What Is Compound (COMP)?
Compound is a decentralized software protocol running on the Ethereum network. Its native ERC-20 token, COMP, is designed to incentivize a distributed network of computers tasked with operating a fully decentralized version of a traditional financial/banking market.
One of a rising number of decentralized finance (DeFi) protocols, Compound (COMP) is able to collateralize multiple crypto assets in order to provide various financial services. What this does, in essence, is enable completely decentralized and autonomous borrowing and lending.
In other words, the Compound protocol allows users to deposit cryptocurrency they own into lending pools designed for other users to borrow from. Lenders earn interest on their deposits.
Once a user deposits their cryptocurrency for lending, Compound awards them a new cryptocurrency – known as a cToken. Examples of cTokens include cETH, cDAI and cBAT.
A user can transfer and trade their cTokens can be without restriction, but it is only redeemable for the cryptocurrency locked in the protocol for which it represents. The Compound protocol utilizes autonomous smart contracts to run this entire process, allowing users to withdraw their deposits at any time they choose.
How Does Compound Work?
Compound (COMP) is designed to connect lenders with borrowers using a combination of powerful smart contracts running directly on the Ethereum blockchain.
There are two types of Compound users:
- Borrowers – users who post cryptocurrency collateral on Compound and are then allowed to borrow other cryptocurrencies supported by Compound at a percentage of the posted value.
- Lenders – users who deposit their cryptocurrency to the lending pools that borrowers borrow from. Lenders earn interest on the cryptocurrency they deposit.
The Compound protocol rewards lenders with its ERC-20 COMP tokens. These rewards are based entirely on two factors: the amount of cTokens held in their wallet, and a varying interest rate that is dependent on the available supply of that asset. The more liquidity a particular token has, the lower the interest rate generated.
Users who lend assets to the protocol are also able to take out a loan in any other cryptocurrency supported by the Compound protocol.
It is important to note that this opens the possibility for borrowers to get liquidated if the asset they borrow increases in value and becomes more valuable than the deposited collateral.
Who Are the Founders of Compound? (History of Compound)
Compound was founded by veteran entrepreneurs Geoffrey Hayes and Robert Leshner.
In 2018, Compound raised $8.2 million in funding from distinguished venture capital firms Andreessen Horowitz and Bain Capital Ventures.
The following year, Compound raised an additional $25 million from many of the same investors – along with new parties such as Paradigm Capital, a VC fund with ties to Coinbase.
A share of the total supply of COMP cryptocurrency was initially distributed to investors in the company as well as the team.
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What Makes Compound Unique?
Compound is unique in its incentivized approach to decentralized finance (DeFi). Along with the usual benefits associated with DeFi, users are rewarded for their participation with COMP tokens.
COMP not only gives users additional value for their loyalty, it also acts as a governance token. This incentivizes users to not just participate in the protocol, but to hold their tokens in order to vote on future decisions that will affect things such as interest rates and other factors that may impact their future revenue.
What Gives Compound (COMP) Value?
As mentioned above, one valuable aspect of COMP is that its holders can vote on decisions that will affect the future of the software.
A COMP holder may also delegate their voting power to someone else. This allows for an outside source, someone who is not a COMP holder – such as a legal, financial, or other expert – to vote on behalf of COMP holders if more sensitive issues arise.
How Many Compound (COMP) Tokens Are in Circulation?
Similar to Bitcoin, only a set number of COMP tokens will ever come into existence. The total supply is capped at 10 million COMP. At time of writing, less than one third of the max supply is in circulation.
4.2 million tokens will be distributed to users of the Compound protocol over a 4-year period.
Roughly 2.4 million COMP is allocated to shareholders of Compound Labs, Inc. Another 2.2 million COMP tokens will be distributed to the founding and current Compound team with a 4 year vesting schedule.
Finally, 775,000 COMP are reserved for incentivizing community governance, with the remaining 332,000 tokens to be distributed to future team members.
The exact rate of COMP generation is due to vary over time, as COMP holders / voters are able to change this rate by passing a proposal through community governance.
Other Technical Data
The Compound protocol utilizes 5 key factors to achieve decentralized governance:
- COMP – an ERC-20 token that determines the voting power a user holds. The more COMP a user has in their wallet, the more weight their delegation or vote on a proposal holds.
