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What Is Compound (COMP)?
Compound is a DeFi lending protocol that allows users to earn interest on their cryptocurrencies by depositing them into one of several pools supported by the platform.
To learn more about this project, check out our deep dive of Compound.
When a user deposits tokens to a Compound pool, they receive cTokens in return. These cTokens represent the individual’s stake in the pool and can be used to redeem the underlying cryptocurrency initially deposited into the pool at any time. For example, by depositing ETH into a pool, you will receive cETH in return. Over time, the exchange rate of these cTokens to the underlying asset increases, which means you can redeem them for more of the underlying asset than you initially put in — this is how the interest is distributed.
On the flip side, borrowers can take a secured loan from any Compound pool by depositing collateral. The maximum loan-to-value (LTV) ratio varies based on the collateral asset, but currently ranges from 50 to 75%. The interest rate paid varies by borrowed asset and borrowers can face automatic liquidation if their collateral falls below a specific maintenance threshold.
Since the launch of the Compound mainnet in September 2018, the platform has skyrocketed in popularity, and recently passed more than $800 million in total locked value.
Who Are The Founders Of Compound? (History Of Compound)
Compound was founded by veteran entrepreneurs Geoffrey Hayes and Robert Leshner.
In 2018, Compound raised $8.2 million in funding from distinguished venture capital firms Andreessen Horowitz and Bain Capital Ventures.
The following year, Compound raised an additional $25 million from many of the same investors – along with new parties such as Paradigm Capital, a VC fund with ties to Coinbase.
A share of the total supply of COMP cryptocurrency was initially distributed to investors in the company as well as the team.
How Does Compound Work?
Compound connects lenders and borrowers using a combination of smart contracts running on Ethereum and incentives paid in cryptocurrency.
The two main users of the platform include:
- Lenders – Anyone wishing to lend a cryptocurrency on Compound can send their tokens to an Ethereum address controlled by Compound to earn interest.
- Borrowers – Anyone who posts collateral on Compound in the form of a cryptocurrency. They are allowed to borrow cryptocurrencies supported by Compound at a percentage of the posted value.
Compound rewards lenders with COMP tokens based on the amount of cTokens held in their wallet based on a varying interest rate dependent on the available supply of that asset. The more liquidity in a market, the lower the interest rate.
Users who lend assets to the protocol, can take out a loan in any other cryptocurrency that Compound offers, up to the amount of collateral posted.
Importantly, borrowers can get liquidated if the asset they borrow increases in value and becomes more valuable than the posted collateral.
What Is The $COMP Token?
Since May 2020, Compound transitioned to what it calls ‘community-driven governance’. In essence, this means that holders of the Compound token can make proposals and vote on decisions relating to how the protocol is being developed and run. To demystify the abstraction, this means having a stake in deciding what sort of collateral Compound should support or what the interest rates should be.
Technically, there’s a total supply of 10 million COMP tokens, 42.3% of which is reserved for distribution to users to earn when they use Compound. For each Ethereum block, 0.5 COMP is distributed across the protocol’s 9 markets in proportion to the interest accumulated in the market.
Each of these markets get a portion of distributed tokens with a 50:50 ratio between suppliers and borrowers of a particular cryptocurrency. As such, the crypto that is earning the most COMP per day changes frequently.
The token is traded on various exchanges such as Coinbase, FTX and SwissBorg.
What Makes Compound Unique?
According to Compound, the majority of cryptocurrencies sit idle on exchange platforms, doing nothing for their holders. Compound looks to change this with its open lending platform, which allows anybody who deposits supported Ethereum tokens to easily earn interest on their balance or take out a secured loan — all in a completely trustless way.
Compound’s community governance sets it apart from other similar protocols. Holders of the platform’s native governance token — COMP — can propose changes to the protocol, debate and vote whether to implement changes suggested by others — without any involvement from the Compound team. This can include choosing which cryptocurrencies to add support for, adjusting collateralization factors, and making changes to how COMP tokens are distributed.
