Compound (COMP) Wallet

What is Compound (COMP)?

Compound is a decentralized finance (DeFi) lending protocol that allows users to earn interest on their cryptoassets by depositing them into one of several pools supported by the platform. Launched in September 2018, it is widely considered one of the key “bluechip” DeFi protocols upon which much of the decentralized finance ecosystem is built. Compound runs on the Ethereum blockchain.

Read more: What is Defi?

How does Compound work?

Compound is a decentralized application (DApp) for borrowing and lending. To supply or lend, you deposit cryptoassets into a Compound pool and receive cTokens in return. These cTokens represent your stake in the pool and can be used to redeem, at any time, the underlying cryptoasset initially deposite. Over time, the exchange rate of these cTokens to the underlying asset increases, which means you can redeem them for more of the underlying asset than you initially put in — this is how the interest is distributed.

To borrow, you can take a secured loan from any Compound pool by depositing collateral. The maximum loan-to-value (LTV) ratio varies based on the collateral asset, but currently ranges from 50 to 75%. The interest rate paid varies by borrowed asset and borrowers can face automatic liquidation if their collateral falls below a specific maintenance threshold.

Read more: What’s a DApp?