Like most other DeFi protocols, Compound (COMP) is a publicly accessible smart contracts system built on Ethereum. Compound focuses on allowing borrowers to access loans and lenders offer loans by locking their crypto assets into the protocol. The interest paid by the borrower and received by the lender is determined by the supply and demand of each cryptocurrency asset. Interest is generated with each block mined. Loans can be repaid, and locked assets can be withdrawn at any time.
Building on the principle of cTokens, Compound’s native token allows users to earn interest from deposits, and can transfer, trade and use that money in other applications.
How does compound work?
Compound’s active nature is a Liquidity Pool Asset (LPs), where lenders will transfer their crypto assets and the pool to create liquidity in return will receive interest.
Borrowers entering the property pool who need to borrow and in exchange for a loan must be mortgaged by a type of property supported by Compound.
What is cToken?
Each asset is supported by Compound Protocol, integrated through the cToken contract, which is a co-representation compliant with the EIP-20 (Ethereum Improvement Proposal) standard of the balances provided for the protocol. By minting cToken, users will earn interest through the cToken exchange rates, which will increase the value against the underlying asset and gain the ability to use cToken as collateral.
CToken is the main means of interacting with Compound Protocol. When users suggest, buyback, borrow, repay, liquidate loans or transfer cToken, users will do so by using cToken contracts.
There are currently two types of cToken: CErc20 and CEther. Although both types display the EIP-20 interface, CErc20 encapsulates an ERC-20 property below, while CEther simply encapsulates the Ether itself. As such, the core functions involved in transferring an asset into the protocol have slightly different interfaces depending on the token type.
What is COMP token?
Compound (COMP) is an ERC-20 property that grants community administration rights to Compound Protocol. COMP token holders and their delegates debate, propose and vote on all changes to the protocol.
By putting COMP directly into users and applications, an increasingly large ecosystem will be able to upgrade the protocol and will be encouraged to jointly manage the protocol in the future with better governance.
What is special about Compound?
On the surface, Compound is similar to other decentralized lending protocols in that it uses cryptocurrency assets as collateral to borrow more crypto assets. Compound stands out because the token of the assets is locked in the system through the use of cTokens.
Compound Token or cTokens are simply ERC20 tokens representing a user fund deposited in Compound. By including ETH or another ERC20 such as USDC in the protocol, users will receive an equal amount of cTokens.
Each asset has its own market and where the amount of supply or demand in the market determines the interest rate that your cTokens will accumulate over time.
Team
Robert Leshner – CEO
He is Chartered Financial Analyst, former economist, and founder of two startup software.
Geoffrey Hayes – CTO
He is the Maintainer of Exthereum, the technology founder of two startups, who led the Core Services at Postmate.
Torrey Atcitty – Application lead
He leads mobile development at Postmate, Kahuna and Aha Mobile.
Calvin Liu – Strategy lead
Previous analyzes at Gusto, adviser to crypto startups at Promontory, a longtime cryptocurrency investor.
Conclusion
Compound or DeFi in general, wants to help people have more access and control over the money they earn and save. Although the project has received criticism, Compound’s long-term goal remains to be completely decentralized over time. The Compound team currently manages the protocol, but they plan to transfer all authority to the Decentralized Autonomous Organization (DAO) managed by the Compound community.
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