What is Compound (Comp)?
Compound Finance is a decentralized landing protocol in which interest rates are formed algorithmically on the basis of a demand and demand ratio. It can be considered as an open cash market, where users place crypto assets, and also borrow funds.
Who created Compound Finance?
Creator of the Compound Finance and CEO protocol Compound Labs is a web developer and financial market analyst Robert Leshner.
Co -founder and CTO Compound Labs – programmer Jeff Hayes.
How Compound Finance arose and developed?
Graduates of Pennsylvania University Leshner and Hayes collaborated for several years as part of various projects (Britches, PostMates and others). In 2013, Leshner, who worked as a certified auditor managing investment portfolios and a banker, became interested in cryptocurrencies.
On August 28, 2017, Leshner and Hayes registered Compound Labs, Inc. with the head office in San Francisco.
On January 31, 2018, Leshner published an article on the development of the COMPound protocol.
On May 7, 2018, the company attracted sowing investments by $ 8.2 million. Bain Capital Ventures, Andreessen Horowitz, Polychain Capital, Transmedia Capital, Compound Ventures, Abstract Ventures, Danhua Capital and Coinbase Ventures participated in the round.
In September 2018, Compound Labs introduced the first version of the protocol to borrow five crypto assets – ETH, TUSD, ZRX, BAT and Rep.
In February 2019, the White Paper project was published. On May 23, 2019, Compound Labs released the second version of the protocol with the release of tokens Ctoken, representing the rights to basic assets of cash markets in Compound Finance.
In November 2019, Compound Labs attracted $ 25 million in the round of financing series A led by Andreessen Horowitz. Bain Capital Ventures, Polychain Capital and Paradigm also participated in the round.
In the early stages, Robert Leshner announced his intention to gradually decentralize the protocol, depriving the developers of Compound Labs of administrative privileges in favor of the community.
In February 2020, Compound Labs released control tokens Comp, called to encourage communities in the project.
On April 16, 2020, management issues on Compound moved from administrators to COMP tokens, who got the opportunity to change the list of supported coins, influence risk parameters, percentage curves, etc. D.
How Compound works?
Compound works similarly to the bank: the user deposits various cryptocurrencies and receives interest income. However, unlike the Compound Bank, does not store deposits: funds are placed in smart contracts with which the user interacts directly.
Lenders and borrowers do not need to agree on the terms. The parties interact directly within the framework of the protocol that controls the size of the interest rate and the pledge. There are no counterparties holding funds.
Any owner of a Web3-wallet like Metamask can get access to the platform.
After confirming the request for interaction with the Web3 wallet, the user gets access to the information panel displaying supported assets. To deposit or take loans, you need to click on the page of this asset and unlock it.
After unlocking the asset, which involves the resolution of the smart contract to interact with the means, the user can loan him at a pre-installed annual interest rate (APR). Each asset has an individual annual percentage (APY).
To take the asset, the user must first place the funds on the platform and get the so -called borrowing right (Borrowing Power). This metric represents the amount that can be borrowed. It increases with the growth of the security provided.
This is how the balance of the user depositing means looks after processing the transaction:
After placing assets on the platform in the user’s wallet, the so-called Comers appear-in this case, the Compound DAI (CDAI).
To derive the placed assets with accumulated interest income, you need to click on the WithDRAW button.
The function of obtaining a loan on the platform
The process of obtaining a loan is as simple as the deposit process. Provided that the user has already received borrowing, he can borrow assets using the corresponding panel.
Compound should obtain permission from the Web3 wallet to interact with smart contracts. The resolution is obtained once. This will require an onchain transaction that involves the payment of a commission on the Ethereum network.
By choosing the supported asset on the right side of the panel, the user can set the amount that he wants to borrow. The value of Safe Max is the maximum volume of borrowed funds with a low risk of liquidation when the price of the basic asset is reduced.
After the transaction initiation, the asset received (in this example-ETH) is deposited in Web3 wallet.
Interest on the loan accumulates in accordance with a pre -installed interest rate. The debt can be paid at any time by pressing the Repay button.
How the system of two types of compound tokens operates?
Tokens represent the balance of users interacting with the Compound liquidity pool. The base asset presented by CTOKEN allows you to receive interest income and serves as a key.
These tokens are the assets of the ERC-20 standard-they can be viewed in the EtherScan blockchain building, stored in a wallet and sent to other users. Compound is currently supporting 14 crypto assets.
Example. The user places 1000 BAT in the liquidity bullet, while the exchange rate is 0.02. In this case, the user receives 50,000 (1000/0.02) Cbats. If a few weeks later, when the exchange rate becomes 0.021, the user will withdraw funds, 50,000 CBAT will be 1050 BAT (50,000*0.021).
