Compound is a decentralized finance (DeFi) protocol built on the Ethereum blockchain that lets users lend crypto assets and earn interest, or borrow crypto assets and pay interest. Compound also has its own Ethereum-based ERC-20 token called COMP.
Geoffrey Hayes and Robert Leshner collectively founded Compound in 2017, and the Compound protocol went live in 2018.
How Compound works
At its simplest, Compound is a decentralized platform through which people can borrow and lend crypto assets. The Compound protocol is made up of liquidity pools — groups of assets controlled by smart contracts on the Ethereum blockchain that execute specific functions if certain parameters are met. These programmed smart contracts cut out the middlemen in the borrowing and lending process, with the system’s actions based on code.
For people that choose to participate, lending on the Compound protocol involves sending a compatible Ethereum-based asset to a liquidity pool and receiving cTokens in return. These cTokens represent the lender’s asset. Lending Ether (ETH), for example, would result in receiving cETH tokens. The lender’s ETH then earns interest while it is part of the liquidity pool. When the lender redeems their cETH, they receive their original ETH, in addition to interest earned in the form of ETH.
Borrowing on the Compound protocol involves providing Ethereum-based digital assets as collateral and receiving the asset of the borrower’s choice, given the involved assets are compatible with the Compound protocol. As a safety measure, the borrower must provide more collateral than the value borrowed. The borrower can lose their collateral capital if market volatility causes liquidation. Borrowers pay interest.
Interest rates for borrowers and lenders depend on the size of the liquidity pools with which they interact.
The Compound platform is compatible with a number of different Ethereum-based tokens, as well as Ether itself. COMP is used in the Compound ecosystem for governance and as a reward given to borrowers and lenders for using the protocol.
Compound crypto price action
COMP is a crypto token trading on numerous digital asset exchanges. A live COMP-to-USD (U.S. dollar) price is available near the top of the page, above Compound’s chart. View Compound price history today for Compound’s token, COMP, on the Compound price chart above.