These COMP tokens can be bought from third-party exchanges or can be earned by interacting with the Compound protocol, such as by depositing assets or taking out a loan.
How Many Compound (COMP) Coins Are There In Circulation?
Like many digital assets, only a fixed number of COMP tokens will ever come into existence. The total supply is capped at 10 million COMP and as of writing, less than a third are in circulation (~3.3 million).
Out of these 10 million tokens, just over 4.2 million tokens will be distributed to Compound users over a 4-year period. The second biggest allotment (almost 2.4 million COMP) goes to the Compound Labs, Inc shareholders, whereas 2.2 million tokens will be distributed to the Compound founders and current team with a 4 year vesting schedule.
Finally, 775,000 COMP are reserved for community governance incentives and the remaining 332,000 tokens will be allocated to future team members.
The exact rate of COMP emission is subject to change over time, as voters are able to increase or reduce the emission rate by passing a proposal through community governance.
How Is the Compound Network Secured?
Everything on Compound is handled automatically by smart contracts, which act to mint cTokens after Ethereum and ERC20 assets are deposited, and allow Compound users to redeem their stake using their cTokens.
The protocol enforces a collateralization factor for all assets supported by the platform, ensuring each pool is overcollateralized at all times. If the collateral falls below the minimum maintenance level, it will be sold to liquidators at a 5% discount, paying down some of the loan and returning the remainder to an acceptable collateralization factor.
This arrangement helps to ensure borrowers maintain their collateral levels, provides a safety net for lenders, and creates an earning opportunity for liquidators.
How To Buy Compound (COMP)
Compound (COMP) is available at the following exchanges:
Bitstamp – Founded in 2011, Bitstamp is one of the oldest & most trusted exchanges in the world. They currently accept Canada, UK & USA residents excluding the states of Alabama, Hawaii, Idaho, Louisiana, Nevada, & New Jersey.
Uphold – This is one of the top exchanges for United States residents that offers a wide range of cryptocurrencies including COMP. UK & European residents are prohibited.
Binance – Best for Australia, Canada, Singapore, UK and most of the world. USA residents are prohibited from buying most tokens.
KuCoin – This exchange currently offers cryptocurrency trading of over 300 other popular tokens. It is often the first to offer buying opportunities for new tokens. This exchange currently accepts International & United States residents.
Coinbase – A publicly traded exchange listed on the NASDAQ. They accept residents from 100+ countries including Australia, Canada, Singapore, UK & the United States (excluding Hawaii).
WazirX – This is the best exchange for residents of India.
The Defi Connection’s Compound Coin
You can see how the Compound protocol fits within the greater crypto ecosystem if you have a basic grasp of Defi. When it comes to making payments, cryptocurrencies, such as Bitcoin, operate as decentralizBed money. Without the need of a bank or other financial intermediary, one person may send Bitcoin to another person.
On the other hand, users must travel via the Bitcoin network, which consists of a decentralized network of independent nodes for transaction verification and validation. On the other hand, financial services go well beyond payments and include things like insurance, checking and savings accounts, taxes and accounting, and borrowing and lending. Decentralized finance, or Defi, is a concept that focuses on the decentralization of all financial services using crypto and blockchain protocols.
The second crucial consideration in determining the answer to the question “What is Compound in Defi?” is Compound’s uniqueness. What makes it so unique in the Defi world? The Compound may seem to be nothing more than another decentralized lending mechanism that uses crypto assets as collateral to borrow more crypto assets. On the other hand, Compound has a distinct feature in that it uses COMP tokens to tokenize assets held in the system.
COMP tokens, also known as cTokens, are ERC-20 tokens that represent a user’s money on the Compound network. You’ll receive the same quantity of tokens whether you deposit ETH or any other ERC-20 token, such as USDC. The tokens would then generate interest for you automatically. Users may exchange their tokens for regular tokens and the interest earned on the tokens. It’s also worth noting that each asset has its market, and the asset’s supply or demand in that market significantly impacts establishing interest rates.
