What is Compound?

in LeoFinance3 years ago

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Today we brought a study on the third largest DeFi protocol, the lending and borrowing platform, Compound.

Launched in September 2018, Compound is another piece that can be used in money legos and a tool that provides new alternatives to the current slow and inefficient financial system.

It is a decentralized lending platform, built on the Ethereum blockchain, where users can provide and lend assets based on interest rates defined by supply and demand in real time, without having to spend time, effort and cost of dealing with an intermediary. traditional financial system that works based on trust.

It uses smart contracts that automate the storage and management of liquidity added to the platform, but not in a pear to pear (P2P) manner, but rather pear to pool. This format, also called Automated Market Maler (AMM), allows more effectiveness to the trades, since the assets are available in a liquidity pool.

Anyone can supply assets to the liquidity pool and immediately start earning interest or taking out loans, just have access to the internet and use a web wallet 3, thus following the concept of permissionless.

In 2018, Compound raised $ 8.2 million and an additional $ 25 million in 2019 in financing from major venture capital firms, including Andreessen Horowitz, Bain Capital Ventures, Polychain Capital and Paradigm Capital. In addition, it also received $ 1 million in USDC from Coinbase's “USDC Bootstrap Fund”.

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TIME

Compound was founded by Robert Leshner and Geoffrey Hayes, both with extensive experience in founding companies and contributing to increasing the adoption of blockchain technology and investment in companies in the sector, such as Argent Wallet, Opyn and Blockfolio.

The team is also formed by CTO Geoffrey Hayes and Application Lead Torrey Atcitty.

HOW IT WORKS

The two main users of the platform include:

CREDITORS - those who wish to borrow a cryptocurrency can send their tokens to the platform and earn interest.

BORROWERS - any user who wants to borrow assets. To do this, simply deposit guarantees. Borrowing users can be liquidated if the asset they borrow increases in value and becomes more valuable than the collateral placed.

In addition, users have a built-in incentive to maintain the token, as anyone who owns the COMP can make decisions about the future platform. This includes being able to vote on interest rates and making other important choices for the platform.

Currently supported assets are: DAI, ETH, USDC, ZRX, USDT, WBTC, BAT, Augur and SAI

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C-TOKENS

Compound pools are created by users who provide assets and receive cTokens in return, which give holders a fixed percentage of the pool and can also be used as collateral.

For example, if you deposit ETH, it is converted to cETH. If you deposit stablecoin DAI, it will be converted to cDAI. Each cToken can be transferred or traded without restriction, but can only be redeemed by the cryptocurrency initially blocked in the protocol.

Users can borrow up to 50-75% of the value of their cTokens, depending on the underlying asset. Users can add or remove funds at any time, but may face automatic settlement if their warranty falls below a specific maintenance limit.

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EXAMPLE 1, PROVIDING LIQUIDITY

Blocking the USDC in the protocol generates cETH tokens that automatically earn interest to the user. At any time, it is possible to redeem cETH by normal ETH.

When the user's blocked assets are converted into C tokens, they become freely negotiable and usable in other decentralized applications (dapps), representing a fundamental feature of DeFi, which is the ability to combine different protocols as different building blocks, ie , the concept of money legos.

EXAMPLE 2, TAKE LOAN

If 1000 BAT worth $ 500 has been sent and Compound has set the loan limit for BAT to 50%, the user can request $ 250 worth of any other token compatible with the protocol.

And just like borrowing money from a bank, it will be necessary to pay interest on the borrowed money, with the difference that the process is done in a decentralized way.

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INTEREST

Interest rates depend on the liquidity available in each market. They are algorithmically determined and fluctuate depending on supply and demand in real time.

The more liquidity in a market, the lower the interest rate. When liquidity is high, interest rates are low, whereas when liquidity decreases, the interest rate increases.

As a rule, this simple mechanism ensures that users can withdraw or borrow funds from the pool with ease.

COMP

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It is the native token of the Compound protocol. Each time a user interacts with the platform (borrowing, withdrawing or repaying the asset), it is rewarded with COMP tokens additional.

Since 2020, its holders can also vote and propose changes on the direction the protocol will take in the future. Anyone who owns at least 1% of the total COMP supply can do this and each COMP token represents one vote.

COMPOUND X AAVE COMPARISON

COMPOUND

MARKET METRIC
Current price (USD): 434,30
Current price (BTC): 0.00872
Market capitalization: US $ 2,035,483,746
Circulating supply: 4,630,228
Maximum supply: 10,000.00
Historical maximum: US $ 564.09

AAVE

MARKET METRIC
Current price (USD): 376,70
Current price (BTC): 0.00740
Market capitalization: US $ 4,681,268,073
Circulating supply: 12,411,888
Maximum supply: 16,000.00
Historical maximum: US $ 571.45

TOTAL COMPOUND USERS OVER TIME

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According to Dune Analytics, Compound has more users than Aave in terms of exclusive portfolios. In total, there are more than 300,000 user addresses.

TOTAL AAVE USERS OVER TIME

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Aave, on the other hand, has approximately 40,000 users.

In terms of the total locked on the platform, Compound is the third, with US $ 4.86 billion, just behind its competitor, Aave, which currently has US $ 5.06 billion in blocked value.

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Although both are conceptually very similar protocols, the challenge lies in who will be able to implement innovations and new services more quickly to attract new users.

Aave supports more than 20 different assets, while Compound supports only 11.

Compound also does not offer flash loans, a feature that Aave was a pioneer in offering.

TOKENOMICS

The total supply is limited to 10 million COMP and, to date, 4,630,228 are in circulation.

Of these 10 million tokens, just over 4.2 million will be distributed to Compound users over a 4-year period.

The second largest share (almost 2.4 million COMP) will be held by shareholders of Compound Labs, Inc., while 2.2 million tokens will be distributed to the founders of Compound and the current team with a 4-year acquisition 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 issuance of COMP is subject to change over time, as voters can increase or decrease the rate of issuance by passing a proposal for community governance.

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SUPPLY CURVE DETAILS:

  • 4,229,949 users of the protocol (period of more than 4 years).
  • 2,226,037 founders and team (acquisition of 4 years).
  • 2,396,307 shareholders of Compound Labs, Inc.
  • 775,000 allocated to the community to promote governance by other means.
  • 372,707 future team members.

PERFORMANCE COMPOUND

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TVL (TOTAL VALUE LOCKED) CURRENT AT $4.92 BILLION
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The largest markets within the Compound are: DAI, ETH, WBTC, USDC AND USDT.

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Compound is a very innovative protocol and one of the first loan solutions in DeFi, so it deserves to be known in practice. Always remembering the need to consider all the risks involved before interacting and sending funds to these protocols, such as risks of bugs and other vulnerabilities that can bring unexpected problems.

Posted Using LeoFinance Beta

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