Compound is a decentralized protocol built on the Ethereum blockchain that establishes money markets for the borrowing and lending of assets with its native Token COMP issued as an ERC-20 token. Since the launch of the Compound mainnet in September 2018, the platform has skyrocketed in popularity, and recently passed more than $800 million in total locked value.
Compound is a decentralized lending protocol running on Ethereum that enables users to earn interest on their cryptocurrencies by depositing them into one of multiple pools supported by the platform.
Founded in 2017 by Robert Leshner and Geoffrey Hayes with an initial funding of $8.2 Million with additional funding of $25 Million in 2019. Compound utilizes multiple crypto assets in providing decentralized lending services, enabling the lending, and borrowing required without a financial intermediary.
Once a deposit is made on the compound platform, a new cryptocurrency called a cToken is issued to the lender. For example, by depositing ETH into a pool, you will receive cETH in return. Over time, the exchange rate of these cTokens to the underlying asset increases, which means you can redeem them for more of the underlying asset than you initially put in. Each cToken can be transferred or traded without restriction, but it is only redeemable for the cryptocurrency initially locked in the protocol. This entire process is automatic and permits lenders to withdraw deposits at any time and borrowers can take a secured loan from any Compound pool by depositing collateral.
Lenders are incentivized with COMP (an ERC-20 token). Every time a user interacts with a Compound market which includes borrowing, withdrawing, or repaying, they are rewarded with additional COMP tokens.
Holders of COMP can also participate in the protocol governance by proposing changes to the protocol, debate, and vote whether to implement changes suggested by others without any involvement from the Compound team. This can include choosing which cryptocurrencies to add support for, adjusting collateralization factors, and making changes to how COMP tokens are distributed.