkub Academy, into the realm of Compound Finance!

What is COMP?



COMP, or Compound Finance, is a decentralized finance (DeFi) digital lending platform and protocol for depositing and borrowing cryptocurrencies via Ethereum-based smart contracts.



The Compound protocol's objective is to provide an efficient mechanism for generating interest by utilizing a system that automatically adjusts interest rates based on changes in demand and supply for deposits and borrowing.





Founder



Compound was launched in 2017 by Robert Leshner and Geoffrey Hayes, who had previously held senior positions at Postmates, an online food delivery service. They continue to serve as executive directors of Compound Labs Inc., the software development firm that developed the Compound protocols. Leshner is currently CEO, and Hayes is CTO.

Interesting Technology



Compound, like other digital lending protocols, uses cryptocurrencies as collateral to secure loans.  For risk management, the system will calculate the collateral value and output the ability to borrow or the maximum amount that can be borrowed (Borrowing Power), with the loan amount always being less than the collateral. Each coin carries a varying level of risk. Users can examine the "Collateral Factor", which is the maximum amount that can be borrowed against the collateral. For example, 1,000 USD collateral for ETH with 75% Collateral Factor equals 750 USD borrowed, whilst an exchange to BAT with 60% Collateral Factor allows just 600 USD borrowed. This implies that ETH is a less risky investment than BAT. When a borrower pledges collateral, the borrower will receive both the loan amount and cTokens, which are ERC20 tokens. cTokens are used to prove what assets and how much the borrower has committed as collateral. For example, if DAI is used as collateral, cDAI will be granted in the amount determined by the cDAI exchange rate at the moment. However, if the interest rate grows to the point where it exceeds the value of the collateral when coupled with the principal, that collateral will be sequestered. Finally, the borrower will receive the balance of the collateral’s value minus the liability and the auction charge. For lenders, they can deposit ETH or ERC20 tokens into the pool, then receive cTokens indicating which and how many tokens were added. When the lenders desire to take back all of the deposited funds, this quantity of cToken should be exchanged by the lenders for the withdrawal of principal and interest. The protocol calculates the interest as an annual interest rate (APR) automatically. For example, based on the current cDAI exchange rate, a loan of 1,000 DAI will yield cDAI 46,192.4 DAI. If the lender wishes to withdraw all funds, 46,192.4 DAI should be exchanged. The lender will receive the principal plus interest, which should be more than 1,000 DAI in total.



As previously stated, the usage of cTokens, with the Compound protocol to help indicate balance, distinguish Compound from other coins. In addition, it is used to calculate interest using cTokens exchange rates and as security for loans.

Interesting Points

cTokens are created using Ethereum wallets such as MetaMask, Coinbase Wallet, or Huobi Wallet, utilizing currently supported cryptocurrencies such as ETH, UNI, USDT, USDC, DAI, LINK, ZRX, WBTC, BAT, REP, SAI, and others. Furthermore, cTokens on Compound are Governance Tokens, which grant holders the ability to propose platform policies for other token holders to vote on. This policy may include adjusting fees, listing new coins, and so on. The power to propose is determined by the number of coins possessed. This type of administration is also known as a Decentralized Autonomous Organization (DAO).









In reference to statistics from Coinmarketcap on October 11, 2021, COMP is ranked as the 68th highest in terms of market capitalization, with around 50 billion U.S. dollars or around 1.7 thousand billion Thai baht. COMP’s maximum supply is fixed at 10,000,000 COMP with a current 5,506,107 COMP in circulation.



Additionally, COMP once made an all-time high at 911 baht and is hovering around the price of 314 baht at the time of writing.

Conclusion

Compound (COMP) is a platform that allows users to access and control the money they want to save, whether by borrowing or depositing cryptocurrency, via an Ethereum-based smart contract system. Also, it is run by a fully decentralized autonomous organization (DAO). Compound can swap tokens on the Ethereum network as well.

Reference:

Binance Academy, Medium, Fillfin, Coinmarketcap, Decrypt, Compound, Cryptopedia

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