The native asset of the Compound protocol.
What Is the COMP Token (Compound)?
The COMP token
is the native asset of the Compound protocol
, built on Ethereum. As a governance token
, COMP allows holders to vote on protocol upgrades and changes to the interest rates lenders earn. The Compound team has committed to a transparent process for deciding which proposals are included in future versions of the protocol and has penned down an initial set of voting rules.
The launch of COMP increases the diversity of Compound’s governance
structure and will ensure that it remains community-governed in perpetuity. It has a few different functions in the protocol:
Governance: Token holders can propose and vote on protocol changes, such as changing interest rates or adding new assets.
Liquidity Mining: Lenders and borrowers can earn COMP rewards for their activity on the platform.
Each day, 2,312 COMP are distributed to users of the protocol. Each market has allocated distribution, which’s set by token holders through the governance process. As of 25 March 2022, the daily distribution is 2,312 and the remaining distribution is 2,985,509.
The distribution in each market is divided equally between suppliers and borrowers.
Compound is an Ethereum-based protocol. It allows developers to create money markets
. Money markets allow users to lend and borrow cryptocurrency. The protocol enables developers to connect their applications to a pool of liquidity that's instantly available for borrowing and to earn interest on any assets they supply as lenders.
Compound is designed to be a fully open-source protocol, free for anyone to audit and use. It has no owner, manager or administrator; it is entirely autonomous, and anyone can interact with it freely. It is permissionless
— anyone can deploy an interface or application on top of the protocol, or connect their own cryptocurrency wallet directly.
Compound is accessible via a web interface and an application programming interface
), allowing anyone to deposit or withdraw assets to earn an automatically adjusted rate of return.
To understand the compound protocol, it's important to understand the underlying economic and game-theoretic incentives of the system. For this reason, we're going to walk through a simple example:
Suppose you want to borrow 100 DAI from the Compound protocol. The interest rate for borrowing DAI is currently 0.02% per block. How much interest will you pay? The answer is: it depends.
The interest rate for borrowing is actually a variable that is adjusted based on market conditions. The Compound protocol uses an algorithm called a bonding curve to ensure that its market has roughly the same supply and demand characteristics as a traditional financial asset. The algorithm works by adjusting the interest rate for borrowing along a curve.