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What is Compound(COMP)?
A Compound is a blockchain-based protocol that enables its users to lend and borrow crypto. Compound runs on one of the popular crypto networks Ethereum. The native token of Compound is COMP. The protocol of Compound operates as a decentralisation application and makes sure the Defi features are enabled directly on the Ethereum blockchain.
Users of Compound can request loans and earn interest by lending their cryptocurrencies with the help of autonomous smart contracts. The cryptocurrency deposits made by the users are given access to the borrowers subsequently. As a result, lenders can earn a percentage on the deposited assets.
Compound incentivized the entire activity of trading and transferring. Lenders can earn a token every time they deposit into the lending pools. Some of the popular tokens are cETH, cDAI and that.
The tokens on Compound can be traded or transferred without any constraints, however, the cryptocurrency that’s been deposited in the protocol initially can only redeem these tokens.
The entire process of trading and lending is managed by the Compound code in an automatic way such that the deposits can be withdrawn by the lenders at any time. The model, although a bit complex, has been proved adept by numerous users.
Who are the founders of Compound(COMP)?
The compound was founded by G.Hayes and R.Leshner.
The founder and CTO at Compound G.Hayes is a veteran entrepreneur. The CEO of the Compound of the University of Pennsylvania in economics R.Leshner is a graduate.
In the year 2020 Compound distributed its governance token and got listed on Coinbase in the June of the same year.
What makes Compound(COMP) unique?
The compound has a unique incentivized approach towards decentralized finance.
COMP along with acting as a governance coin also offers its users additional value owing to their loyalty. This encourages users to hold their tokens so that they can vote on future decisions that will affect things like interest rates and other factors that directly influence their future revenue and the way the software runs.
Any user who holds COMP may delegate their power of voting to someone else. This offers an outsider, probably an expert legally and financially, who doesn’t hold any COMP to vote on behalf of the actual COMP holders if more sensitive issues arise.
How Many Compound(COMP) Coins?
Just like any other cryptocurrency only a definite amount of COMP tokens come into existence. The COMP has a circulating supply of 5,506,108 COMP coins with the total supply capped at 10,000,000 COMP coins.
How does Compound(COMP) Work?
Compound (COMP) has a unique design that is intended to unite lenders with borrowers using smart contracts that are running on the Ethereum blockchain.
The users of Compound are of two types. They are:
- Borrowers: The protocol of Compound allows the users who post secured assets on Compound in the form of cryptocurrency to borrow cryptocurrencies at a certain percentage of their posted value. These users are borrowers.
- Lenders – Lenders are those users who deposit into the lending pools from which the borrowers can borrow. By doing so, lenders can earn interest on their deposited cryptocurrency. Lenders who deposit their assets to the protocol are allowed to take out a loan in any other cryptocurrency supported by the protocol.
The lenders on Compound are reward tokens its native ERC-20 tokens called COMP tokens
The factors on which these tokens are rewarded can vary such as the number of tokens in a users’ wallet and a varied interest rate relied on the accessible supply of that asset. The token that has more liquidity is likely to generate a lower interest rate.
One of the significant benefits this can offer to borrowers is that they’ve offered to convert the assets into cash if the value of the assets they borrow spikes in their total value compared to the value of the then deposited collateral.
How can Compound(COMP) be used?
The users of Compound are directly allowed to interact on its protocol using a dApp browser which is a fully functioning decentralised app browser or a regular browser with a MetaMask extension or through wallet options.
Upon connecting the users can either generate interest for depositing their cryptocurrency in the lending pool or take an edge of collateralized loans.
Choosing a Compound Wallet
The kind of wallet one chooses for COMP depends upon the amount of cryptocurrency the user needs to store and what they want to use it for.
One of the most secure options is provided by the hardware and cold wallets. These wallets also come with the added advantage of offline storage and backup.
Two such wallets that offer storage solutions for the tokens of Compound are Ledger and Trezor. Among them, Ledger also supports the lending of COMP.
Hardware wallets entail a huge learning curve and are expensive at the same time. These are for the experienced users who need storage for the larger amount of COMP they hold.
Software wallets on the other hand are free and easy to use since these are available as smartphone or desktop apps.
They are again of two types custodial and non-custodial.
- Custodial wallets: The service provider managed and stored the private keys on behalf of the users.
- Non-custodial wallets: The private keys are backed on the users’ devices by involving secure elements on their devices.
Software wallets, although less secure than hardware wallets, are much more convenient to novice users who hold lesser amounts of COMP.
Online or web wallets which are also called hot wallets are another easy to use option.
Conclusion
To conclude, Compound (COMP) is an alluring alternative to those who desire to earn by lending or borrowing cryptocurrency.
Keeping its financial value aside, Compound offers its users who hold COMP to vote, which would directly influence the future of software or protocol which might appeal to many. The users are advised to opt for a wallet that has a track record in security to manage the COMP they hold.
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