Compound Finance is a decentralized credit marketplace for crypto assets. It offers peer-to-peer lending, debt trading and asset management. This article will provide an overview of the platform’s functionality and its potential use cases.
The compound finance review is a decentralized finance guide to COMP. It is safe and secure, but it can be difficult to use.
Compound Finance is a crypto project that has recently risen to the top of the DeFi sector (June and July 2020).
DeFi has been on the rise since the beginning of 2020, and it doesn’t seem to be slowing down any time soon. And, behind Maker, Compound has the second-largest locked assets among DeFi protocols.
Compound Finance allows consumers to profit from their cryptocurrency holdings. You may put your tokens to work and generate passive revenue instead of hoarding them.
Background
Compound Finance was founded by Robert Leshner.
Former economist Robert Leshner founded Compound Finance, which is based in San Francisco. In May 2018, the business was able to secure $8.2 million in a seed round, followed by a $25 million Series A investment in November 2019.
Coinbase Ventures, Andreessen Horowitz, and Polychain Capital were among the crypto VC companies that contributed to the project’s funding.
What is Compound Finance, and how does it work?
Compound Finance is a DeFi platform that allows users to lend and borrow crypto-based assets without the need of intermediaries. It will be beneficial to both parties.
Borrowers deposit their assets and lenders receive interest, allowing them to borrow money without the hassles of conventional banking. The supply and demand of any crypto asset determine the interest rates (paid or received).
Compound debts and assets that have been locked may be paid and recovered at any moment. The protocol has approximately $770 million in locked assets as of August 2020. In terms of Total Value Locked, it is presently the second-largest DeFi platform (TVL).
How Does Compound Finance Operate?
On the Ethereum blockchain, the Compound Protocol is a system of public smart contracts that offers money marketplaces. The protocol enables lenders and borrowers to earn (or pay) a variable interest rate by allowing them to engage directly with it. The variable interest rate is controlled by supply and demand changes once again.
All assets in Compound are transparent, with public access to all transaction data and historical interest rates. The majority of users use the site to acquire leverage, whether it’s via lending to accumulate interest or borrowing to increase exposure.
How to Use the Compound App to Lend or Borrow.
You’ll need a Web3 wallet like MetaMask or Coinbase Wallet to utilize Compound. Connect your wallet via their app gateway.
You may interact with any of the assets by clicking on them and then clicking enable, whether you want to borrow or provide (lend).
Simply choose an asset to enable and sign the transaction to authorize the cash you want to provide the platform with if you want to lend assets and earn money. After that, you’ll get cTokens in proportion to the assets you provided.
Furthermore, since interest is monitored in real-time, your assets will be added to the supply pool immediately.
Simply click on any of the supported assets in the Borrow Markets section to borrow money (right side). You’ll have to put your valuables up as collateral in the system.
Compound presently has a 178 percent collateral ratio for both lenders and borrowers. For example, if you want to borrow $100 in cUSDC (cToken-based USDC), you’ll need to secure $178 in assets.
Tokens of the Natives
cTokens and COMP are the two native tokens of the Compound system.
cToken
The Compound lending mechanism is powered by cTokens. They are based on the ERC-20 standard, which means that their transactions can be seen by anybody at any time on Etherscan.
They’re also utilized to represent your balance on the site as a unit of account.
Every supported asset has its own cToken. If you provide the system with ETH, for example, you will get a matching cETH. And there’s cBAT for BAT, cDAI for DAI, and so on.
The longer you keep your cTokens locked, the more their value rises owing to interest.
cTokens, like any other ERC-20 token, may be used and traded outside of Compound. When you swap your cTokens, though, you’re also altering your stake in the Compound pool.
COMP
COMP is the protocol’s governance token. It’s an ERC-20 coin with voting rights over key protocol decisions. Changes in interest rate models, collateral kinds, borrowing capacity, and so on may all be part of these choices.
Only governors who control more than 1% of the COMP supply may make new recommendations.
This coin represents the protocol’s attempt to become a completely decentralized system.
Token holders may also delegate their tokens to other governors using Compound.
Furthermore, other from governance, COMP has little economic benefit. Despite this, the coin’s value is now at $158, less than half of its all-time high of $304.
Is Compound Finance a Safe Investment?
Compound, like other DeFi systems, does not guarantee safety. This is due to the fact that these systems are still in their infancy. The platform is exposed to two kinds of risks: systemic risk and economic risk.
Risk to the entire system
The possibility of a hacker exploiting a flaw in the smart contracts and stealing user money is known as systemic risk. This hasn’t happened with Compound, but it has with other DeFi systems on numerous occasions.
As a result, OpenZeppelin has conducted an audit of Compound Finance.
If you have a technical experience, you can look into Compounds’ code on Github, which anybody may audit.
Economic Danger
When the platform becomes insolvent, there is an economic danger. This may take the form of bank runs, which occur when a significant number of customers withdraw their funds at the same time. It’s possible that the frozen assets will be insufficient to fund withdrawals due to depreciation.
To protect the platforms from severe market fluctuations or flash crashes, DeFi systems need large collateralization ratios.
In the grand scheme of things, Compound seems to have one of the finest track records in DeFi. They also have a modest reserve money set up to cover the costs of unsuccessful liquidations.
Conclusion
Compound, like other DeFi protocols, aims to provide everyone access to open financial systems. The aim is to give the average person control over how much money they make and save.
The project’s prior centralized approach drew considerable criticism. The project is already moving towards complete decentralization with the introduction of the COMP governance token. The protocol will ultimately be fully controlled by the Compound DAO.
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The compound crypto review is a new cryptocurrency that has been gaining traction. This guide will help you understand the basics of Compound Finance and how it works.
Frequently Asked Questions
Is compound Finance legit?
Yes, it is a legitimate company.
How does compound Finance work DeFi?
Compound Finance is a decentralized finance platform. It uses DeFi, which stands for Decentralized Finance. The platform allows users to invest in loans and other financial products without the need for third parties.
What is compound DeFi?
Compound DeFi is the act of buying a cryptocurrency with another cryptocurrency. For example, you could buy Bitcoin with Ethereum or Litecoin.
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