Compound Website Review
- The Compound protocol provides liquidity to borrowers that want to borrow funds in cryptocurrencies.
- The system does this through the usage of smart contracts that serve as the matching engine for the market participants.
- Whenever an interest rate for the loan has been agreed upon, the borrower ends up receiving the funds, and in exchange for their funds, liquidity providers get Compound Finance’s native COMP tokens, alongside a cut of the interest that the borrowers pay.
- Compound Finance was launched by a company located in San Francisco, California, known as Compound Labs Inc., in 2018.
Compound is a protocol that lets users earn compound interest on their cryptocurrencies instead of just letting the assets sit within their cryptocurrency wallets. It runs on top of the Ethereum blockchain and leverages smart contracts as a means of trading the market trends and assigning interest rates to specific coins. There are no regulations or restrictions on lending, and there is an impressive level of APY available for those users that are interested in lending their coins.
Furthermore, unlike traditional banking, the interest rates are not actually agreed upon by both parties in a fixed way, but rather, Compound utilizes an algorithm that automatically determines the interest rate of a specific coin.
Today, we are going to take an in-depth look and explore everything that you might want to know surrounding Compound, from its website to its features and overall functionality.
When you visit the official Compound website for the very first time, you are greeted by a dark theme that takes inspiration from space as well as the stars. There's a grid of dots that ensure symmetry and an overall sci-fi look and feel to the entire website.
On the top navigation bar, you have a clear view of the official Compound logo, alongside numerous links to other pages, including:
On the right side of the screen, there's an "App" button as well that will take you to the application. But before we do that, we will carry on going through the main website so you can know what to expect.
Right underneath the top navigation bar, you have access to numerous types of information surrounding the overall project, such as how much interest you can earn through a specific token.
Underneath that, you are given information about what Compound is, where the website explains that it is an algorithmic, autonomous interest rate protocol specifically built for developers as a means of letting them unlock open financial applications.
Right underneath that specific section of the page, you are given the opportunity to try Compound. Here, you can also review community-built interfaces that integrate the protocol, and you are given a list.
This list is spread across numerous categories, including institutions, earn, manage and report.
- Some of the main institution's community-built interfaces listed here include Compound Treasury, Coinbase Custody, Anchorage, Fireblocks, Bitgo, and Ledger.
- Some of the main Earn community-built interfaces listed here include Argent, OKEx, Pool Together, Binance, Crypto.com, imToken. Zapper, Exodus, and BarnBridge.
- Some of the main Manage community-built interfaces listed here include Compound Dashboard, InstaDapp, Comp. Vote, DeFi Saver, Zerion, Ankr, Enzyme, B.Protocol, and Eidoo.
- Some of the main Reporting community-built interfaces listed here include Lumina, Tokentax, and Cointracker.
Right underneath this section specifically, you are also presented with information that the protocol is audited and verified, where the website claims that it is the most secure protocol for money. It also represents a list of security auditors that went over it, such as OpenZeppelin, Trail of Bits, Certona, Gauntlet Market Risk Assessment, and there is even a bug bounty program, where Compound claims that it will pay a reward of $500 to $150,000 for eligible discoveries, in accordance to the terms and conditions.
At the very bottom of the page, you can view a lot more subpages, alongside the official Discord, Github, Medium, and Twitter publications.
With all of this information found on the main page, we can now move on to the “App” section of the page.
Here, you have two subpages. On the very top of the page, you have the Compound logo, followed by the Dashboard menu, the Vote Menu, and the Connect Wallet button.
On the Dashboard section, you can view the supply balance, the Net APY, and the borrow balance. You can also review the borrow limit percentage, alongside the supply markets and the borrow markets. When you go over to the vote menu, however, you can view the voting wallet, the active proposals, and other important information.
At the very bottom of the page, you can review the markets, the governance, the COMP token, support, teams, and the currency alongside the language that you would like to view.
That is everything you need to know about what you are getting from the web-based version of the Compound website as well as the application, and with that in mind, we will now go over its history.
History of Compound
Compound finance was originally launched by a company located in San Francisco, California, known as Compound Labs Inc., in 2018. The main goal of this project was to use unoccupied cryptocurrencies, which were locked within digital wallets, as a means of providing people with profits and getting a regular passive income.
It was essentially created as a decentralized cryptocurrency lending platform that was based on the Ethereum blockchain protocol.
Throughout its initial time on the market, Compound was centralized; however, over time managed to grow out of this image after the issuance of the native governance token known as the COMP token, which essentially played a major role in transforming Compound within the community-governed decentralized autonomous organization (DAO) as we know it today.
Now that we know a bit more about the history surrounding Finance, we will be going over everything you need to know about its overall functionality.