Compound Coin Finance Interest Rates
As you can see, Compound uses Compound tokens or tokens to facilitate lending and borrowing. Interest rates, however, are a prevalent factor in Compound lending and borrowing applications. You would gain interest if you were lending, and you would have to pay interest if you were borrowing. Consider how the interest rates for borrowing and lending differ in the case of Compound.
Users must lock their crypto assets in Compound regardless of borrowing or lending on the Compound network. You will get an equal quantity of Compound tokens or tokens when you close your crypto in Compound. The tokens serve as a representation of your crypto assets’ balance. Tokens are Ethereum-based ERC-20 tokens that provide remarkable value in a blockchain-based crypto money market.
Like other Ethereum tokens, tokens may be transferred, traded, or programmatically integrated into other Defi dApps. At the same time, depending on whether you lend or borrow on Compound, you will earn or pay interest. Like any other digital asset on the Ethereum blockchain, users may manage the Compound token using their public and private keys.
Compound Defi interest rates are determined mainly by the liquidity of crypto in each market. As a result, it may change in real-time in response to the asset’s supply and demand to fit current market circumstances. The yearly interest rates on Compound are visible as they collect with each instance of mining Ethereum blocks. Every 15 seconds, the value of tokens grows by 1/2102400 of the indicated yearly interest.
Compound Liquidity Pools In Action
The operation of compound liquidity pools is another crucial aspect of comprehending how compound finance works. Interest rates are low, while big crypto pools are locked in Compound because there are many coins to borrow. However, contributing to the concerned crypto pool under Compound protocol would not benefit interest rates.
However, if the pool is tiny, more excellent interest rates will allow you to earn more. Interest rate fluctuations may provide incentives for lending new crypto assets to smaller pools to make more excellent interest rates. Simultaneously, you may refund borrowed crypto into tiny pools at a lower interest rate while borrowing from significant collections.
You must lock in your crypto assets whether you borrow or lend from Compound. When borrowing, you must deposit a sum of cryptocurrency in Compound more than the amount you wish to borrow. Consequently, the loan you take out from Compound blockchain is heavily secured.
Additionally, you should be aware that the cryptocurrency placed as collateral has a greater level of volatility and may undergo value reductions. A Compound token or token smart contract closes the position when the value approaches the value of the crypto borrowed. Liquidation is a term used to describe a situation where you may retrieve the money you owe but lose the collateral.
COMP Token’s Function
Without a doubt, understanding Compound Defi requires understanding its governance implications. COMP serves as Compound Finance’s governance token, with a certain amount delivered to lenders and borrowers regularly. COMP distributions are an unavoidable part of the Ethereum block mining process.
The distribution of COMP tokens is proportionate to the interest earned on each asset. Holders of the COMP coin may propose changes to the protocol and vote on them. At the same time, COMP grants rights to check the Compound protocol’s treasury and reserves. One vote is represented by each COMP token, which you can delegate to other parties on your behalf.
The entire token supply of Compound’s token COMP is capped at 10 million. Users will get 42 percent of the tokens through the protocol, and every day there will be 2,312 COMPs given out. It will continue until 2024 when the dividends cease.
The remaining tokens are distributed as follows: Compound Labs, the company behind the loan platform and matching token, gets a quarter of the proceeds. Around 22% goes to the Compound’s founders and employees. Those who engage in the project’s governance get about 8% of the funds, while future Compound employees receive roughly 4%.
The token is a “governance token,” meaning holders may use it to vote on essential protocol updates.
COMP reached a high of $337.05. after its introduction in June 2020. After that, the price dropped, ranging between $80 and $250 for the rest of 2020.
During a crypto-wide bull run in May 2021, COMP’s price reached an all-time high of $854.48 before plummeting to $342.96 on May 22 and a low of $221.85 on June 20, 2021. The price has fluctuated between $200 and $500 since then (as of November 2021), peaking at $508.91 in September 2021.
Compound Coin Value
The Compound is a decentralized blockchain system that enables users to lend and borrow bitcoins. It creates money markets by pooling assets and algorithmizing interest rates based on asset supply and demand.
