Compound is a Decentralized Money Market That Allows You to Get a Loan in Minutes
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So you’ve been investing in crypto for a while now. You have different cryptocurrencies in one or more wallets, sitting idly by. The Fiat money you have in a savings account is earning interest, so why can’t your cryptocurrencies? This is the problem that Compound has set out to solve.
Blockchain Based Interest Rate Market
Compound users earn interest on their crypto assets by supplying them to the Compound protocol. Other users can pay interest by borrowing these assets which creates a blockchain based interest rate market. When users supply an asset to Compound it is entered into a global liquidity pool which other users can borrow from by supplying collateral up front. Once borrowers accrue interest the Compound protocol automatically redistributes the payments to the suppliers.
Decentralized Money Markets
This concept is already well established in the traditionalfinance world, where a 5.5 trillion dollar short term borrowing and lending industry exists in what are called money markets. Compound allows users to participate in a decentralized money market for crypto assets. Individuals can supply their assets to Compound and immediately start earning interest in a trustless economy that doesn't rely on any central authority. Users also benefit from no third party involvement and unnecessary fees.
Borrowing Using Compound
To take out a loan using compound users participate in a process called “overcollateralized lending” where they supply their own assets as collateral to be borrowed against. This process of overcollateralization allows Compound to act in a completely decentralized nature. In a typical centralized lending process, borrowers are required to fill out lengthy applications and undertake a long process with a host of requirements and opportunities for bias. The overcollateralization of Compound allows users to immediately gain access to borrowed funds with no oversight from a central authority.
The Comp Token
Comp is Compound’s native Ethereum token. Comp is the currency distributed to users as a reward for supplying assets to the Compound protocol. Comp holders receive governance rights allowing them to vote on and propose changes to the protocol. Comp token is not to be confused as the interest payment. When a user supplies a token, that token is the currency for which the interest payment will be paid in. Users receive the Comp token distribution on top of their interest distribution.
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