- The Compound is a protocol based mainly on money market algorithms and autonomous interest rates.
- Anyone can simply store the assets in the Compound’s liquidity pool and start earning continuously compounded interest.
- The Defi project, Compound, has recently been the center of attraction as its governance token COMP rose by 500% on the initial day of its launch.
The Compound is a protocol based mainly on money market algorithms and autonomous interest rates. It enables the users to earn interest and similarly borrow things on the security of the assets.
Anyone can simply store the assets in the Compound’s liquidity pool and start earning continuously compounded interest. The interest rates depend on the market and adjusted on their own according to the usage, supply, and demand.
The Compound (COMP) is an ERC-20 token that enables the Compound community to borrow and lend assets. The COMP holders and their respective delegates have the power to debate, propose as well as a vote to make changes to the protocol. The current value of COMP is approximately 219 US Dollars.
Compound Overtakes Markerdao To Become The Largest Defi Project:
The Defi project, Compound, has recently been the center of attraction as its governance token COMP rose by 500% on the initial day of its launch. Besides, the Compound’s business volume also doubled.
This makes Compound the most valuable and successful Decentralised Finance project as it surpasses MarkerDAO. As per data, Compound’s capital has grown from 93 million US Dollars to 433 million US Dollars on the introducing COMP. However, it is said that if COMP’s price decreases anyhow, then all the reasons for using Compound are also likely to disappear.
DeFi or Decentralised Finance is a decentralisation movement which aims to revolutionize all the conventional banking technologies. Without the implementation of the centralised method, which makes Compound a cluster of these Silicon Valley groups aimed at the development of the DeFi.
Defi Still In Its Budding Stage:
But DeFi is still in its initial state. It is hugely unconstrained and unregulated when it comes to security and risk management. In the past few years, companies have only debuted their products, and the total assets have still not crossed any big milestones. Many analysts warn that the DeFi section’s few technological limitations and inexperienced economic strategies may fail to work while handling large transactions.
How Does Compound Finance Work?
The application of Compound Finance is a bit different from the typical loan markets. As mentioned above, as a lender, you don’t lend assets directly. However, you do lend it to the ‘liquidity pool’ of Compound Finance.
Eventually, the borrowers will borrow the market from the same. Liquidity pool isn’t a team or any banking institution; it is a bunch of smart contracts. These smart contracts match assets for the borrowers all on their own, and they also decide the payment interests. They use algorithms to determine interest rates.
Risks Associated With Compound
However, all of these include no ID verifications and KYC involved in the process. This appears to be a problem because people from anywhere in the world can start lending and borrowing without proper identification.
Hackers might end exploiting the smart contracts that operate the transactions and ultimately steal the digital assets. Many scammers may take advantage of this feature. And in the crypto industry, there are several times when people have misused such features. And innocent people have ended up losing their cryptocurrency. Also, the source code is public to all the viewers, and this may highly benefit potential scammers.