Users must deposit their crypto assets into the Compound protocol, which will be pooled into a liquidity pool, to provide or lend crypto assets on Compound. Users will get tokens in exchange for making a deposit. By holding the tokens, users will begin to earn interest.
Users are authorized to utilize assets as collateral after being given to Compound. Users may begin borrowing from Compound based on the collateral element of the assets placed. You can never borrow more than collateralized since Compound utilizes an over-collateralization strategy.
Compound Coin Stock
Like many other digital assets, only a limited amount of COMP tokens will ever exist. As of this writing, less than a third of the available supply (3.3 million) of COMP has been distributed.
Over four years, 4.2 million of the ten million tokens will go to Compound users. The Compound Labs, Inc stockholders, will get the second-largest allocation (almost 2.4 million COMP). At the same time, the Compound founders and existing staff will receive 2.2 million tokens with a four-year vesting schedule.
Finally, 775,000 COMP tokens are set aside for community governance incentives, with the remaining 332,000 tokens going to future team members.
Because voters may raise or decrease the rate of COMP emission by passing a proposal via community governance, the actual rate of COMP emission is susceptible to vary over time.
Smart contracts on Compound manage everything automatically, minting cTokens once Ethereum and ERC20 assets are deposited and allowing Compound users to redeem their stake with their tokens.
A collateralization factor is imposed for each pool supported by the platform, guaranteeing a level of over-collateralization. Suppose the collateral falls below the minimum maintenance level. In that case, it will be sold to liquidators at a 5% discount, paying off a portion of the loan and restoring the collateralization factor to an acceptable level.
This approach ensures borrowers retain their collateral levels, offers a safety net for lenders, and allows liquidators to make money.
What Is The Compound Worth?
The bulk of cryptocurrencies, according to Compound, lay idle on exchange platforms, accomplishing nothing for their owners. Compound aims to alter that with its open lending platform, which enables anybody who deposits supported Ethereum tokens to earn interest on their balance or take out a secured loan in an entirely trustless manner.
The community governance of Compound distinguishes it from other comparable protocols. Holders of the platform’s native governance token, COMP, may propose modifications to the protocol, discuss them, and vote on whether or not to adopt them – all without the participation of the Compound team.
Compound Coin Price Prediction
Without question, a simple-to-use compound (COMP) is beneficial; it is more valuable and promising when it is simple to spend. The Compound has built a fast, dependable network and is concerned with the product’s user experience. According to our COMP estimate, these attributes may enable the Compound price to reach a significantly higher price of $520. If the demand for usable crypto persists beyond 2022, the price may rise illustratively.
Compound Coin Price Prediction 2022
If all market conditions favor Compound price, this digital asset will perform ecstatically, reaching the top above. Over the coming year, despite some slow developments, the Compound price would undoubtedly show signals of fortune for its investors, defying all boundaries. According to our COMP estimates, by the end of 2022, the token might reach a minimum price of $600.
Compound Coin Price Prediction 2023
The masterminds sculpted the functionality of Compound. As a result, over three years, the token is expected to catch up with other cryptocurrencies and reach a price of $750. In addition, investors must watch out for any unexpected variables and adhere to Compound projections.
Compound Coin Price Prediction 2024
Considering that there are no boomerang effects in the cryptocurrency markets, the compound price is poised to solidify its place as a primary draw for its investment community. According to our Compound price prediction, the road ahead is full of blossoms if investor confidence continues to rise, culminating in a significant increase in the Compound price. At $880, the price may break all records.
Compound Coin Price Prediction 2025
Our COMP forecasts indicate a staggering amount of optimism, owing to its continued success throughout time. Due to this, 2015 will be a significant bonanza, with the valuable digital asset exceeding all expectations and soaring to triumph. The Compound price may soar dramatically and reach the $1000 level as it has never done before.
Many market advisors are concerned that the Compound price would fluctuate according to their estimates. These fears, on the other hand, may not last long. Compound (COMP) will stabilize and provide investors with generous returns, making it a rewarding investment.