INTRODUCTION TO COMPOUND FINANCE (A decentralized lending protocol)
Borrowing and lending in Decentralized Finance has never been simpler (DeFi). Compound Finance is one of the most popular crypto lending and borrowing protocols in the DeFi world. Compound is similar to a savings account in that it allows you to collect interest without entrusting your money to a third party.
The user experience is fairly pleasant, and the protocol has undergone extensive field testing. Many yield farmers use compound to borrow assets and distribute them to other DeFi protocols.
A DeFi lending protocol is Compound Finance. It's akin to an open money market. It allows users to deposit cryptocurrencies and earn interest on them, as well as borrow other cryptoassets using them as collateral. It makes use of smart contracts to automate the storage and management of capital that is brought onto the platform.
Using a Web 3.0 wallet like as Metamask, any user can connect to Compound and earn interest. Compound is a permission-free protocol because of this. Anyone having a crypto wallet and an Internet connection can engage with it without restriction.
- Benefits
Suppliers and borrowers, on the other hand, are not required to negotiate terms as they would in a traditional situation. The protocol, which manages the collateral and interest rates, is directly accessed by both parties. The assets are held in smart contracts called liquidity pools, thus there are no counterparties holding the funds.
On Compound, the interest rates for supplying and borrowing are automatically changed. The Compound procedure modifies them automatically based on supply and demand. COMP token holders can also change interest rates.
Compound's native tokens, cTokens, track positions (provided assets). cTokens are ERC-20 tokens that represent claims to a share of a Compound asset pool.
If you deposit ETH into Compound, it will be converted to cETH. When you deposit DAI, it is converted to cDAI. If you deposit numerous coins, each one will earn interest at its own rate. In other words, cDAI will earn cDAI interest whereas cETH will earn cETH interest.
The given assets are available in the associated wallet after cTokens are redeemed for the portion of the pool that they represent. cTokens earn interest and are convertible to more of the underlying asset when the money market earns interest (borrowing increases). Simply holding an ERC-20 token is all it takes to earn interest on Compound.
Connecting a Web 3.0-enabled wallet, such as Metamask, is the first step in the process. After that, customers can choose which asset they want to interact with by unlocking it. Users can borrow and lend an asset that has been unlocked.
Lending is a basic process. To begin supplying funds, unlock the asset for which you desire to provide liquidity and sign a transaction through your wallet. The assets are immediately added to the pool and begin collecting interest. The assets are converted to cTokens at this point.
Borrowing is a little more difficult. To begin, users must first deposit monies (collateral) to secure their loan. They get "Borrowing Power" in exchange, which is required to borrow on Compound. Every asset that can be supplied adds a distinct amount of Borrowing Power. After that, users can borrow based on their Borrowing Power.
Compound uses the concept of overcollateralization in the same way that many other DeFi projects do. This indicates that, in order to prevent liquidation, borrowers must provide more value than they want to borrow.
- Assets supported by compound finance
. USDC
. ETH
. DAI
. USDT
. WBTC
. REP
. BAT
. ZRX
. AAVE
. SUSHI
. MKR
. TUSD
. UNI
. USDP
. YFI
. LINK
. FEI
. COMP
| ADVANTAGES | DISADVANTAGES |
|---|---|
| It is user and beginner-friendly | Borrowers will still have to pay back with interest even if the borrowed asset goes down. |
| It helps traders to increase leverage on a position | There's risk of liquidation. |
| Borrowers can make profit if the borrowed assets increases in value | There's chances of bug attack and market vulnerability. |
Robert Leshner founded Compound, which was backed by venture capitalists. However, the COMP coin is steadily decentralizing Compound Finance's governance. Token holders are entitled to fees and governance privileges on the network.
As a result, token holders can influence the protocol by submitting improvement suggestions and voting on them on the blockchain. Each token represents one vote, and holders can use their token holdings to vote on proposals. The protocol could be totally controlled by COMP token holders in the future.
- Some proposals they vote on includes
. The choice of compound token to list.
. Interest rates on each assets
. The blockchain oracle to use, etc.
Compound Finance is one of the leading DeFi lending protocol. It's ability to fully utilize governance is currently giving it an edge over other lending protocols and in no time is could possible become the top market protocol.
10% to @Tron-Fan-Club
Tweet link
https://twitter.com/SonOfMaaan/status/1538817318679154691?s=19
a very interesting article to read and also listen to and of course very many benefits Thank you for sharing here
Thank you for appreciating it.
I'm grateful
Your post is to be classified as plagiarism. Its content is derived from this article: https://academy.binance.com/en/articles/what-is-compound-finance-in-defi
Even if many sentences have been minimally changed, you have written off from the Binance article.
Plagiarism will not be tolerated!
I provided the reference
I did not copy word to word and I provided the reference
In fact, I'm a fan of this Compound Token. But I didn't have a detailed idea about its project. Thank you very much for providing this valuable article here. But I kindly request you to write all of these sentences in your own words. It will increase the quality of your article. Good luck for your future articles.