All About Compound: Flipside Crypto
Blog

All About Compound: Flipside Crypto

3 Minuten
2 years ago

Flipside Crypto takes a deep dive into one of the largest DeFi cryptocurrencies.

All About Compound: Flipside Crypto

Inhaltsverzeichnis

We take a look at Compound — the lending and borrowing protocol built on Ethereum

How Does Compound Work? 

Like most decentralized finance (DeFi) protocols, Compound is a system of openly accessible smart contracts built on the Ethereum blockchain. It allows borrowers (in green) to take out loans by depositing collateral. 

At the same time, it allows lenders (Compound refers to these users as “suppliers”) to earn interest on their loan. 

Both parties can trust the code to enforce the payment of interest by the borrowers by the lenders. So unlike traditional finance, in DeFi there is no KYC, no sign-up,and no middleman. 

cTokens 

Compound also allows lenders to actively trade their interest earned, without taking out their deposited liquidity. This means lenders can continue to earn interest while trading that interest in other protocols and earn more. 

Compound does this by tokenizing your deposit into cTokens. 

When a supplier (in blue) provides liquidity to Compound, in the form of USDC for example, they receive an equivalent amount of cUSDC. While the USDC has to stay locked in Compound, the cUSDC can be transacted and staked elsewhere. 

The exchange rate between the token deposited and the cToken will only get more favorable over time, as a way to incentivize liquidity providers to keep their funds in Compound longer. It starts at 0.020000 for all markets, meaning 1 cUSDC is worth 0.020000 USDC when you first deposit liquidity. After 100 days the exchange rate gets more favorable, at which point exchanging 1 cUSDC might get you 0.021591 USDC for example. 

Liquidators

Liquidators are the users who seize assets from other users who have taken on more of a loan balance than Compound considers them entitled to. 

This is most often tied to the amount of collateral the user has supplied, which determines how much they can borrow. If a borrower ends up going over their limit, liquidators can seize a portion of their collateral for good. 

Compound constantly checks what the borrowers’ loan balances are. Compound accrues interest on loan balances which are expected to go up over time. 

The Comptroller 

The Comptroller creates and maintains markets on Compound. It is this contract that controls the supply of the cTokens available to each market. 

Governance 

COMP is Compound’s governance token, which means users who own it have a right to vote on governance proposals. COMP owners can also delegate their right to vote to any other wallet address. 

42 proposals have been put forth so far. COMP can be bought on most crypto exchanges, and the foundation has also given some out for specific events

Fun Fact: 441 million USDC has been deposited in Compound so far. 

And the top three assets being deposited are ETH, DAI and USDC. 

API Access

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators. This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap.
9 people liked this article