The DeFi Summer in 2020 was a phenomenal event that completely changed the way people view crypto in general, and DeFi in particular. Myriads of pioneering protocols in the field started their exponential growth at that time, namely Uniswap, Yearn, SushiSwap, Aave,... you name it.
However, Compound was the first to start it all. In May 2020, Compound launched a liquidity mining program for COMP tokens, which incentivized users to participate in the protocol and bootstrapped Compound dramatically
What is Compound? How did Compound successfully draw investors to the project? Is there any chance to invest in Compound at the moment? You will figure out the answers to these questions in the following article.
What is Compound?
Compound is an algorithmic lending and borrowing protocol that facilitates money markets by incentivizing liquidity.
What do I mean here by “algorithmic”? It means that the interest rates are adjusted according to the demand and supply of the underlying asset. No counterparties or compromises are required in the process, making Compound decentralized.
What is COMP Token?
COMP is the native token of Compound in ERC-20 standard. COMP tokens are currently used for governance purposes.
How does Compound work?
Compound was created to fulfill the demand of lending and borrowing in DeFi (Decentralized Finance). Specifically:
- Long-term investors can deposit their idle assets into Compound to earn additional yield.
- Ethereum Dapps (Decentralized applications) can take advantage of the massive liquidity that Compound provides.
- On the other hand, users are willing to borrow assets as they do not want to sell their tokens, given that they bought those tokens at a great position. Their needs can be: Leveraging profits, arbitrage, etc
The supplying process is simple: You deposit your assets into Compound. In return, you will receive a number of cTokens - ERC-20 standard tokens representing the underlying asset. You can earn interest simply by holding the cTokens, whether the cTokens are kept in your wallet or transferred to another.
Compound calculates the interest rate by accumulating the exchange rate of the cToken, which will determine the amount of the underlying token that you can swap back using the cToken.
Let’s make this clear through an example. Given that you deposit 100 ETH and the exchange rate is 0.2. You will receive 100/0.2 = 500 cETH. Over time, say 1 month, the exchange rate will increase and reach 0.201. If you want to swap back to ETH at that moment, you can redeem your cETH to receive 500*0.201 = 100.5 ETH.
As you can see, just by holding cETH, you are able to receive an additional 0.5 ETH after one month. However, the above example uses arbitrary numbers, so the profit in reality is totally different.
To borrow, you first have to follow the supplying process to receive cTokens before using them as collateral. Each market has a collateral factor ranging from 0 to 1. The borrowing capacity = the value of the underlying asset * the collateral factor. Users can borrow as much as the value of the borrowing capacity, and not more. Should the loan’s value exceed the borrowing capacity, the liquidation process will take place.
It is also worth noting that Compound accepts accredited institutions that are looking to earn 4.00% APR on a minimum balance of $100K.
Detailed information about Compound Coin (COMP)
COMP Price Today
Currently, you can track the price of COMP on Coin98 Markets.
Coin98 Markets is a website that helps users to get updates of the real-time prices, as well as view the detailed information of a Token Metric from any project. More specifically, you can access the home page or the community page of a project, or filter the coins/tokens by Market Cap, Trading Volume, etc.
COMP Key Metrics
- Name: Compound.
- Ticker: COMP.
- Token standard: ERC-20.
- Token type: Governance.
- Max supply: 10,000,000 COMP.
- Circulating Supply: 5,400,845 COMP.
- Contract address: 0xc00e94cb662c3520282e6f5717214004a7f26888.
COMP Token Allocation
COMP Token Sale
Compound has not held any token sale. However, Compound has raised a total of $33.2M through a Seed Equity ($8.2M) and a Series A ($25M).
COMP Token Release Schedule
COMP Token Use Cases
Currently, COMP is only used as a governance token. Users can stake COMP to vote on proposals such as:
- Listing of a new cToken market.
- Modification of the interest rate model.
- Modification of the oracle address.
And many more in the future once Compound completely becomes a DAO (Decentralized autonomous organization).
How to get COMP Token
You can get COMP by Lending and Borrowing on Compound.
How to buy COMP token
You can buy COMP through:
- DEXs: Uniswap, Sushiswap, 1inch,...
- CEXs: Coinbase, Binance, Huobi,...
You can also swap and buy COMP directly at the Coin98 Exchange interface at the end of this article! Coin98 Exchange is a decentralized exchange (DEX), a Multi-chain liquidity aggregator that offers users a wide variety of DeFi services (swap, stake, lend, borrow,...) through intuitive and simple interfaces.
Learn more: How to use Coin98 Exchange
How to store COMP Token
You can store COMP token on Coin98 Wallet with these steps:
Step 1: Open Coin98 Wallet & click Receive on the home screen.
Step 2: Search COMP Token.
Step 3: Click on the correct result, copy the wallet address and send COMP to this address.
Currently, Compound is building a project called Gateway (Compound Chain). Gateway is a disparate blockchain built on the Substrate of Polkadot, and is now in the testnet process. Although Gateway uses a different native token - CASH, it can be a game-changer that expands the operation of Compound to another space, hence pushing Compound forward in the competition with Aave and MakerDAO.
The same thing happened to Aave when Aave was deployed on Polygon. This event boosted the TVL in Aave by more than $4B, which immediately put Aave on the top 1 spot. If Gateway is completely finished and runs smoothly, we can expect a massive turnaround from Compound. Let’s keep track of the development of the project and see if this case can be true.
Team, Investors and Partners
Compound was founded in 2017 by Robert Leshner and Geoffrey Hayes. Their full team has now grown to a large number of members.
Compound partners with various projects with different purposes:
- Institutions: Coinbase, Ledger, Curv, Bitgo, Anchorage, Fireblocks.
- Earn: OKEx, Binance, Zapper, Exodus,...
- Manage: InstaDapp, Eidoo, Ankr,...
- Reporting: Lumina, Tokentax, Cointracker,...
Compound also partners with Chainlink to update their price feeds as accurately as possible. This is a must in a Lending protocol as it has a strong effect on liquidations.
Is Compound (COMP) a good investment?
I hope that with the aforementioned information, you have understood what Compound is and how Compound works. This article should give you a deep insight into the project, so there is no financial advice. You should Do Your Own Research before conducting any investment, and be responsible for your own fund. However, Coin98 will provide some notable points of the project to give you the best overview to make your own decisions.
- By introducing the liquidity mining program in May 2020, Compound dominated the crypto market at that time. That innovation was the inspiration and foundation for a lot of ground-breaking protocols, which created the DeFi Summer and more specifically, the DeFi ecosystem nowadays.
- At the moment, the TVL (Total Value Locked) in Compound is $11.3B, only behind Aave in the same niche.
- The COMP token serves only for governance purposes. In the time when every project is trying to capture value for their native token in as many ways as possible, simply governance is not enough. You should think carefully before investing in the COMP token.