Compound (COMP) Research

Compound (COMP) Research Details

Compound (COMP) Compound

INTRODUCTION

Compound is a software protocol that runs on the Ethereum network and does not have a central server. Its native ERC-20 token, COMP, is meant to incentivize a distributed network of computers that are in charge of running a fully decentralised version of a traditional financial/banking market.

Compound (COMP) is one of a growing number of decentralised finance (DeFi) protocols that can use multiple crypto assets as collateral to provide a variety of financial services. This, in essence, makes it possible for people to borrow and lend money without any help from a central bank.

In other words, the Compound protocol lets users put the cryptocurrency they own into lending pools so that other users can borrow from them. Lenders receive interest on deposits.

DeFi developers use Compound a lot. They programmatically add it to their DApps and utilize the protocol for dynamic borrowing and lending. Compound is used by many yield aggregation protocols and other DeFi applications.

The protocol is also widely used by crypto users in general, not just developers. Non-technical users can borrow money from Compound by putting up a different crypto coin as collateral.


HISTORY AND FOUNDER

Geoffrey Hayes and Robert Leshner, two veteran entrepreneurs, launched Compound.

In 2018, Compound secured $8.2 million in investment from respected VC companies Andreessen Horowitz and Bain Capital Ventures

The following year, Compound got another $25 million from many of the same investors, as well as new ones like Paradigm Capital, a venture capital fund with ties to Coinbase.

Initially, a portion of the COMP cryptocurrency's total supply was allocated to investors in the company and the team.


REASON TO BUILD THE PROJECT

The idea behind starting Compound was to make credit markets stronger, which is an important part of any well-functioning financial system. Even though centralised services can provide these services, they are trust-based systems that make crypto assets less decentralised. This problem can be solved by developing trustless peer-to-peer protocols; however, these protocols demand a greater level of cooperation from borrowers and lenders that need to be matched. Compound is trying to solve these problems by making a pooled loan model that lets users put money into a pool that borrowers can then borrow from if they have enough collateral. This means that loans don't have an end date, and users don't have to wait for a counterparty since they're dealing with all of the other users as a whole. Compound enables users to earn income on their holdings, short assets they believe are overvalued, or acquire assets they need without purchasing them.


BASE OF PROJECT

cTokens- When a user locks in funds on the lending side of the Compound protocol, they get cTokens, which are digital assets that represent the amount that they have deposited. cTokens are an ERC-20 token developed on the Ethereum blockchain protocol.

Interest Rates- The Compound protocol automatically figures out and sends out interest rates based on how liquid each cryptocurrency on the platform is. The rates fluctuate frequently depending on supply and demand in the market. The interest rates are low if there is a large amount of money in the Compound wallet. This is because there is a great deal of available money for borrowers, therefore lenders do not earn much by contributing to the pool.


USE CASE

  • Compound makes it easier for everyone to get loans and eliminates the need for trusted third parties.

  • One of the risks of a centralised exchange is that funds could be stolen or hacked. Compound offers a solution in which users can put the asset(s) of their choice into a decentralised liquidity pool held by a smart contract instead of a centralised third party, from which borrowers can then withdraw money if they have enough collateral.

  • Compound also lets users earn interest on their own assets by minting cTokens when they lend a supported token, short assets, and buy assets by putting up enough collateral to borrow them.


MAJOR NEWS AND EVENTS

DATE

NEWS/RESEARCH

IMPACT

28/01/2021

Uniswap (UNI) and Compound (COMP) achieve new highs as DeFi TVL crosses the $27.6 billion mark

+61% Increase

17/06/2020

On its first day, Compound's new token tops the DeFi rankings

+260% Increase


CONCLUSION

Compound is one of the top DeFi platforms, and will likely remain so for the foreseeable future. The time-tested business strategy of the protocol, substantial over-collateralization, excellent market results, and widespread brand recognition among DeFi traders are all factors that contribute to the protocol's continuous success.


DISCLAIMER

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto products are currently unregulated and subject to market risk. Please seek independent financial advice or do your own research before investing.