Compound (COMP): What You Need to Know

If we’re being honest, most of us don’t really know all that much about crypto. We’ve heard of Bitcoin, sure, and we might even have a friend or two who are into Ethereum. But when it comes to Compound (COMP), we’re mostly in the dark.

That’s why we’ve put together this quick guide on Compound (COMP). We’ll cover everything you need to know about this crypto, including what it is, how it works, and where you can buy it. So, without further ado, let’s jump in!

History of Compound (COMP)

Compound (COMP) is a cryptocurrency that was created in 2018 by Compound Labs. The company’s goal was to create a decentralized lending platform on the Ethereum blockchain that would allow users to earn interest in their crypto holdings.

Compound (COMP) is different from other cryptocurrencies in that it’s not meant to be used as a currency. Rather, it’s meant to be used as a way to borrow and lend crypto assets. This makes Compound (COMP) more analogous to a traditional financial institution than a traditional cryptocurrency.

In the year since its launch, Compound (COMP) has become one of the most popular lending platforms in the crypto space. As of June 2019, Compound (COMP) had a market capitalization of $275 million and was ranked as the 27th largest cryptocurrency by market cap.

What is Compound (COMP)?

Compound (COMP) is a decentralized lending platform built on the Ethereum blockchain. Compound (COMP) allows users to earn interest on their crypto holdings, and it also allows users to borrow crypto assets.

When you lend your crypto on Compound (COMP), you’re essentially lending it to other users who are looking to borrow crypto. The interest that you earn is determined by the demand for borrowing. The more people who want to borrow your crypto, the higher the interest rate will be. The interest rate on borrowed crypto is also determined by demand, but it works in the reverse.

How Compound (COMP) Works

The Compound (COMP) platform is built on the Ethereum blockchain. This means that all transactions on Compound (COMP) are transparent and immutable.

These are simple processes of how Compound Works:

Lending Process & Borrowing Process: The user sends crypto to the Compound smart contract.
Credit User’s Account: The Compound smart contract credits the user’s account with cTokens, which represents the user’s crypto holdings on Compound.
Determine Interest Rate: The Compound smart contract then determines the interest rate for the user’s cTokens based on the demand for borrowing.
Receive Interest Payments: The Compound smart contract pays the user interest payments in cTokens on a regular basis.
Debit User’s Account: The Compound smart contract debits the user’s account with cTokens, which represents the user’s debt on Compound.
Determine Interest Rate: The Compound smart contract then determines the interest rate for the user’s cTokens based on the demand for borrowing.

Compound (COMP) uses a simple algorithm to calculate the interest that you have earned or need to pay. Compound uses what’s called the “Money Market Formula” to calculate interest rates.

This formula takes into account the supply and demand for each crypto asset on Compound, as well as the current lending rate. The Compound (COMP) team is led by CEO Robert Leshner. Compound Labs is headquartered in San Francisco, California.

Advantages of Compound (COMP)

Compound protocol offers a few advantages that other lending platforms don’t.

Here is a list of Compound advantages:

Compound is decentralized: Compound is built on the Ethereum blockchain, which means that it’s a decentralized platform. This makes Compound more resistant to censorship and fraud than centralized platforms.
Compound is transparent: All transactions on Compound are transparent and viewable on the Ethereum blockchain. This transparency creates a more trustless environment.
Compound is immutable: Once a transaction is made on Compound, it cannot be reversed. This immutability adds another layer of security to the Compound platform.
Compound has low fees: Compound only charges a modest interest rate on borrowed crypto assets. This makes Compound a more affordable platform than some of its competitors.
Compound is easy to use: Compound has a user-friendly interface that makes it easy to lend and borrow crypto assets.

Risks of Compound (COMP)

Compound protocol also offers a few risks that other lending platforms don’t.

Here is a list of Compound risks:

New platform: Compound is a new platform and it’s still in its early stages. This means that there is a higher risk of bugs and vulnerabilities.
Lack of regulation: Compounds are not regulated by any government or financial institution. This lack of regulation could create more opportunities for fraud and theft.
High interest rates: Compound charges high-interest rates on borrowed crypto assets. This could make it difficult to repay loans and lead to debt problems.

These are the risks that Compound users should be aware of. Compound is a new platform with a lot of potentials, but it also comes with some risks. These risks should be taken into consideration before using Compound.

Compound Price

COMP has an underlying asset of crypto and Compound’s interest rates are based on the demand for borrowing. This means that when the demand for borrowing is high, the interest rates will be higher.

The total supply of COMP is 10,000,000,000 and the circulating supply is 2,637,072,424 COMP. Compound (COMP) is trading at $179.72 and has a market cap of $474,841,977. Compound (COMP) is up 5.64% in the last 24 hours. Compound (COMP) is down 3.48% in the last 7 days. Compound (COMP) is up 8.86% in the last month.

The Compound price is also affected by the supply and demand of COMP tokens. When the demand for COMP tokens is high, the price will increase. COMP has notable venture capital firms that have invested in Compound. Compound’s investors include Andreessen Horowitz, Bain Capital Ventures, and Compound Ventures.

Paradigm Capital

A cryptocurrency hedge fund is one of Compound’s early investors. Compound was founded in 2017 and its team is based in San Francisco, California. Compound and Paradigm Capital share the same investors.

They borrow cryptocurrencies supported by Compound and lend it out to other investors who are looking for exposure to those assets. Paradigm Capital is Compound’s first institutional investor.

COMP Tokens

COMP token holders can participate in Compound’s governance process by voting on proposals. COMP tokens are also used to pay interest on borrowed crypto assets. COMP tokens are not currently available for purchase. They will be available for purchase when Compound launches its mainnet in Q3 2020.

New COMP tokens will be minted when users deposit crypto assets into Compound. The new tokens will be used to pay interest on the borrowed crypto assets. COMP tokens will also be burned when users repay their loans. This process will reduce the supply of COMP tokens and increase the demand for COMP tokens.

Roadmap of Compound

Compound launched its mainnet in Q3 2020. This will allow Compound users to borrow and lend crypto assets without having to use COMP tokens.

The features include:

Compounding: Compound plans to allow users to compound their interest payments. This means that interest payments will be reinvested and added to the principal amount of the loan.
Flexible Interest Rates: Compound plans to allow users to choose their own interest rates. This will give users more control over their loans and could lead to lower interest rates.

These are the plans that Compound has for its mainnet launch and beyond.

Community Governance

The community governance turned out to be the most exciting thing about Compound in the end. It was Compound’s answer to the “Oracle Problem” that had been plaguing the Ethereum blockchain.

Compound solved it by creating a decentralized network of computers that could provide Compound with data about the prices of crypto assets. This data is used to calculate the interest rates on Compound’s loans.

The community governance model also gives COMP token holders a say in Compound’s future. COMP token holders can vote on proposals that will shape Compound’s development.

Conclusion

Compound is a new platform with a lot of potentials. It offers high interest rates on borrowed crypto assets and gives users the ability to choose their own interest rates. Remember to seek investment advice whenever Compound or any other crypto assets.