What is Compound (COMP)?

Compound (COMP) is an Ethereum-based software protocol that uses an ERC-20 token called COMP. This token encourages the development of a decentralized network of computers that will run a traditional financial market.

COMP is an emerging decentralized finance (DeFi) technology capable of collateralizing different crypto assets for various financial services. The Compound protocol makes the supply and borrowing of Ethereum tokens at changing interest rates possible.

In essence, COMP allows for entirely autonomous borrowing and lending. Changes in the compound protocol can also be debated, proposed, and voted on by token holders and their delegates.

Who Created Compound (COMP)?

Robert Leshner and Geoff Hayes launched Compound Labs Inc. in San Francisco in 2017, when Compound (COMP) was born. An essential objective of the firm was the formation of financial exchange markets based on asset-based interest rates.

During the past year, the concept has attracted investors from various firms, including Coinbase, Polychain Capital, Andreessen Horowitz, and Bain Capital Ventures. Other firms interested in the project include Transmedia Capital and Abstract Ventures. By 2018, Compound Labs Inc. had raised more than $8 million and was able to get its idea off the ground.

From investors like Paradigm Capital, a venture capital fund with ties to Coinbase, Compound (COMP) raised an additional $25 million the following year. Investors and team members received a portion of the COMP cryptocurrency’s initial supply.

Eventually, on September 26th, 2018, the Compound protocol made its public debut. It began its long journey to becoming one of the most extensive DeFi protocols in the crypto world.

How Does Compound (COMP) Work?

It is possible to borrow and lend supported cryptocurrencies using Compound (COMP). A conventional financial intermediary is not required to lend or borrow it. It’s a decentralized blockchain-based saving account for cryptocurrency. You earn interest on your cryptocurrency, just like a regular bank.

A smart contract in the Compound protocol adds the crypto you send to a worldwide pool of the same coin. Once your coin is in the pool, Compound allows you to borrow against it or lend it. However, your crypto is locked in the pool before lending or borrowing, so it’s safe and secure.

Later, Compound (COMP) tokens (cTokens) would be issued to you, serving as a symbol of your cryptocurrency balance. cTokens are ERC-20 tokens that may be traded, exchanged, or programmed into other Dapps in the DeFi ecosystem, all while earning (or paying) interest. Your public and private Ethereum blockchain keys govern cTokens.

Compound (COMP) loans are based on the quality of the assets rather than the quantity. To put it another way, Compound would set the borrowing limit (collateral factor) for MKR at 50%. Therefore, you can borrow $250 worth of any other crypto on the Compound protocol if you send 1000 MKR worth $500 to it.

You’ll have to pay interest on any borrowed money like a bank. Interest rates apply to both lending and borrowing.

While you can borrow another cryptocurrency, Compound only pays you interest in the same token you give out when your loan. For example, if you loaned MKR, you would earn MKR interest, and so on.

Is Compound (COMP) a Good Investment?

Combined with Compound’s loan and investment proposition offerings, it becomes a DeFi platform with numerous applications. Regular users might earn extra revenue through Compound (COMP). Earn money by lending out your spare cryptocurrency. In addition, you can use it to apply for loans, allowing us to invest in other platforms, make money from them, and increase our leverage.

The Compound (COMP) uses smart contracts that have been audited to do these operations autonomously. Everything that has to be done on the network is handled via contracts. These procedures handle all pooled capital, including storage, management, and facilitation.