Overview of Compound Finance

Overview of Compound Finance

Compound Finance   is one of the major places in DeFi where people can go to lend and borrow Ethereum, Tether, Dai, and many other virtual currencies.

The smart contracts on Compound are audited to guarantee a better performance in storing, managing, and to ease the gathering of funds into a pool. Metamask and other web3 wallets are one of the requirements to successfully join Compound. This lending protocol works with cTokens to calculate the interests of lenders.

Not long ago, a governance token from Compound was launched and it was named COMP. Holders OF comp can be part of decision-making meetings to discuss vital issues such as the collaterals that should be accepted, how much can be borrowed as well as maximum and minimum interest rates. There is no financial benefit of holding COMP except that it is used to take decisions that may favor a voter.

How it happened on Compound in July

Almost no one expected COMP to grow to the level it is presently. Apart from being the DeFi protocol with the biggest market capitalization, its Total Value Locked is also the best.

It’s not been long since Coinbase decided to identify with COMP on its platform. Apart from Coinbase, COMP is also an asset of choice among other major exchanges such as FTX.

Compound is planning to introduce a new governance system and it has got numerous proposals towards that effect. To be part of those who can make a proposal, it is needful to have above 1% of COMP’s total supply.

The demand for COMP has gone really high recently and this has caused a shortage in what people can get. But by following the discussions on the governance dashboard, it will be easier to get some.

Lending Rates on Compound Finance
There are different rates for lending and borrowing on Compound. Be aware that what is stated here can change anytime as it pleases the company. To lend BAT, WBTC, ETH, ZRX, USDT, USDC, DAI, the interest rate for them are 1.39%, 0.16%, 0.24%, 1.92%, 2.35%, 2.53%, and 3.2% respectively.

Background
Compound Finance started in San Francisco. It has depended on various seed offerings such as the one held in May 2018 where it realized over $8 million and the one in November 2019 which gave it $25 million. In each of the offerings, Brain Capital Ventures, and Coinbase Ventures were among those that contributed the most.

Compound is blessed with workers  including a vibrant and experienced CEO by name Robert Leshner  . It is not a surprise that Compound has grown rapidly in his tenure because of his numerous work experiences such as with the Revenue Bond Oversight Committee in San Francisco. His inputs in Safe Shepherd   and Postmates  made the companies what they are today. Coincidentally, Leshner and Geoffrey Hayes  who were both employees at Postmates are colleagues again in Compound Finance with the later now serving as the CTO.

The Compound Protocol

Compound prides itself in providing a DeFi protocol that is not difficult to use even by a new comer in the industry.

Using compound well
You can’t use compound without having Metamask or other web 3.0 wallets. As soon as a user successfully logs in, the page that presents first is the “Account Overview.” This is the place from which users can navigate the markets of their choice. They would have to activate an asset before it becomes possible to lend or borrow it.

There is no much stress associated with lending an asset. Once you have chosen one, indicate how much you would like to give out with it. If you are successful, it will quickly reflect in the funding pool and interests will also start counting immediately.

Every asset on Compound has an Annual Percentage Rate that keeps changing with respect to time and what’s prevailing in the market. Lenders are given cTokens in return for any asset given. With this, they can lay hands on whatever profit their transaction yields.

Compound has no threshold balance when it comes to withdrawing what’s available on cTokens. It is also the holder’s decision to choose where the money gained will be delivered. To borrow, a person must have a “borrowing power” which can be gotten as soon as a suitable collateral is sent. Assets are used to get the borrowing power but one has to be wise in making a choice because some assets are actually better than others in achieving this.

Click here if you would like to start borrowing

One can get COMP by trying to vote  and clicking “Collect.” The other way to do it is by withdrawing some assets from the platform, no matter how big or small.

What’s the meaning of cTokens

cTokens are an ERC-20 type of token that is given to every depositor IN the lending pool. If an asset starts doing well, it is with the cToken that the claim can be made. The value of your cToken increases as people want more of the asset you lent. So, owning an EC20 cToken is just a cool way of getting rich.

Another way to look at cTokens is by calling it what you have remaining in the market. cTokens for ETH exist just as there are some for USDC. The particular one you get depends on what you deposit.

COMP Governance

The ability to decide on what happens in Compound is now dependent on how many COMPs one has. For example, you can join the others to decide on:

  • cToken markets that should exist
  • introducing new interest rates
  • Method of gaining back cTokens
  • How to replace an old administration

To know more about the present governance decisions going on now, go to the dashboard. To know whose COMP’s craziest fans are, visit here
For emphasis, always know that proposals can only be submitted by those that have COMPs up to 1% of everything that has been distributed.

Applications
cTokens have also been adopted by other well-known players in the DeFi space and they include Dharma, Set Protocol, and UniSwap. There are some that give cTokens to investors so that their profits can also be tracked if they have invested in stable assets such as USDC.and Dai. Lenders that get cDaI or cUSD will have no regrets that they gave their assets instead of saving them like some who are not exposed to the benefits of lending on Compund would do.

Other applications of cTokens are given in the whitepaper. To know other places where cTokens are used, simply check the site

How safe is the protocol?
Compound  has been scrutinized by several security audits such as Trail of Bits and Open Zeppelin. Their findings have long been published openly.

It is on record that none of the smart contracts from Compound has been tampered with. This is why the likes of Opyn and Nexus Mutual do not mind insuring them.

Moreover, a lot of products depend on smart contracts from Compound for their continuous existence.  This means they trust in it and are quite confident that nothing bad will happen.

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