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MAR 31, 2022

Token Spotlight: Compound (COMP)

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Welcome back to our Token Spotlight series! This week, we explore Compound, a decentralized, community-governed lending and borrowing protocol built on Ethereum.

For a deep dive into Compound, check out this expert article written by Compound’s CEO & Founder, Robert Leshner, on Cryptopedia, or this article that provides a quick overview of the protocol.

Compound Basics

  • Governance Token: COMP
  • Underlying Blockchain: Ethereum
  • Total Token Supply: 10 million
  • Website
  • Whitepaper

Compound Use Cases

Compound is a venue for crypto owners to earn interest or access liquidity on their crypto assets. A user can supply their crypto in Compound to begin earning interest denominated in that crypto, with floating interest rates algorithmically determined by supply and demand.

Once their crypto is locked in Compound, suppliers receive cTokens that represent the funds they’ve supplied. For example, if a supplier decides to lock ether (ETH) in a Compound pool, they will receive cETH in return. Interest accrues to these cTokens, which can then be redeemed for their current value. Since cTokens are also ERC-20s, they can be used across the Ethereum ecosystem.

On the other side of the equation, borrowers can use Compound to seamlessly borrow crypto, without needing to negotiate terms with a lender, as interest rates and terms are open for all to see. As with supplying on Compound, the rate borrowers pay is algorithmically determined by supply and demand.

Both suppliers and borrowers on Compound receive a predetermined distribution of COMP each time an Ethereum block is mined.

COMP Token and Governance Overview

Since the publication of its whitepaper in February 2019, Compound has been a pioneer of decentralized protocol governance. The protocol has been community-governed since June 2020, when the Compound team passed protocol governance to the Compound community. Around that time, Compound distributed COMP — and with it, control over the Compound protocol and platform — to Compound users based on their proportion of on-chain activity.

COMP is an ERC-20 governance token, and gives holders voting power on the Compound protocol. COMP holders can propose and vote on any network decision, ranging from the amount of COMP rewarded for network usage to the types of assets accepted by the platform. Even the framework for Compound’s governance model itself can be voted on and modified by COMP owners.

Anyone with 100,000 COMP tokens can create a new proposal. Through a process called the Compound Autonomous Proposal, anyone with 100 COMP tokens can also initiate the creation of a new proposal, by gathering support from the community and having COMP tokens delegated to their proposal, providing an extra level of transparency and governance to the protocol.

We are excited about what the future holds for Compound and for the DeFi ecosystem. Check back here for more token spotlights as we continue on our mission to unlock the next era of financial, creative, and personal freedom.

Onward and Upward!

Team Gemini

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