- Delegation – COMP holders cannot vote or create proposals until they delegate their voting rights to an address. The address can be anyone’s, or the user’s own wallet if they wish to vote themselves.
- Proposals – proposals are executable code that modify the protocol in some manner. In order to create a proposal, a user must have at least 1% of the total COMP supply delegated to their address. There is a total of 10 million COMP in existence, so a user must have at least 100,000 COMP delegated to their address.
- Voting – users can vote for or against single proposals once they have voting rights delegated to their address. Voting periods last for 3 days. If the majority votes for a proposal, the proposal is queued in the Timelock.
- Timelock – all governance and other administrative actions are required to sit in the Timelock for a minimum of 2 days, after which they are able to be implemented.
How Is the Compound Protocol Secured?
Since Compound is a decentralized application (dApp) running on the Ethereum network, it is primarily secured through Ethereum itself.
Compound is able to function thanks to smart contracts that allow for the autonomous execution of every activity available in its protocol.
The future development and direction of Compound is also secured through the governance system afforded by its native COMP token.
How to Use Compound
Users can interact with the Compound protocol directly at compound.finance by using either a dApp browser or regular browser equipped with MetaMask or other wallet options.
Once connected, users can use Compound to either take advantage of collateralized loans, or enjoy generating interest for depositing their cryptocurrency for lending.
How to Choose a Compound Wallet
The type of COMP wallet you choose will likely depend on what you want to use it for and how much you need to store.
Hardware wallets or cold wallets provide the most secure option with offline storage and backup. Ledger and Trezor both offer storage solutions for COMP, with Ledger also supporting native COMP lending. Hardware wallets can involve a bit more of a learning curve and are a more expensive option, however. As such, they may be better suited to storing larger amounts of COMP for more experienced users.
Software wallets provide another option and are free and easy to use. They are available to download as smartphone or desktop apps and can be custodial or non-custodial. With custodial wallets, the private keys are managed and backed up on your behalf by the service provider. Non-custodial wallets make use of secure elements on your device to store the private keys. While convenient, they are seen as less secure than hardware wallets and may be better suited to smaller amounts of COMP or more novice users.
Online wallets or web wallets are also free and easy to use, accessible from multiple devices using a web browser. They are considered hot wallets and can be less secure than hardware or software alternatives, however. As you are likely trusting the platform to manage your COMP, you should select a reputable service with a track record in security and custody. As such, they are most suited for holding smaller amounts or for more experienced frequent traders.
Compound (COMP) should appeal to anyone who wants to earn additional income by lending or borrowing cryptocurrency.
Aside from its financial value, users of the Compound protocol have an additional reason to hold the token. Anyone who holds COMP tokens is able to help make decisions on the future direction of the platform. This includes voting on Compound’s future interest rates and other decisions that may impact their revenue directly.
Who controls the Compound protocol?
No central authority controls the Compound protocol. Compound is governed by the decentralized network of its COMP token holders.
How are interest rates set?
Interest rates are directly related to the liquidity available in each market. These rates will fluctuate in real-time based on supply and demand. When liquidity is plentiful, interest rates are low. As liquidity becomes scarce, interest rates increase, incentivizing new supply and the repayment of borrowing.
How to Buy Compound (COMP)
Buying COMP is as easy as visiting Kriptomat’s how to buy Compound page and choosing your preferred method of payment.
How to Sell Compound (COMP)
If you already own Compound (COMP) and hold it on a Kriptomat exchange wallet, you can easily sell it by navigating the interface and choosing your desired payment option.
Compound (COMP) Price
Several factors influence Compound’s price, including exchange inflows and outflows, sentiment, technical and fundamental developments, the news cycle, and the general economic environment.
Compound (COMP) price is also directly impacted by the demand for it by those using the network and wanting to participate in its governance.
Ultimately though, the price is decided at any given moment by the cumulative buying and selling of millions of participants worldwide. You can keep up to date on the latest price action and news using crypto exchanges like Kriptomat or one of the many different cryptocurrency tracking services.
The current Compound price is EUR.
The 24-hour trading volume of COMP is EUR. COMP is currently ranked of all cryptocurrencies by total market capitalization, with a market cap of EUR. It has a circulating supply of COMP.
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