Compound is a protocol based on the Ethereum blockchain that allows users, developers and applications to earn interest with their cryptocurrencies without the need to depend on third parties thanks to its decentralization and autonomy.
Why was this protocol created?
Until now, maintaining balances in cryptocurrencies means that they remained inactive without generating higher returns unlike a savings account that generates some interest. Well, that is the purpose for which Compound was created. As its name indicates (compound interest), with this protocol it is possible to generate interest on cryptoassets by depositing them in the platform that executes the protocol.
How does the compound system work?
Other users can borrow deposited cryptos and pay interest on borrowed cryptoassets. All providers and borrowers using the Compound protocol combine to form a series of block chains based on interest rate markets. When a user of the Compound platform provides a cryptoasset, it is added to a global liquidity pool, which other users can borrow from by providing advance guarantees. When loans from a specific market (a parity of currencies) earn interest, the Compound protocol distributes it to any lending user who requests it.
This idea is already well established in the traditional financial market, where there is already an industry of more than $5.5 trillion of borrowing and short-term lending, within what are called money and financial markets.
Compound allows its users to participate in a decentralized financial market for cryptoassets, where any individual can supply their cryptos to the Compound system and immediately start earning interest. Compound has no fixed terms, which means that any user lender/borrower can supply/borrow whenever they want, whether for a few minutes, or even for 30 years. When a cryptoasset is supplied to the Compound platform, interest is automatically calculated and distributed with each new block of Etherium every 15 seconds on average. This allows any user lender to earn interest on their crypto deposits in an economy that does not depend on a central authority to manually calculate and distribute interest.
Integration with applications and other platforms
Because Compound is a decentralized protocol running on Etherium, it works for everyone anywhere in the world and can be integrated with all types of financial services and applications. Any application that has cryptoassets can be integrated with the Compound interest rate market and unlock the power of compound interest to deliver new financial and money services.
It's already a reality:
There's already an ecosystem of rapidly developing applications built on Compound that creates these possibilities. Compound makes this possible by providing to developers an open-source infrastructure to launch future testing, services, and decentralized financial applications, which can pass on the benefits of Compound to their users, allowing each one to begin earning interest.
"The Compound protocol is a collection of Smart Ethereum Contracts, which allow us to be autonomous and decentralized so that we do not depend on intermediaries to grant loans and distribute interest among them. A universe of new decentralized finance is opened up this way. “
We have just talked about the Compound Protocol and system, but, what is the Compound token (COMP)?
COMP is an Ethereum token that enables community management of the Compound protocol. COMP owners have an exclusive right to propose and vote on changes to the protocol. Any user or application that interacts with the Compound platform can earn the COMP token, and the more cryptassets the user supply or borrow to the system, the more COMP tokens they will be assigned. In the same way that interest is earned with the Compound system, the distribution of your tokens is automatically calculated when a block is generated and distributed to providers and borrowers in each market. Having COMP tokens entitles their holder to vote on any proposed changes and improvements, to delegate their vote to a trusted person or group, and to submit their own proposals to the protocol.
Each proposal is an executable code which means that no different interpretations can be given and it does not require a centralized team to implement it. When a proposal is successful after it is voted, it directly updates the protocol, allowing new assets, revised interest rate models and new functionality to be added over time, which puts the power of system administration in the community hands, creating a global protocol that is upgradeable and can create changing user needs in new and unique ways.
“The Compound system allocates more COMP tokens as more cryptoassets are borrowed; the lenders and the borrowers get their tokens as a reward for the most active users within the protocol.”
Compound expects that more and more users and more applications will be involved to generate more COMP that will be distributed; this can bring more ideas and implementations to make the system better and more dynamic over time which can be sustained for many years. Collectively the users who own the COMP tokens must decide on the future of the system and with the support of the community and developers involved in the system to add new integrations and supported assets to grow the scope and possibilities of the protocol for many years to come.
Compound token statistics:
Since this crypto was listed on coinbase on June 16, 2020, it has achieved a revaluation of almost 300%, starting with a price of about $61 to the current $174, although its peak has reached $381.
It is ranked 28th in CoinMarketCap and 19th in Coinbase, the first exchange to be listed. It has a market capitalization of $447.53 million, with a circulating provision of $2.56 million. Total provision is 10 million units.Source: CoinMarketCap
Given the evolution of its price in such a short period of time, this is a crypto that raises a lot of expectations and has a promising future maybe because it has a clear purpose with a simple and very operational platform and protocol.