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Everything You Need To Know About Compound

BitForex Editor
Aug 28, 2020

The crypto world has greatly expanded and almost everyone is trying to trade using crypto-based currency and one wouldn't be surprised if it becomes the major currency used by the world in years to come. However, there's a new name that is ringing a bell in the market which is called the Compound and most people have great things to say about compound finance. It is a DeFi protocol that has smoothly overtaken the popular protocol maker.

Decentralized finance protocol maker and Compound DeFi protocol are both Ethereum based but the protocol maker has been in existence since 2018 and making waves, however, in recent times, compounds have overtaken and it is getting higher by the day. Its most recent increase has to do with its new token which is the governance token whose distribution started in June and has since become very popular. However, with the so much talk about the Compound, it is still not known to many and that brings to answering the questions most people have.

What is Compound?

The Compound is a decentralized protocol platform that brings crypto suppliers, borrowers, and lenders together. It is an algorithm money market platform that allows users to borrow Ethereum assets and pay back with interest, hence, making lenders and Ethereum suppliers on the platform make more money. However, you don't have to get things mixed up because compound is not like there bank, they don't help you keep your money. The platform only enables you to trade with your currency and yield interest.

Compound offers lenders the opportunity to make a profit from the interest gotten out of their savings. The user's asset is locked and given out to borrowers and the interest rates gotten from borrowers depend on the supply and demand of every crypto asset. The compound can simply be said to be one of the companies that work in the DeFi world using the broken to assist users to make interest on their money and at the same time, making transfers and trading with the money in other apps. However, if the loans collected are repaid, the assets will be locked and users can withdraw their assets anytime.

Most people still wonder what could be special about the compound and why is there so much talk about it in the market,

What is so special about Compound?

Compound which is founded by Robert Leshner looks like a decentralized lending platform that makes use of crypto assets to borrow more crypto, the crypto asset is mostly used as collateral. What makes it outstanding is the fact that the cToken used is always locked within their system. If you use Ethereum and lock it in compound, it becomes cToken. Even if you invest using USD, it becomes tokenized and anytime you want to make a withdrawal, you can always get back your USD.

However, your cToken will always accumulate with time and the interest rates are determined by either the market demand or supply. Also when locked assets get converted to ERC-20, it becomes very free to be moved about and it could be traded and used in other applications that are decentralized. Using cTokens represents a feature that has a DeFi protocol and it is a combination of various protocols that are used as block building which is also called money legos. Although, the founder of Spankchain had criticized the compound DeFi and wrote that in the world of decentralized finance there is a potential failure but Robert disagreed and assured him that compound will become one of the best DeFi apps that everyone will hope to use.

What can be done with compound?

Asides from the fact that you will always make interest in any crypto currency asset you trade with, which has a very easy process, you will be able to borrow crypto-asset using a few steps and ensure that you get a crypto asset that is equivalent to the value of your collateral. If by chance the value of your collateral drops beyond your loan, there is every chance that your collateral will be liquidated.

How can you generate cTokens?

CTokens can be created using the Ethereum e-wallet. The Ethereum e-wallet is of various types which include coinbase, metamask, or Huobi wallet. The cToken can be created using any of these wallets together with any acceptable crypto asset by the compound system. These crypto-assets include USDC, ETH, BAT, DAI, etc. When any of these crypto coins deposited into the compound DeFi protocol, then a cToken is being created. Also, if you apply for a loan with the ETH crypto-asset what comes to you is the cETH.

What does compound hold for the future?

Compound DeFi has a bright future and they hope to assist people in gaining full control and having total access to their money which they are allowed to earn from even while saving. However, the project wouldn't have come this far without the many criticisms, but notwithstanding the critiques, it's goal is to become decentralized completely with time. The compound has a team that is currently managing their protocol, however, they have better plans of transferring their authority to a higher centralized autonomous organization that is controlled by the compound community and who will ensure that compound becomes very strong in the nearest future.

In our world of today where everything is becoming digital and more advanced, digital money platform is taking over the entire world and that is one thing compound hopes to achieve. Compound is the first of its kind, where users can borrow money and pay back with interest, and those who have deposited their money can keep it locked and rather trade from the interest they get overtime. The best part is the compound token gotten can also be used on other platforms. The traditional bank everyone is used to saving their money cannot work efficiently like the compound DeFi protocol because the interest you get from the money you saved in the bank is not enough to trade with or even withdraw. Hence, Compound which uses Ethereum crypto is gradually taking over the money market with its juicy benefits.

About BitForex:

BitForex is an exchange service platform that can be classified as one of the Top 10 cryptocurrency exchange services. It is focused on providing millions of users with a digital currency trading and investment tool that is not only safe but also professional and convenient. BitForex has a high customer-oriented culture and state-of-the-art financial technology.

BitForex is programmed in a way that it can quickly adapt to the changes of the Crypto market while introducing new features like margin trading, enhanced trading charts,  derivatives, and a host of others. The headquarter of BitForex is located in Hong Kong, while there are branch offices in countries like the United States, South Korea, and Singapore.

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