Compound Finance: What is it and how can I use it?

What is Compound Finance?

Compound Finance is a protocol on Ethereum for decentralized money markets. An algorithm sets the interest rates. Users can earn interest or borrow against ether and Ethereum tokens.

Compound recognized that because most cryptoassets were just being held, they weren’t contributing to the broader open finance ecosystem. Borrowing and lending cryptoassets was inefficient. The traditional approach of matching funds to specific loans greatly limited liquidity by locking funds until loans mature.

Compound addresses these inefficiencies with the creation of a decentralized money market with interest rates. The rates automatically adjust based on supply and demand.

Users supply their cryptoassets, which can either earn interest or act as collateral for loans denominated in ether or ERC20 tokens. This creates a shared pool of liquidity.

Traders can take short positions on tokens supported by Compound: Basic Attention Token (BAT), MakerDAO’s stablecoin Dai, Augur (REP), 0x (ZRX), and ether (in the form of Wrapped ether, WETH).

Why did the founder start Compound?

According to Compound’s Founder Robert Leshner, “Compound was started to meet the need for trustless, decentralized borrowing solutions — we quickly realized that the reason why products hadn’t worked yet, was because they all attempted create peer-to-peer lending markets. Our solution was to replace the peer with a protocol, that would always take the other side of a transaction, and adjust the economics of the platform accordingly.”

Where is Compound going?

In mid-2018, Compound received funding from some well-known outside investors. Then on September 27, 2018, the Compound protocol launched on the Ethereum mainnet. It has gained in popularity since then. In early December 2018, users had locked over 40K ether in Compound’s smart contracts.

How can I use Compound?

You can use the Compound protocol through the Compound App at compound.finance.

Even if you aren’t ready to use Compound, did you know that Settle offers the most advanced portfolio tracking tool in crypto… for free! If you haven’t experienced a professional portfolio management tool before, you should try it now.