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- 1 Compound Protocol is a permissionless Decentralized Finance (DeFi) protocol that offers noticeable improvements to traditional lending and borrowing.
- 2 It allows lenders to earn interest from their crypto holdings.
Borrowing and lending are the two important parts of the financial industry. Traditionally, these two processes are conducted by banks. Compound Protocol is one of the DeFi protocols that offer development to the basic concept of lending and borrowing in crypto.
Compound Finance, is a DeFi lending protocol that permits lenders to earn interest from the crypto holdings. Smart contracts hold the deposited assets in what are known as liquidity pools and interest rates are adjusted algorithmically based on demand and supply.
The need for intermediaries is eliminated because the protocol is built on smart contracts. Smart contracts automate the calculation of interest rates and issuance of loans.
It serves as an open marketplace where lenders meet borrowers without third-party interference. Compound Protocol permits the users to deposit as lenders and take out loans as borrowers. It is built with smart contracts that combine the assets provided by lenders into liquidity pools for each supported cryptocurrency. Borrowers can not take out funds directly from lenders, instead, they can take it out directly from any of these liquidity pools.
This is a permissionless protocol hence anyone with access to the internet can lend and borrow from the platform. The only need is the crypto asset and integrated apps like MetaMask, WalletConnect, etc.
Compound uses smart contracts to manage the assets deposited by lenders. The price of each asset in the liquidity pools is fed into the Compound protocol using Open Price feed. It is a system based on Chainlink (LINK) oracles that derives crypto price data from different exchanges.
The protocol uses algorithms to follow the changing supply and demand of crypto assets to decide the interest rate kept for each asset based on the liquidity in the market. The interest rates depend on the demand and supply ratio.
Founders of Compound
Compound Finance, lending, and the burrowing compound protocol was started in August 2017. It is headquartered in San Francisco, California. Robert Leshner is the Founder and CEO. He is a Bachelor of Arts in Economics. He completed his graduation from the University of Pennsylvania.
Leshner has worked at three other companies before Compound, including Citywide Special, Postmates, and Safe Shepherd.
Geoffrey Hayes is the CTO at Compound. He has a degree in Computer Science and graduated from the University of Pennsylvania. Safe Shepherd is co-founded by both Hayes and Leshner. It is a privacy web service that checks if the user’s privacy was breached and removes their personal information from the internet.
Robert Leshner and Geoffrey Hayes co-founded Compound protocol and released it in 2018. Coburn Berry and Jared Flatow are Senior engineers in the company. Both have more than 10 years of experience in the software industry.
Uniqueness of Compound Finance
Compound protocol aims to provide DeFi lending and borrowing services. The uniqueness of the protocol is the fact that when funds are deposited into the protocol, it issues new tokens called the cTokens. For example, if a user deposited ETH, then equal amounts of cETH are generated and given to the user. It can then be used as collateral for a loan. This means the funds can be spent while they are earning interest.
Compound (COMP) Coins in Circulation
COMP is the ERC-20 token launched as the native currency of the Compound protocol. It acts as a governance token. Holders of the token have voting rights and can take part in key decisions for the protocol. Every proposal on the token has a 3-day voting period.
After this, the voting rights stay in timelock for at least two days before they are implemented. It has a market cap of $353,699,575 and a circulating supply of 7,912,302 COMP. The coin has a total supply of 10,000,000 COMP. It can be bought from various exchanges like Kraken, OKX, etc.
Security in the Compound Network
In 2019, Compound DAO approved a proposal from OpenZeppelin to provide the protocol with continuous audit and security services. Real-time monitoring through Forta is one of the components of the security services. OpenZeppelin requested the support of Forta community, Arbitrary Execution to help with bot development.
Forta monitored certain protocol components which include Community Multisig Transaction Monitor, Low Liquidity Market Attack Monitor, and cToken Underlying Asset Monitor. Besides these Govern events, COMP distribution, oracle pricing, and large borrows involved in governance activity are also monitored.
Interest Rate Fluctuations
The interest rates in Compound Protocol depend on the supply and borrow rates. It is applied to all the users uniformly. Through the interest rate index, the history of each interest rate for each market is captured. The user’s balance includes the interest which is the ratio of the current index divided by the index when the user’s balance was last checkpointed.
Summary
Compound Finance Protocol is an Ethereum-based DeFi lending protocol that facilitates lending and borrowing without the need for intermediaries. It is an attractive option for crypto holders who want to earn passive income through the interest rates on the assets. The platform is secure, smooth, and accessible. It offers a convenient and fast solution for lending and borrowing of crypto.
Anurag is working as a fundamental writer for The Coin Republic since 2021. He likes to exercise his curious muscles and research deep into a topic. Though he covers various aspects of the crypto industry, he is quite passionate about the Web3, NFTs, Gaming, and Metaverse, and envisions them as the future of the (digital) economy. A reader & writer at heart, he calls himself an “average guitar player” and a fun footballer.
