What Is Compound (COMP)?
COMP is the native token of the Compound crypto project. It’s based on the ERC-20 token model on Ethereum. The Compound Protocol is a lending platform that pools assets and sets interest rates using algorithms based on demand and supply. Basically, by using the platform to lock in your crypto funds, you are able to earn profitable returns with compounding interest.
COMP is a governance token. The supply of Compound tokens is limited to 10 million. Almost half of the supply is dedicated to the users of Compound. The remaining half is divided between Inc shareholders, Compound founders, the Compound Labs, governance rewards, and future plans.
If you’re wondering about the Compound price or other token details, make sure to check out the graph above. It will provide you with the COMP price history so you can make an informed decision about this project.
The Founders of Compound
Robert Leshner and Geoffrey Hayes developed the Compound protocol in 2017. Robert Leshner is the CEO of Compound, whereas Geoffrey Hayes is the CTO of the company.
Primarily, the Compound protocol was a part of Compound Labs. Leshner revealed that the protocol was an experimental project that didn’t even have a whitepaper in the beginning. Overall, the founders did their job by creating the protocol and distributing its tokens.
Now, the token governance is mostly in the hands of the community members. Besides, the Compound protocol is not dependent on the Compound Labs anymore.
How Does the Compound Protocol Work?
Essentially, it’s like a bank. It allows users to lend or borrow assets. Basically, you have to deposit your assets into the platform and they will be supplied into a liquidity pool.
Then, you will receive a cToken (e.g., cETH) in return. By holding the token you will be able to generate profit over time. This happens because the exchange rate of the asset behind the cToken rises. Besides, by using smart contracts integrated into the cTokens, the Compound protocol automates the process of matching borrowers with lenders.
Talking about borrowers, they can deposit collateral to receive a secured loan from any Compound pool. Depending on the collateralized asset, the maximum loan-to-value (LTV) ratio might differ. The paid interest rate differs as well, depending on the type of borrowed asset.
Though if the collateral of the borrowers falls below a predetermined maintenance level, they may be subject to automatic liquidation.
Furthermore, note that each pool is always overcollateralized. This is the case since the protocol ensures a collateralization factor for each asset that the Compound protocol supports.
The liquidators are able to buy the collateral with a 5% discount when it drops below the minimum maintenance threshold. At that point, part of the loan is repaid, bringing the balance back to a level that is appropriate for collateralization.
This structure serves to guarantee that borrowers retain their levels of collateral. Besides that, it gives liquidators a chance to make money and offers a safety net for lenders.
The Usage of the COMP Token
Since COMP is a governance token, it allows holders to participate in the decision-making processes. This includes debating, suggesting, and implementing various changes.
Owners of Compound coins have the option to assign their voting rights to either themselves or a specific address. Users that have at least 25,000 COMP tokens can create governance proposals. At least 400,000 votes must be received during the three-day voting period that follows the submission. The new change is adopted after two days if the majority of voters favor it.
Users can acquire COMP tokens not only by buying them but also by using the Compound crypto platform. Every time they lend or borrow assets, they receive Compound tokens.
It's important to note that the Compound price is volatile, which is the usual case with crypto assets. However, you can always monitor it with the help of the graph above.
