As the cryptocurrency sphere continues to grow, it now opens doors for various exchanges and new digital coins to be introduced. Compared to the previous years, more people are gaining interest by reading about it and making investments. On that note, one of the rising decentralized protocols today is the Compound exchange, which is a revolutionary network that paves the way for cryptocurrency to be more than a trading asset. Learn more about it in detail by reading through this guide here at Cryptoshimbun.
A brief history about Compound
Compound is a decentralized platform that allows users to borrow, lend and earn an interest rate from cryptocurrencies. It was founded in 2017 by Robert Leshner and Geoffrey Hayes who used to work with food delivery service, PostMates of the inventory-focused firm, Britches. Now, they hold high executive roles in Compound Labs, Inc. with Leshner as CEO and Hayes as the CTO. They are also working with a team of individuals who are experts in the field, particularly engineers.
In 2018, Compound raised $8.2 million due to investments from famous venture capital firms namely Andressen Horowitz and Bain Capital Ventures. Then in 2019, they had another $25 million from the same investors along with new partnerships like the fund program co-founded by Coinbase called Paradigm Capital. In turn, a share of the total supply of COMP cryptocurrency was given to these investors and the rest of the company’s employees.
What are the best features of the Compound exchange?
The Compound exchange handles 14 different cryptocurrencies including Ethereum (ETH) and Uniswap (UNI) along with other stablecoins. It has a smart contract functionality that immediately executes transactions in a short period. Get a more in-depth look at how the Compound exchange works by looking at its top two features below:
Unique governance
Contrary to most crypto exchanges, Compound works in a unique governance structure, which is determined by a user’s amount of COMP tokens held. COMP, or the native governance token of Compound, allows different types of investors to make certain decisions for the exchange including the voting and proposing of various changes to the protocol. This decentralized community allows everyone to share their views. On another note, COMP is currently priced at $101.40 with a total market capitalization of $710 million.
Secure protocol for money
Security is one of the best features of the Compound exchange which was developed by a specific team in the company along with third-party auditors and consultants. All of the contract codes and balances on the platform can be verified by the public.
Moreover, security researchers are given a bug bounty whenever they discover unexpected vulnerabilities in the protocol. To prove that they are a secure protocol for money, particularly digital assets, they applied various safety procedures, which includes the following:
- Getting reviewed and audited by research company Trail of Bits and dApps-focused firm, OpenZeppelin
- Being evaluated for its security by the stress-testing platform, Gauntlet
- Giving rewards from $500 to $150,000 for users and researchers who discover any unexpected bugs in the system.
Main services employed on the Compound exchange
Since there are no intermediaries needed, the transactions on the Compound exchange are easier and more convenient. Additionally, no fees are required for the processing except that borrowers should have deposited funds on the lending side. On another hand, it finishes tasks quickly through its smart contract functionality that immediately executes agreements between two parties. There are two main services found in Compound. Learn more about them below:
Lending
Users who own cryptocurrencies can lend these digital assets to certain people and earn an interest rate from them. This process goes by many names like locking, sending or depositing, apart from the term ‘lending’.
Compared to depositing to a traditional bank account, this function is different in Compound since it’s a decentralized network that allows the money to go into a large pool of funds along with other people’s deposits of any kind of digital currency.
It’s important to note that whichever kind of crypto you deposit into your account will be in the same unit once you receive payments.
Borrowing
Aside from lending, the Compound exchange also features a borrowing service that allows users to put part of their portfolio in the Compound pool of funds. In turn, they can borrow a certain amount from the stash without any strenuous requirements. However, the amount to be borrowed cannot be greater than the total value of their current deposit account.
Hence, a borrower should have more than enough deposits to make sure that their funds are collateralized, which works similarly to most traditional banks. A certain amount of interest is implemented for borrowers, which are automatically executed by the protocol during the transaction process. The rates vary depending on the specific kind of cryptocurrency used and their current values.
cToken vs COMP coin: Is it the same?
COMP coin and cToken aren’t the same. While both digital currencies are used in the Compound exchange, the cToken and COMP coin are two different things. The cToken, also referred to as ERC20 tokens, represent a user’s funds deposited in their accounts on the platform. It can be minted using an Ethereum wallet like Metamask or Coinbase wallet.
On another hand, the COMP coin is used to incentivize the actions done by the user whenever they borrow, withdraw or repay an asset on the platform. Hence, both digital assets are necessary to maximize your experience in using Compound.
Try the Compound exchange now!
Despite being relatively new to the market, the Compound exchange is a growing platform that shows lots of potential in this digital age. It shows that cryptocurrencies are not only an asset for trading but can also be borrowed and lent, like how most fiat currencies work. Moreover, it allows users to earn passively through their network. Give it a try by visiting their site today!