Compound

Compound is a decentralized finance (DeFi) lending platform that enables users to earn interest on their crypto assets by placing them in designated pools available on the platform.

If you're interested in diving deeper into this project, be sure to explore our comprehensive analysis of Compound.

When you deposit tokens into a Compound pool, you receive cTokens as a return. These cTokens signify your share in the pool and can be used to reclaim the original cryptocurrency you deposited anytime. For instance, depositing ETH in a pool gives you cETH. As time goes on, the rate of exchange between these cTokens and the original asset rises, allowing you to redeem them for more than what you initially deposited—this is the method through which interest is distributed.

Conversely, borrowers can secure a loan from any Compound pool by supplying collateral. The loan-to-value (LTV) ratio differs depending on the asset used as collateral but is generally between 50 and 75%. The interest rate also varies by borrowed asset, and automatic liquidation can occur if the borrower's collateral dips below a certain maintenance threshold.

Since its mainnet launch in September 2018, Compound has seen a surge in its user base, recently surpassing $800 million in total value locked.

Compound was established in 2017 by Robert Leshner and Geoffrey Hayes, both of whom held prominent roles at Postmates, the food delivery company. Both continue to serve as executives at Compound Labs, Inc, the software development company behind Compound, with Leshner as CEO and Hayes as CTO.

While both founders are seasoned entrepreneurs, Robert Leshner stands out for his active role in advancing the blockchain sector, investing in well-known crypto platforms like Argent Wallet, Opyn, and Blockfolio.

The team behind Compound consists of over a dozen professionals, nearly half of whom are engineers.

Compound addresses the issue of idle cryptocurrencies sitting on exchanges by providing an open lending platform that lets users earn interest on supported Ethereum tokens or take out loans in a trustless environment.

What distinguishes Compound is its community-driven governance. Holders of its native governance token, COMP, can propose and vote on protocol changes, debate them, and decide whether to adopt such changes—all without the Compound team's intervention. This governance can involve decisions on adding new cryptocurrencies, adjusting collateralization rates, and altering how COMP tokens are distributed.

You can acquire COMP tokens either through purchase on third-party exchanges or by participating in Compound protocol activities, like depositing assets or obtaining a loan.

Similar to many cryptocurrencies, COMP has a capped total supply—10 million tokens will ever be created. As of now, less than a third of these, around 3.3 million, are in circulation.

Of the total, more than 4.2 million COMP tokens are to be distributed to users over a four-year period. Almost 2.4 million tokens are allocated to shareholders of Compound Labs, Inc, while 2.2 million are reserved for the founders and current team, subject to a four-year vesting schedule.

Additionally, 775,000 COMP tokens are set aside for community governance incentives, with the remaining 332,000 earmarked for future team members.

The emission rate of COMP tokens is adjustable, as the community can vote to change it through governance proposals.

Compound relies on smart contracts to automatically manage operations. These contracts mint cTokens when Ethereum and ERC20 assets are deposited and allow users to reclaim their stake with cTokens.

To ensure the security of the pools, the protocol mandates a collateralization factor, ensuring that all assets are overcollateralized. Should collateral drop below the required maintenance level, it is sold at a 5% discount to liquidators, which repays part of the loan and restores collateralization to the acceptable level.

This structure ensures that borrowers maintain adequate collateral, safeguards lenders, and offers profitable opportunities for liquidators.

COMP is widely available for trading on many cryptocurrency exchanges, including well-known platforms like Coinbase Pro, Binance, and Huobi Global. It's tradeable against other major cryptocurrencies and several fiat currencies, like the U.S. dollar (USD), Indian rupee (INR), and Australian dollar (AUD).

Need guidance on converting fiat to cryptocurrencies like COMP? Learn more here.