Compound, earn interest with your cryptocurrencies
Earn interest on assets it has always been a way to generate a stable income. People have done this practice in traditional financial markets. Now is the time for new financial products such as cryptocurrencies to offer similar services, that is why today we are going to talk about Compound.
Many crypto enthusiasts today have cryptocurrencies to store value. Ethereum tokens are among the most popular that, alongside various real-world use cases, offer the opportunity to save value.
Many projects of blockchain They have emerged as a means to provide better financial management to these types of users. They offer accrued interest and loan tokens for coin holders. One such project is Compound, founded by a former economist, Robert Leshner.
What is Compound?
Compound, simply put, is a tool for storing cryptocurrencies and earning interest or borrowing tokens based on holdings. Provides a self-contained, algorithmic protocol primarily focused on developers.
The team focuses on open financial applications and tries to emphasize the security and governance protocol benefits of this automated protocol. Many mainstream investors support it. Coinbase, a16z, paradigm, Poluchain Capital, etc. are among them.
The Compound protocol
Compound's underlying protocol is self-contained and lives on the Ethereum blockchain. So it only supports interest rates and loans for Ethereum assets.
The Compound team has managed to cooperate with many partners in the Ethereum ecosystem to develop graphical user interfaces to access the protocol. Here is a list of supporting interfaces for the protocol:
- Coinbase Custody
Interfaces to earn interest
- Pool Together
- Compound panel
- DeFi Saver
The Compound Protocol It is not like a traditional bank and does not lend the user's properties to other users. Instead, provides liquidity from a market for tokens, and users can borrow from that market. Supply and demand determine the interest rate in each market.
When users supply tokens to the Compound protocol, it uses a token called cToken to represent them. cToken is the main token in the protocol and all negotiation, transfer and programming processes are based on it.
The automated nature of the Compound protocol allows the interest rate on holdings to be calculated. The interest rates are updated with each Ethereum block production that lasts for about 15 seconds.
(COMP) Compound's currency
Many blockchain projects have a governance token as a means of making community decisions about the protocol. COMP, an ERC-20 token, is the government token in the system.
COMP holders can use their tokens to debate, propose and vote on all changes to the protocol. Any user or application (mainly DeFi) may have COMP that facilitates the creation of a more decentralized governance system.
COMP's distribution system is designed to ensure that all users have the opportunity to vote and impact the decision-making process. The protocol distributes 2,880 COMP tokens every day to providers and borrowers in the ecosystem.
Compound governance system
The governance system in the Compound protocol tries to show a fully decentralized infrastructure. The COMP token is the fundamental component of this system.
Relying on a currency for the voting and governance application allows you to delegate voting rights. Thus, Users can delegate their COMP tokens to anyone to help them participate in the voting process.
Voting happens to decide many actions, such as adding support for a new asset, changing the collateral factor of an asset, changing the interest rate model of a market or changing any other parameter or variable of the protocol.
COMP holders with at least 1% of the total COMP supply at their address can even propose changes to the blockchain.
The voting process in this protocol occurs over three days. Any proposal needs a majority and at least 400,000 votes to queue at the protocol's Timelock.
The compound team states that safety is the top priority in their development process. They have partnered with multiple groups to achieve security at the highest level.
Trail of Bits and OpenZeppelin are the two main security audits of the platform. The protocol development process focused on security principles and has a Certora ASA verification.
The safety of the economics in the system are also carefully tested. Gauntlet has provided a platform to test market stress in compound by simulation.
The ultimate goal is to make sure the protocol can withstand the additional pressure after climbing. The development team also runs a bug bounty program that provides a reward opportunity for security experts who review the protocol.
How to generate interest with Compound?
There are several ways to use the Compound protocol and gain interest with it. As mentioned above, many blockchain teams provide an interface for it.
But the first choice for many regular users is the official Compound Panel. The system currently supports BAT, DAI (from the Maker protocol), ETH, USDC, USDT, WBTC, and ZRX, but will also gradually add other Ethereum tokens.
You need to follow the steps below to provide a protocol compliant currency and start earning interest:
one. Open the Compound panel
two. Connect a Web3 wallet, recommended MetaMask.
3. Make click on the desired asset in the supplies panel on the left and enable it (you must approve a transaction in your wallet to enable each token). You can also use these assets as collateral for loan needs.
Four. Enter an amount for the supply cryptocurrency and send the transaction in the wallet.
5. Interest earned will start automatically, and you can see the received token in the Supply balance section.
6. You can withdraw your earned balance at any time to the Ethereum wallet.
Conclusion on the Compound
Compound offers an easy way to earn interest from stored Ethereum tokens. Its decentralized governance system is one of the most reliable in the industry.
After all, allowing developers and applications to integrate this protocol and provide interest or loan options to their users makes it possible for the project to grow faster.
You can expand your reach by increasing the supported tokens and even someday provide other features like interest generated by tokens other than Ethereum.