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Compound is a DeFi initiative that allows users to take out or give loans by encrypting their assets using Ethereum smart contracts. The supply and demand of each Cryptocurrency asset influence the amount of interest received by borrowers and lenders.
Compound is an Ethereum-based decentralised financial protocol. Borrowers and lenders may use the platform to lock their Cryptocurrency assets into the protocol and earn interest rates based on the supply and demand of each asset.
cTokens, Compound’s native token, allows users to earn interest on their money while also transferring, trading and spending it in other applications. For instance, cUSDC has been integrated into TokenSet, a prominent DeFi dapp that allows users to benefit from algorithmic trading.
Compound stated in late July 2020 that it will create its own decentralised oracle solution to support the project’s lending mechanism. Compound will initially rely solely on signed pricing data from exchanges like Coinbase Pro. The solution relies on the on-chain Uniswap V2 pricing feed to ensure the data is accurate.
How is compound different from traditional finance?
Compound works in the same way as a bank, but it is more accessible. Users are not obliged to disclose personal or private information in order to utilise Compound. Anyone with access to the internet may join up for Compound and begin engaging with the protocol. They only require some crypto assets held in a crypto wallet such as Metamask.
Furthermore, as compared to regular banks, Compound’s return rates are more appealing. If you put money in a savings account, you will only get a 0.05 percent annual percentage yield. On the other hand, Compound may pay up to 4% APY based on the assets provided.
Remember that the higher interest rate is due to the increased risks associated with employing the Compound smart contract.
Compound Tokens
Compound tokens, also known as cTokens, are ERC20 tokens that represent monies placed in Compound by a user. A user receives an equivalent quantity of cTokens when they deposit ETH or another ERC20 like USDC into the protocol. If a user deposits USDC in the protocol, they will receive cUSD”tokens, automatically earning interest. In addition to the interest paid in USDC, cUSDC can be redeemed at any moment for regular USDC.
CErc20 and CEther were the two original kinds of cTokens. CErc20 is a wrapper for an underlying ERC-20 asset, whereas CEther is a wrapper for Ether.
Users may utilise the following currencies on the site as of December 11, 2020: Ethereum, USD Coin, Dai, Tether, 0x, Uniswap, Augur, Wrapped BTC, Basic Attention Token, Sai (Legacy Dai).
Andreessen Horowitz spearheaded a $25 million Series A financing round for Compound. Coinbase’s “USDC Bootstrap Fund” also gave them $1 million in USDC. In 2018, Coinbase Pro also participated to a seed round of $8.2 million.
