Compound Finance is a form of savings account where you can earn interest without entrusting your money to a third party. It enables lenders to provide borrowers with loans secured by their crypto assets held in the Compound protocol.
Compound Finance
Compound, like most DeFi protocols, is built on the Ethereum blockchain. Lenders may provide loans to borrowers by using the DeFi protocol to lock their crypto properties. You may also use Compound Finance to move, swap, and use money in other DeFi applications. COMP is the native token of the Compound network.
How Compound Finance works
Positions (supplied assets) in Compound are monitored using cTokens, the native tokens of the platform. cTokens are Ethereum-based ERC-20 tokens that mark claims to a portion of a Compound asset pool. Depositors receive an equal quantity of cTokens as collateral for locking up ERC20 properties in the Compound protocol.
When borrowing crypto from Compound, keep in mind that your collateral must be greater than a certain amount, or Compound will liquidate your collateral to repay the loan. You will delete your crypto assets locked in the Compound protocol once you've made your repayment.
The supply and demand of each crypto asset determine interest rates. Compound allows you to borrow additional crypto assets in addition to earning interest on your crypto assets. cTokens are created each time a user deposits crypto assets into the Compound protocol. These ERC20 tokens can be exchanged and used in other decentralized apps (DApps).
Using an Ethereum wallet, you can mint or create cTokens. BAT, DAI, ETH, REP, USDC, WBTC, and ZRX can all be borrowed or lent on Compound. New cTokens are created whenever you deposit crypto assets into the Compound protocol. You will earn the cETH equivalent of your deposited ETH if you borrow crypto with ETH as collateral.
Final Words
In the Decentralized Finance ecosystem, compound finance is one of the most common lending and borrowing solutions.
Compound Finance's long-term aim is to decentralize completely and hand over control of the underlying protocol to a Decentralized Autonomous Organization (DAO) run by the Compound group.
