What is Compound?
07 Feb 20222min
What is Compound?
Compound is another DeFi borrowing innovation, which actually predates its trendier more happening cousin Aave. Identifying the flaws in traditional avenues of loans, Compound aimed to bridge the gap between traditional understanding of interest rates in borrowing and lending and the burgeoning world of cryptocurrency.
By implementing an automated, decentralised protocol, Compound is designed “for the frictionless borrowing of Ethereum tokens without the flaws of existing approaches, enabling proper money markets to function, and creating a safe positive-yield approach to storing assets”.
As of December 2021, Compound has a total lending pool exceeding $19 billion with a wide variety of tokens and assets available for trading. The open-source nature of the Compound protocol also ensures fair and balanced borrowing and lending to happen on-chain.
DeFi lending and borrowing is still in its relative infancy, so there has never been a better time to join this innovative field!
Let’s say you want to use Block Earner to borrow or lend USDC (USD Coin - a digital stablecoin is pegged to the United States dollar). When this transaction is opened, you receive a tokenised version of that loan in return. This takes the form of cUSDC, aka Compound USDC.
When buying 1000 USDC worth of cUSDC, this could be around 50,000 cUSDC at time of purchase. The rate stays fixed at 8% all year. The cUSDC is finally worth 1,080 USDC which can be sold back to AUD. If you want to hold cUSDC, the value of the cUSDC will only increase, allowing you to buy back even more USDC.
For Block Earner users, this is updated daily. Notably, this value is guaranteed to never go negative, meaning your USDC value will never go down.
The exact details of this workflow are all handled by Block Earner’s backend, leaving the technical challenges out of your hands. All you need to do is choose your assets and let the code handle the dirty work!