Compound: Digital Asset Lending Platform (Ethereum)

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Compound is one of a growing array of lending and borrowing platforms that are beginning to mature on the Ethereum blockchain. As one of the more recognisable names in the crypto lending business, with write ups and mentions from mainstream publications like Fortune, CNBC, Bloomberg, TechCrunch and Wall Street Journal, they enjoy a higher amount of active users on their platform (which is a key metric for the successful matching of lenders and borrowers).

Currently, the project is ranked at #47 in a ranking of dApps across a number of blockchains at State of the dApps, a project run by @stateofthedapps.

Getting Started

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Getting started with Compound requires only the ubiquitous Metamask plugin, an extension for your browser for signing and authorising transactions on the Ethereum blockchain A quick authorisation (required each session) is all that is required for the protocol to be able to view your current state with the Compound protocol.

After signing the authorisation transation, you are good to go (until the session ends when you close the browser or sign out....).

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Supported Assets

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Currently, the platform supports the lending and borrowing of BAT (Basic Attention Token), DAI (MKR-DAI stablecoin), REP (Auger), WETH (Wrapped Ether) and ZRX (0x Protocol), which is a small selection in comparison to some other lending platforms. However, the choice of the tokens available for lending does need to be chosen carefully, to ensure that you have projects that are relatively robust and secure projects (from the point of view of the very volatile crypto markets...) that can have relatively stable lending market built upon them. Each of the digital assets have different APR interest rate attached to them (one for lending and another for borrowing), which will fluctuate based on the changing balance of supply and demand in the lending market.

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Liquidity and demand are critical indicators of the health of a lending market. There is no point have liquidity in the lending pool if no one wants to borrow, and conversely, no point having demand if there is no will to lend.

There is a tracking of the liquidity and demand of each of the five assets. As you can see, the current demand for DAI is the greatest, thus reflecting the much higher Supply and Borrow rates on that particular asset in comparison to the other four assets in the lending pool.

Lending and borrowing

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Lending was the part of the market that was of immediate interest to me. Lending is done by adding liquidity to the lending pool, the borrower then takes a loan from the lending pool instead of being matched to an individual user. In this way, each individual lender is protected from the intricacies of writing up and executing the parameters of the loan contract, as that is all handled by the protocol (which does take a small fee for the service).

Adding supply to the protocol requires only the signing of two transactions, the first being the authorisation of the protocol to access your token balances, and the second is the actual supply of the tokens to the lending pool. Both transactions are required to be on-chain transactions and so you will have to spend a small amount of Ethereum for the gas fees, however, no additional on-chain transactions are required after this, until you decide to withdraw your assets from the pool.

Final Thoughts

In the current state of the digital asset lending markets on Ethereum, Compound occupies a middle group between the complexity of platforms like Nitrogen and Uniswap, and the simple interface (and simplicity of lending) of other platforms like Dharma.

Personally, I think that Compound has found a sweet spot between the two, with a small but reliable selection of tokens on offer for the lending market. There is a good deal of matching between liquidity and demand, which is somewhat lacking on some of the competitor platforms. The idea of a lending pool is also quite appealing to users who don't want to be continually checking the lending market to monitor demand and adjusting lending contract parameters, especially when alterations cost gas.

So far, of the lending platforms that I've tried so far, Compound is my current favourite. It might not offer the absolute best returns, but the ease of use and the authorise and forget model is something that is much more appealing to me.

Plus, the fact that it has a dark theme is just the icing on the cake!

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Heh... hope you are finding it useful! Put your tokens and coins to work... sort of... the liquidity and demand aren't always well matched....

Dabbling in such ventures myself.

Cool, very cool stuff.

And to the ETH haters I must say this:

"First to market - leading to a consumer's monopoly for smart contracts, legions of DApps and dev support, concentrated efforts for innovation (ETH based stablecoin, futures), and increased speed/scalability (e.g., the Raiden Network, phased-in POS,) is a recipe that's hard to beat."

BTW, I'm also currently enjoying the 0x protocol...

As usual, enjoyed your post immensely.

Namaste, my friend.


How are you finding it?... In general, I'm finding that the supply and demand are completely mismatched... I've had most success so far with Compound.

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