Compound Finance is a sector-leading lending protocol enabling users to lend and borrow popular cryptocurrencies like Ether.

Compound leverages audited smart contracts responsible for the storage, management, and facilitation of all pooled capital. Users connect to Compound through web3 wallets like MetaMask with all positions being tracked using interest-earning tokens called cTokens.

Compound recently introduced a governance token – COMP – which allows tokenholders and delegates to vote on important protocol decisions like new collateral types, borrowing power, and interest rate models. COMP holds no economic benefits and is solely used to vote on protocol proposals.

Recent Compound News for June 2020

Compound’s new governance system is well underway, with a number of proposals such as support for USDT as collateral going live in recent weeks. What’s unique about COMP’s governance model is that tokenholders (at this stage only the core team and early investors) can delegate their tokens to an address of their choice.

We made a strong push to act as a protocol politician for Compound and are now a listed delegate on the governance leaderboards. As you start to earn COMP through your use of the platform, please consider delegating to us at defirate.eth. While COMP is currently quite hard to come by, you can always join the conversation via the official governance dashboard.

Compound Finance Lending Rates

Current lending and borrowing rates for Compound are displayed below for your convenience. Please note that rates change frequently and that as of right now, supported assets are currently limited to Ethereum-based tokens.

BAT
BAT
0.07%0.07%
DAI
DAI
0.97%0.78%
ETH
ETH
0.01%0.01%
REP
REP
0.04%0.05%
USDC
USDC
1.31%1.2%
USDT
USDT
2.08%2.08%
WBTC
WBTC
0.19%0.2%
ZRX
ZRX
0.58%2.14%

History

Compound Finance is a San Francisco based company which raised an $8.2M seed round in May of 2018 and a $25M Series A round in November of 2019. Financing rounds were lead by industry giants including but not limited to Andressen Horowitz, Polychain Capital, Coinbase Ventures and Bain Capital Ventures, 

Compound’s team is highlighted by CEO Robert Leshner’s previous financial experience as a co-chair for San Francisco’s Revenue Bond Oversight Committee. Leshner has previous experience working on successful companies with CTO Geoffrey Hayes from their time building Postmates and Safe Shepard.

The Compound Protocol

While DeFi may seem overwhelming complex to the average individual, Compound prides itself on building a product that is digestible for users of all backgrounds. 

“Compound is a protocol on the Ethereum blockchain that establishes money markets, which are pools of assets with algorithmically derived interest rates, based on the supply and demand for the asset. Suppliers (and borrowers) of an asset interact directly with the protocol, earning (and paying) a floating interest rate, without having to negotiate terms such as maturity, interest rate, or collateral with a peer or counterparty.”

How Does CompoundWork?

Compound leverages web 3.0 wallets such as Metamask, Argent, Brave Browser or Coinbase Wallet for access into their ecosystem. Once connected, users are brought to the Account Overview section. From here, users can select any asset(s) and unlock the market they wish to interact with. After an asset has been enabled, users are then able to supply or borrow said asset, but never both.

The process for lending assets is pretty straightforward. Simply enable a supported asset and sign a transaction approving the amount of capital you wish to supply capital to Compound. Assets are instantly added to the global supply pool with interest being tracked in real-time.

Every asset has a unique Supply and Borrow APR, both of which change frequently relative to supply and demand at any given time. When supplying assets to the protocol, users receive cTokens – Compound’s native tokens – which represent claims to a portion of any given asset pool.

cTokens can be redeemed at any time, with borrowed funds instantly becoming available in the connected wallet to be freely sent to wherever the user chooses. In order to borrow assets, users must first supply collateral to earn “Borrowing Power”. Every asset has a unique Collateral Factor, meaning some assets may enable more Borrowing Power than others.

To start borrowing with Compound, head over to the borrowing dashboard.

Supported Assets on Compound Finance

With Compound v2, supported assets include Ether ($ETH), Wrapped Bitcoin ($WBTC), Dai ($DAI), Coinbase’s US Dollar Coin ($USDC), Augur Reputation ($REP), 0x Token ($ZRX), Tether ($USDT) and Basic Attention Token ($BAT).

Understanding cTokens

Assets supplied to a market are represented by an ERC-20 token balance (“cToken”), which entitles the owner to an increasing quantity of the underlying asset. As the money market accrues interest, which is a function of borrowing demand, cTokens become convertible into an increasing amount of the underlying asset. In this way, earning interest is as simple as holding a ERC20 cToken.

cTokens represent your balance in a specific Compound market. Each market has its own cToken (cETH, cUSDC…), which you’ll receive when you supply that asset to the protocol. User collect interest on all cTokens held in their wallet based on the respective lending rate.

COMP Governance

Compound governance is slowing being decentralized through the advent of COMP – the protocol’s native governance token. Current proposal topics include but are not limited to:

  • Listing new cToken markets
  • Updating market interest rates
  • Updating oracle addresses
  • Withdrawing cToken reserves
  • Choosing new admins

To keep up with all ongoing governance conversations, check out this dashboard. To view the top COMP tokenholders, check out this leaderboard

As a quick overview on COMP, delegates must at least 0.1% of the total supply in order to make a new proposal. To learn more about COMP and how it works, check out our launch coverage here.

Use-Cases

As we’ve seen with the creation of Vaults in Maker, most users are utilizing Compound to gain leverage. Whether this is in the form of accruing interesting by lending or by increasing exposure through a borrow position, experienced traders can leverage traders to gain additional exposure to favorable assets.

cTokens are also being integrated into a variety of popular DeFi products such as Set Protocol, Dharma and Uniswap. In essence, other projects incorporate cTokens to allow for passive income to be earned on trades that require settlement into a stable assets like Dai or USDC. By using cDai or cUSD instead, financial products can earn additional income without the user having to worry about the opportunity cost of having missed out on the savings that could have been earned from lending via Compound.

Other use-cases such as shorting are listed in the official whitepaper while a full list of projects integrating Compound or cTokens in some capacity can be found here

Competitors – Is Compound Finance Safe?

Compound has undergone a number of security audits by reputable agencies like Open Zeppelin and Trail of Bits, all of which have been publicly disclosed.

There has yet to be any security breaches of Compound smart contracts to date, with products like Nexus Mutual and Opyn allowing users to take out insurance covers on Compound smart contracts. 

Seeing as many products are relying on Compound’s smart contracts as an integral piece of their product, we find Compound Finance to be a reliable, trusted lending and borrowing solution.