Compound Finance is a lending protocol enabling users to lend and borrow popular cryptocurrencies like Ether, Dai and Tether.
Compound leverages audited smart contracts responsible for the storage, management, and facilitation of all pooled capital. Users connect to Compound through web3 wallets like MetaMask with all positions being tracked using interest-earning tokens called cTokens.
Compound Finance introduced a governance token – COMP token which allows tokenholders and delegates to vote on important protocol decisions like new collateral types, borrowing power, and interest rate models. COMP holds no economic benefits and is solely used to vote on protocol proposals.
Compound Finance lets you lend and borrow crypto assets without any middlemen.
Both lenders and borrowers get even more value from their crypto. Lenders earn interest, while borrowers deposit crypto to gain access to credit without the banking headaches.
How does Compound Defi work?
Compound operates similar to a bank. You can deposit various cryptocurrencies and earn an annual interest on your deposits, similar to depositing your money into the bank. However, Compound’s main difference is that it does not have custody of your cryptocurrency deposits. Instead, you are actually sending your crypto to and interact with a smart contract, rather than another company or user. This feature is important because it means that no person or authority can control or take your funds.
What makes all of this so interesting is that since Compound is a DeFi platform, it does not have to follow the Federal Funds Rate. It can do something completely different and cannot be shut down since there is no central authority.
Here are a few more facts that might interest you:
- There is no minimum for either lending or borrowing
- Lenders earn interest about every 15 seconds (every Ethereum block)
- You can use Compound for as long as you like, without any penalties
Compound Finance Interest Rates (Compound Finance Fees)
Compound’s algorithms decide on interest rates. But you don’t need to know high-level computer programming to figure out what interest rates currently are. Check the Compound Finance markets page.