COMP - A Universe of Open Financial Applications
by Kamil S
A Major DeFi Protocol Enters the Coinmetro Exchange
After an important XCM Margin Limit update last week, we are now embarking on a busy schedule with 4 new listings as part of Week 11 of the 15 Weeks of Summer campaign. This week, CELO, COMP, MAKER, NMR and LRC are getting listed on the Coinmetro exchange.
COMP (Compound) is a protocol on the Ethereum blockchain that establishes money markets – pools of assets with algorithmically derived interest rates, based on the supply and demand for the asset. This means that the Compound DeFi network allows users to spend, lend, and borrow money using cryptocurrencies and blockchain technology, without the need for any bank or governmental entity. Since 2018, COMP is offering us better finance outpacing traditional banking with products designed around compounding interest – hence the name – something you will not find in too many places.
How Does Compound Work?
By effectively managing pools of liquidity, Compound acts as a bridge between lenders and borrowers. Essentially, users can lend and borrow money from each other in a decentralized way, eliminating the need for a third-party banking institution. The on-chain encrypted process is smooth and efficient, and it doesn’t require paperwork or other rigorous procedures.
If there is no authority involved, what about security and protection? For taking out a loan on Compound, one must first lock funds on the platform as collateral. This ensures no loans will remain unpaid, similarly to the way margin trading collateral works.
The network operates through several community-built interfaces integrating the protocol:
- Compound Treasury – Offers the ability to earn 4% APR on USD balances. All interest is compounded and accrued daily.
- Anchorage – Powering crypto strategies for leading institutions. Anchorage offers an unparalleled combination of secured custody, regulatory compliance and client service.
- Ledger – Gives you the ability to earn money by lending your crypto. You can also participate in lending economies as a borrower. This lets you take out a leverage position on your crypto holdings or gain short-term liquidity.
- Fireblocks – A software removing the complexity of working with digital assets, allowing you to safely move coins and tokens between exchanges, wallets and protocols.
Earning Money with Compound
Earning with Compound is where this protocol shines! At the core, the network and COMP token are structured so they profit from interest rates. Compound works with algorithms that automatically collect and compound interest from other crypto and digital assets. In fact, the protocol earned interest from $3.717 billion in assets spread across 18 markets as of 24 July 2022.
Throughout the past 4 years, the network has grown into a massive compounding machine. To join in the dance, you can integrate the Compound Protocol yourself through cToken contracts – representing an asset on which Compound is earning interest. Users can earn interest by minting cTokens (such as cETH for Ethereum or cUSDT for USDT), with the interest being based on the cToken’s exchange rate.
On the other hand, COMP is earned through interaction with Compound Tokens. COMP is accrued automatically as assets are lended or borrowed via the protocol:
Lending – Earn interest by lending crypto on Compound (sending your tokens to an Ethereum address controlled by Compound).
Borrowing – By depositing crypto as collateral on Compound you can then borrow assets supported by the network.
The final goal of the Compound network is to become a fully decentralized protocol, also eliminating the largest single point of eventual failure – the network’s own team. The founders are working towards an unselfish resolution where the protocol will be entirely governed by the community.
Participation starts with COMP – the network’s native and governance token. By holding COMP you are able to suggest, debate, and implement changes to Compound — without the need for the founding team’s participation.
Currently, COMP is setting new standards for how governance tokens operate. The token offers an interesting feature – in addition to being a standard ERC-20 asset, COMP allows the owner to delegate voting rights to another address of their choice; the owner’s wallet, another user, an application, or a DeFi expert. Practically, anybody can participate in Compound governance by receiving delegation, without needing to own COMP. The token also includes code to query an address’ historical voting weight, which is useful for building complex voting systems.
The total supply is capped at 10 million COMP, with approximately 7 million tokens in circulation currently.
The Team Behind Compound
Behind the Compound protocol sits Compound Labs, Inc. – a software development company founded in 2017 by Robert Leshner and Geoffrey Hayes. The two currently serve as CEO and CTO respectively. Robert Leshner has publicly invested in companies like Argent Wallet, Opyn, and Blockfolio. Compound Labs is backed by world-class investors such as a16z, Coinbase, Paradigm, and Polychain Capital.
Compound managed to raise money in several funding rounds – $8.2 million in 2018 from Andreesen Horowitz and Bain Capital Ventures and another $25 million a year later from the same investors alongside Paradigm Capital.
The team is driven by the ethos of changing the slow, inefficient and constrained traditional financial system.
Is Your Wallet Compounding?
COMP seems to be quite an innovative complex financial tool. When you understand the system in its entirety, it’s hard not to become fascinated with it and get involved. Even harder is to find financial plans that can rival this kind of exponential growth.
In the end, it’s good to know that CoinMarketCap estimates COMP was the 15th most trending cryptocurrency on 24 July 2022. The token had $2.768 billion in Total Value Locked, with a $357.594 million Market Capitalization and a $108.398 million 24-Hour Market Volume on 25 July 2022.
Let us know what you think about COMP and all the other assets we are listing this week: CELO, MAKER, NMR and LRC. Are you familiar with any of them? Or perhaps you are already holding?
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