- You can occupy up to 50-75% of the cost of CTOKENS, depending on the market characteristics of the basic asset. You can add or remove tokens at any time.
- If the user’s debt coating is not enough, the debt position may be eliminated.
- Liquidators receive 5% of liquidated assets.
- Ctokens are available for viewing at Etherscan.
How to get Cether?
CETH method other than in the case of CBAT or CDAI.
When the user deposits ETH, the application sends tokens directly to the paid function of creating a Cether contract. After activation, the Cether option appears in the wallet.
As a result, thanks to the request (Invocation), the CTOKEN contract sees the indicated amount in the basic tokens from the address of the sender.
Another asset in the Compound ecosystem is the Native COMP management token.
Features of the COMP token:
- The total amount of COMP is 10 million. 55.71% of them are subject to distribution among members of the project team, founders, investors and partners. The remaining 42.29% will go to users for four years.
- Liquidity mining rate: 0.5 Comp/block (~ 2312 Comp/per day).
- The dynamics of coin accrual depends on the interest rates established by the market. For example, if the highest rates of USDT, then those who deposit and take loans in Stabelcoin from Tether will accrue more comput.
- In each asset market, the number of COMP tokens is divided equally between creditors and borrowers.
- Users can find out the size of the interest rate on the User Distribution page.
- COMP holders can earn additional Native COMP tokens, voting on system management issues.
- COMP tokens are available on many exchanges, including Coinbase and FTX.
How the interest rate compound is formed?
- The size of the interest rate depends on liquidity, affordable.
- The size of the rate varies depending on demand and demand in real time.
- When liquidity is high, the interest rate is small.
- When liquidity is low, the interest rate is growing.
How the interest rate is calculated?
Each asset in the Compound markets has its own annual interest rate (APR) of lending and deposit, established on the basis of the demand for demand and supply. Interest income is generated when mining the new Ethereum unit, approximately every 15 seconds.
Excess liquidity can exist only if the number of assets placed on the platform exceeds the volume of borrowed funds. If the number of creditors in the market exceeds the number of borrowers, the percentage income of creditors is reduced. The asset use factor determines the income level.
How the loan rate is calculated on bail?
Borrowing right (Borrowing Power) user directly correlates with the amount of pledge. Each asset has its own pledge factor (collateral factor), determined by its volatility.
For example, BASIC ATTENTION TOKEN (BAT), the pledge factor of which is 50%, has less borrowing the right to borrowed than the DAI stablecoin. The latter has a higher factor in 75%, since this is a less risky asset. Thus, the placement of Bat tokens on $ 100 will give the right to borrow $ 50, while the placement of DAI by $ 100 will give the right to borrow $ 75.
When calculating the loan rates on the deposit, the pledge factors of all assets placed on the platform are taken into account. The base rate is established for the maximum amount of funds that can be borrowed in relation to the volume of deposited assets.
The pledge factor for each asset determines the Compound Finance Management mechanism.
How the elimination of assets is carried out?
If the amount of the debt exceeds the maximum right of borrowing the user, Compound exchanges a rested asset for a deposit provided by the borrower at the course just below the market. Thus, the user has motivation to effectively manage debts.
Compound allows community members to act as liquidators using tools such as Compownder Liquidator. Participants can repay other users’ loans in exchange for ETH at the best market rate.
For example, a 10 ETH loan, the collection of which is more lacking, can extinguish (reboot) another user. This user receives a basic deposit of this loan with a 5% or more discount (paid in ETH).
To prevent liquidation, Compound also provides an Account Service API for monitoring address addresses at risk.
How does the Compound Finance management mechanism function?
- Any user who has more than 1% of the volume of emission computers can make proposals.
- The vote period according to any sentence lasts three days.
- Any address with a vote can vote “for” or “against” a proposal.
- If the proposal receives at least 400,000 votes, it is put in the queue and implements two days later.
- If the required number of votes is not gained, the proposal deviates.
Examples of questions on which the holders of the COMP tokens vote:
- Support for the new CTOKEN market.
- Changing the interest rate model.
- Oracle address update.
- The output of the reserve Ctoken.
- The choice of new administrators.
To update the risk parameters of the Compound Finance system, such as the annual interest rate or collateral factor, Compound uses the Timelock mechanism. He changes the parameters with a delay in time, guaranteeing protection: any attempts by attackers to intervene in the operation of the system can be tracked and prevented by them.
Web site.Finance clarifies:
“Any proposal for the management of the system is published with a delay of at least two days. For proposals regarding important updates, such as changing risk parameters, the delay can be 14 days. Timelock is currently managing the address, the administrators of which are members of the Compound team “.
