Company attributes
Cryptocurrency attributes
Other attributes
Compound is a San Francisco-based company developing an application that enables people holding assets on the Ethereum blockchain to earn interest on those assets. This allows users to utilize their assets for an added revenue stream instead of letting them sit in their digital wallets.
Compound enables the process of borrowing tokens in the same way financial aid does, and with support for numerous cryptocurrencies.
Compound's protocol functions as a decentralized lending system that gives users the opportunity to provide liquidity to large lending pools and, in turn, receive rewards in the form of tokens.
When a deposit is made, Compound states it will reward the depositors with a token known as the “cToken." Notable cToken examples include cETH and cDAI. However, any supported token can be deposited, and for each one of them, a different set of cTokens corresponding to that token is rewarded.
Every cToken can be transferred without restrictions. However, it is only redeemable for the cryptocurrency, which was initially locked within the protocol. This is done automatically through the code on top of which Compound is built.
To make all of this a possibility, Compound utilizes audited smart contracts for each of the tasks required to occur on the protocol, which allows it to work autonomously. This means the network’s contracts take care of all vital functions within the network, including the process of storage and management, and they are responsible for facilitating all of the pooled capital.
The native cryptocurrency token used to incentivize the network of lenders and borrowers and to power the overall Compound protocol is the COMP token. Every time a user interacts with the Compound market, which can be in the form of borrowing, repaying, or making a withdrawal for a specific cryptocurrency, they are rewarded with additional tokens.
COMP is also the governance token of the Compound protocol, in which a predetermined amount is distributed across all lenders and borrowers on the Compound protocol. COMP distributions occur each time an Ethereum block gets mined, which is directly proportional to the interest gained by each asset that is deposited.
All holders of the COMP token are given the opportunity to propose and vote on changes to the protocol, where they can oversee the protocol’s reserves and treasury. Every COMP token is a representation of a single vote, and if a holder does not want to vote directly, they can delegate their votes to another holder who does want to.
Compound governance proposals are essentially this executable code, which needs to pass a voting period of approximately seventy-two hours. Once the community passes a governance change, it will take direct effect on the protocol within the span of forty-eight hours after it’s been passed, which gives enough time for just about anyone to have the chance to close any open positions they might have at the time it was initially passed, before these changes go into permanent effect. This enables Compound to be a self-governed ecosystem.
Once a lender ends up supplying crypto to the Compound protocol, the protocol will automatically send that lender cTokens, which are a representation of the asset in return.
- Lending out AAVE gets the user cAAVE.
- Lending out BAT gets the user cBAT.
- Lending out COMP gets the user cCOMP.
- Lending out ETH gets the user cETH.
These cTokens can then be used to withdraw the asset that the lender initially deposited into the protocol whenever they want to do so.
However, each of those cTokens ends up earning interest, which is directly based on the crypto rates that borrowers pay out within the protocol. The exchange rate between the cTokens that a specific lender holds and the underlying assets increases when the interest starts generating. As a result, the same number of cTokens that were initially received is worth more than the number of assets that initially supplied within that pool by the lender here.
This interest that ends up getting earned is always denominated in the same asset that was initially supplied.
- If the user lends out AAVE, the user generates interest in the form of AAVE.
- If the user lends out ETH, the user generates interest in the form of ETH.
These cTokens are all built on the ERC-20 token standards and can be used anywhere on Ethereum. They are a representation of an audited, reliable code that is reviewed and backed by real assets.
Developers who intend to utilize a decentralized cryptocurrency interest rate market do not need to build one of their own from the ground up and can end up utilizing the Compound protocol by incorporating these cTokens within their projects.
The main way Compound works is by connecting lenders and borrowers through smart contracts that run on the Ethereum blockchain and are incentives that are paid out in the form of cryptocurrency.
Smart contracts are programs that are coded and then stored on a blockchain. The contracts automatically execute at the moment in time when specific, predetermined terms or conditions are achieved.
The lenders are responsible for sending their tokens to an Ethereum address that is controlled by the Compound protocol. After this process is engaged from their end, they start earning interest on their deposits, assuming lenders start borrowing assets that they have deposited within that address.
Lenders get rewarded in the form of COMP tokens, based on the number of cTokens that are held in their wallets. This is based on varying interest rates, which are dependent on the available supply of the asset they have deposited. The general functionality here is that the interest rate drops when the market has high liquidity, while if it has low liquidity, it increases.
The cryptocurrency assets that are available on the Compound protocol include the following:
- Aave (AAVE)
- Basic Attention Token (BAT)
- Compound (COMP)
- Dai (DAI)
- Ethereum (ETH)
- Chainlink (LINK)
- Maker (MKR)
- Augur (REP)
- Sai (SAI)
- SushiSwap (SUSHI)
- TrueUSD (TUSD)
- Uniswap (UNI)
- USD Coin (USDC)
- Tether (USDT)
- Wrapped Bitcoin (WBTC)
- Yearn.finance (YFI)
- 0x (ZRX)
If a user owns any of the cryptocurrencies mentioned above, they can send, lock, deposit, or lend at any time through utilizing them. The interest earned is denominated in the same token that was lent out, and this means that if a user sends out COMP, they generate interest in COMP; if they send out DAI, they generate interest in DAI as a result, and this is repeated throughout any asset they up sending.
This crypto is then added to a giant pool of this same token in a smart contract sent by thousands of other people across the globe.
A borrower can be anyone who posts collateral on Compound through their cryptocurrencies. The main thing that is unique to Compound here is that any borrower can borrow cryptocurrencies that Compound supports at a percentage based on their posted value.
Borrowers can get liquidated at a point in time when the asset they have borrowed ends up increasing in value and gets to a point when it becomes a lot more valuable than the posted collateral.
Any user who has lent out or is actively lending assets within the Compound protocol is given the opportunity to take out a loan in any other cryptocurrency offered at Compound. However, this is something that is directly based on the amount of collateral that is posted.
Once a user locks crypto into Compound, they are able to borrow against it. Compound does not require a credit check, which means anyone across the globe can borrow cryptocurrencies. Compound determines how much a user is allowed to borrow, directly based on the quality of the asset.
To solidify its level of security, Compound undergoes multiple security audits by many agencies:
There is also a Bug Bounty Program, in which Compound offers rewards for discoveries that prevent loss of assets, freezing of assets, or harm that might come to users.
Robert Leshner and Geoffrey Hayes (CTO) created Compound in 2017, with its headquarters in San Francisco, California.
Other team members include the following:
- Adam Bavosa- the Developer Relations Lead
- Antonina Cherednichenko – Senior Engineer
- Calvin Liu – Strategy Lead
- Coburn Berry – Software Engineer
- Jake Chervinsky – General Counsel
- Jayson Hobby – Head of Design
In 2018, Compound raised $8.2 million in funding from many venture capital firms, the most notable being Bain Capital Ventures and Andreessen Horowitz. In 2019, they raised $25 million more from similar investors, including Paradigm Capital and Bain Capital Ventures.
