January 17, 2021

What is COMP? Compound DeFi Review

What is COMP? Compound DeFi Review

The DeFi Ecosystem Is Built On The Ethereum Blockchain That Allows You To Use And Build On Smart Contracts other decentralized applications (dApps) with their own cryptocurrencies.

Compound is one of the DeFi protocols, the main functions of which are related to cryptocurrency lending services.

What is Compound?

Compound is a decentralized blockchain protocol that allows you to borrow and borrow cryptocurrency.

The platform works with its own tokenscTokens Compound, which allow you to receive interest, and transfer, trade and use these tokens in other decentralized applications.

cTokens Compound - what is it?

Compound tokenizes assets locked in its system using cTokens.

cTokens are ERC20 tokens representing funds deposited with Compound. By placing ETH or another ERC20 in the protocol, users receive an equivalent amount of cToken.

For example, for a USDC deposit, the protocol generates cUSD. You can exchange your cUSDCs for regular US dollars at any time.

When locked user assetsare converted to ERC20, they become freely movable, sold and used in other decentralized applications (dapps). Using cTokens makes it possible to combine different protocols as building blocks.

How are cTokens produced?

New cTokens are created whenthe user enters cryptoassets into the protocol. If users want to take out a loan using ETH as collateral, they automatically receive cETH in return for the deposited ETH. If users want to block USDC for interest, they receive cUSDC when they deposit USDC into the system.

How do I deposit cryptocurrency on Compound?

To get started, go to the official website https://app.compound.finance/. From the dashboard, select which cryptocurrency you want to provide to the platform by clicking on it.

For example, USDC gives annual interest rate(APY) at a rate of 0.12%. So you can earn 0.12% per year if you deposit USDC on the platform. Enter the amount and confirm by clicking "SUPPLY".

Compound has floating interest rates,which can change. The algorithm analyzes the supply and demand for a particular cryptocurrency and then sets an interest rate that adjusts based on market conditions. Compound also deducts 10% of your earned interest. Users can withdraw their cryptocurrencies at any time.

How to get a loan from Compound?

The deposited cryptocurrencies can be used inas collateral for borrowing other cryptocurrencies. Compound requires users to contribute up to 75% of the proposed loan value. At the same time, there are risks of liquidation of the collateral. If the value of your collateral falls too much, you may be liquidated - the collateral will be automatically sold to pay off the loan.

Borrowing cryptocurrencies also requires paying a commission. For example, getting a loan in BAT will cost 29.4% per year.

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