Through the utilization of the Compound Protocol, each user is given the opportunity to lend or even borrow at the same time throughout numerous cryptocurrency assets as a means of benefiting due to this procedure and negating any official nuisances that might have occurred through alternative means. The platform is responsible for the launch of Yield Farming, which enhances the borrowing power of the users.
By utilizing Compound, the user does not have to go through lengthy documentation processes or credit records due to the fact that no verification assessments are required in order to use it.
Compound Finance was created with the aim of being one of the best crypto lending platforms. It utilizes a Liquidity Pool, which is based on a chain of Compound smart contracts. In other words, a smart contract is essentially an automatic contract that contains the conditions of the buyer-seller agreement, which is implemented in the form of a digital algorithm, which is used to execute the agreement without ever involving an intermediary, and this is a system which is preprogrammed to engage a borrower to a preferable cryptocurrency.
What this results in is that the smart contracts within Compound can generate interest rates in an automated way that follows the rules, which means that the greater the demand for an underlying asset is, this would automatically result in inflated interest rates for both the lenders as well as the borrowers. This fluctuation based on the demand as well as supply of the asset in question is used as a means of incentivizing the lenders to lend more while demotivating the borrowers from over-borrowing.
Note that there can also occur a liquidation of collateral if, due to a price drop, a user borrows more than the permitted value. Another interesting aspect and functionality surrounding Compound Finance are that it essentially gives users a platform through which they can monetize the cryptocurrency that would otherwise just be sitting within their cryptocurrency wallets.
What this means is that users can lend their assets to a Liquidity pool, which gets used by the borrowers within this system. Furthermore, the system also provides the borrowers an easy way through which they can gain access to credit without them needing to face any inconveniences.
Through its smart contracts, it automatically calculates interest rates, which means that the system also provides a frictionless as well as an easily manageable platform that eliminates any unnecessary nuances that could occur within the traditional financial systems, which this aims to disrupt.
The COMP Token
The COMP token is the native cryptocurrency token that is utilized by the network. This is a token that cannot be mined. What this means is that the only way for anyone to get COMP tokens is from the platform’s team or on an exchange, and the supply of this coin is limited to 10,000,000 COMP tokens.
COMP tokens are also utilized as a means of enabling community governance. What this essentially means is that every time an important decision on the platform's future needs to be made, there is a voting process that occurs. Compound users that have more than 100,000 COMP tokens are given the opportunity to propose their own ideas, which can then, later on, be voted on by the entire community of COMP token holders. After the voting period, which lasts three days, if the idea gains more than 400,000 votes, in that case, it goes to the Timelock smart contracts and can be implemented within the span of two days.
What this essentially means is that another unique feature found within Compound is that it ensures an increased level of participation from lenders as well as borrowers from the platform, as it rewards both lenders and borrowers with COMP tokens.
Pros and Cons of Compound
- The interest rates that Compound offers when compared to traditional banks are much higher.
- There are no KYC, AML, or credit score requirements in order for users to sign up and use the platform, which makes it truly accessible to anyone.
- It is one of the older and proven protocols within the Decentralized Finance (DeFi) Space.
- Each user gets rewarded by Compound's native cryptocurrency token known as COMP, which is also used as a governance token for the platform.
- There is the Compound Decentralized Autonomous Organization (DAO) which is governed by the community.
- Due to the volatility and unpredictability of the cryptocurrency market, users could experience liquidation of collateral.
- There are currently a limited number of cryptocurrencies available for users to lend as well as borrow which can lead to a limiting experience for some users.
- The overall yield farming process can provide a high level of risk due to the fact that users can trade crypto of much higher value than the one they have initially given.
The Bottom Line
Due to the fact that Compound is built on top of the Ethereum blockchain network, it runs smoothly and has a lot to offer due to the reliance and utility of smart contracts. Ever since it was released within the decentralized Finance (DeFi) space, it has managed to prove that there is a much better alternative to the traditional, outdated financial systems.
It's smooth, highly secure, and easily accessible, and due to its age on the market, it is one of the most tested and proven lending as well as borrowing platforms within the DeFi space.
Frequently Asked Questions (FAQs)
Is Compound a Legitimate Service?
Compound has proven to be authentic by providing open access to its contract protocol to third-party auditors and consultants, a list that can be officially reviewed by anyone on the official website. Alongside this, it has remained valid and relevant within the cryptocurrency space for years, which means that it is fully legitimate.
What is the Functionality behind Compound?
Compound was created as a means of letting users lend and borrow crypto assets without any middleman or broker. This means that lenders and borrowers can get high profits from their crypto, where lenders can earn interest on their crypto assets while borrowers can utilize the same assets to gain access to credit without needing to utilize banks.
What are cTokens in Compound?
When a user supplies assets within the Compound protocol, their balance is then represented as a cToken. This can be transferred, traded, or even programmed by developers.