Compound (Ethereum)

Compound protocol was created by Robert Leshner and launched in 2018. Compound has its smart contract-based architecture which allows users to lend their digital assets to liquidity pools. This asset is available for borrowing by other users. Compound is a decentralized finance (DeFi) protocol. This protocol is built on the Ethereum blockchain. It facilitates the lending and borrowing of various digital assets. It is designed to provide users with an efficient and permissionless platform to earn interest on their crypto holdings or borrow assets without the need for traditional financial intermediaries. Interest rates on borrowed assets are algorithmically determined based on supply and demand dynamics. In this way, both parties are connected and the reward is distributed like a traditional banking channel. But this one is decentralized and almost real-time without any need for a middleman.

Compound has a native interest-earning token called C tokens. When users deposit their crypto into the Compound protocol, they receive cTokens in return. The holding of the token represents their share of the pool's assets. cTokens are interest-bearing tokens. Again these tokens can be freely traded and transferred like other tokens. Users can borrow against their deposited collateral by taking out loans in the form of cTokens. The amount that can be borrowed depends on the collateral's value. The collateralization ratio is basically set by the protocol.

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Borrowers must maintain a minimum collateralization ratio to avoid liquidation. The compound is an efficient and transparent interest rate model. Interest rates on borrowing are determined algorithmically and fluctuate based on the supply and demand for specific assets. This dynamic rate system helps ensure that the borrowing and lending markets remain balanced. The compound's transparent nature provides users with the ability to monitor the protocol's operations in real time. All transactions and interactions on the platform are recorded on the Ethereum blockchain. This is the security of the data storage of this financial system. Blockchain itself is well enough to ensure the trust of the asset and data leaking problems. The compound also has its native governance token called COMP which allows holders to propose and vote on changes to the protocol.

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VEIGO (Community Mod)

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