Thus, now the parameters of the risk of the platform are controlled by the company, although with a delay in time. However, Compound, using smart contracts to control, can eventually open access to Timelock to the distributed committee of community members. This will give Compound Finance the ability to become a decentralized autonomous organization (TAO) similar to MakerDao.
Why use Compound Finance?
- Percentage income for placed funds on the platform.
- Decentralized applications and exchanges can use Compound as a source of monetization in the Ethereum ecosystem
- Traiders can borrow ETH from a liquidity pool and place these assets in their portfolios as a pledge to participate in crowdses.
- Traiders interested in a short token shorts can borrow him from a liquid pool and sell it.
How compound develops?
In August 2020, Compound entered Global Defi Alliance, the International Consortium of Centralized and Decentralized Suppliers of Financial Services and Platforms, formed by Huobi cryptocurrency exchange.
In August 2020, the project launched its own oracle of cryptocurrency prices as part of the transition to a price flow channel with free access of Open Price Feed.
The developers also created an aggregator of information about the declared prices. Data is available directly from each publisher through their API.
In September 2020, the MakerDao community voted for adding COMP tokens as a new option to ensure the release of stablecoin DAI.
Compound is currently working with Ethereum ecosystem coins. In the future, it is planned to support the tokenized versions of the assets of the real world: American dollar, Japanese yen and Google shares.
December 17, 2020, Compound presented White Paper with a detailed description of the Compound Chain, a new protocol designed to ensure the interaction of assets from various blockchains.
Subsequently, Compound Chain was renamed Gateway. The twin of the protocol earned March 1, 2021. The main network will be launched in the summer or closer to the end of 2021.
Gateway operates similarly to the COMPOND on Ethereum. However, there are differences:
- Gateway allows you to borrow and lend assets on any blockchain.
- Interest is paid in dollars (stablcoins) by means of Cash – Native estimated unit Gateway.
- Gateway has a more effective risk assessment mechanism. It is based on the volatility of the interim and borrowing assets. Thanks to this, the capital efficiency of using less volatile coins increases.
Gateway is focused on cross-interaction, and its functionality resembles Thorchain.
Gateway users can load supported assets from various independent blockchains using a system of connected single -rating circuits. The StarPort contract is associated with each chain. It allows you to block and unlock the assets on Gateway.
After loading on Gateway, users can deposit and borrow assets of various blockchains. For example, you can borrow Ethereum tokens using SOLANA as a collateral, or borrow Celo assets using Polkadot assets and t. D.
Gateway is designed to give blockchains the ability to interact directly, without wrapping.
For example, to wrap bitcoins (WBTC), Defi users are forced to contact intermediaries in the person of Bitgo or Ren. Because of this, they weaken control over their closed keys. Gateway offers a solution that allows Bitcoin holders to interact with other blockchains without resorting to the services of the third parties.
The transition to Gateway will allow Compound users to avoid high Ethereum commissions.
CASH – native calculated unit Gateway. It is used to pay transaction commissions. Similarly, the DAI stablcoin from MakerDao, this token is created through the loan. The amount of Cash in circulation is equal to the number of coins, borrowed.
It is assumed that the initially Cash will correspond to one American dollar. Subsequently, this parameter can change the community with a collective solution. Potentially Cash can become a competitor to DAI and USDC.
All users and validators who own Cash tokens receive income that increases on the basis of the interest rate index. This happens whenever the user/validator generates, repays, borrows, returns or eliminates Cash.
Gateway uses the Proof-OF-Abority algorithm (POA). The network is controlled by trusted validators. The consensus is achievable, even if one third of the NOD violates the rules. The finalization of the block occurs when https://gagarin.news/ at least two -thirds of the NOD agree with the addition of the block to the chain. Borrowers pay validators a percentage for each block, which they confirm. Also validators receive a commission for sending assets.
The Proof-OF-Abority model allows banks and centralized crypto-rhms become Gateway validators.
COMP tokens will control Gateway as part of the Compound Governance system on Ethereum.
At first, Gateway will be mainly a market for interconnected blockchains. Over time, other Dapps can integrate with this system – for example, decentralized exchanges.
June 28, 2021 began work Compound Treasury – a new company under the auspount of Compound Labs. Compound Treasury makes it possible to convert US dollars into a USDC stabilcoin to neobanes and other fintech companies. USDC tokens will be involved in Compound at a guaranteed interest rate of 4%. This is much more than what companies can receive within the framework of traditional banking accumulative accounts (0.55% -0.7% per annum).