Among the many services offered by DeFI (decentralized finance), we find the possibility to grant and obtain loans in cryptocurrency. Compound is a company that has recently entered the online trading market and offers a viable alternative to conventional loans. The many features and services offered by Compound have quickly attracted the attention of a good number of investors, and especially all traders operating on the Ethereum blockchain. So let’s see how Compound works and what are the features of its COMP tokens and CTokens.
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What is Compound
The Compound (COMP) project was born with the aim of proposing a valid alternative to the traditional system of loans and capital immobilization, in fact, it operates through a protocol capable of automating deposit and loan operations with cryptocurrencies and manages them through smart contracts. COMP is Compound’s governance token, is based on ERC20 blockchain and is connected to Ethereum. By effectively leveraging DeFi Compound allows you to receive or make loans while eliminating the risk of default, automating almost all of these transactions. By making a deposit, moreover, users are entitled to receive interest on the immobilized capital.
Compound (COMP) was introduced to the market in the year 2017. Its founder and CEO Robert Leshner, a well-known economist and cryptocurrency expert, conceived the project with the intention of creating a savings system related to the decentralized finance system. Leshner aimed to improve the system of traditional loans, which is often slow and dense with bureaucratic quibbles: Compound, in fact, makes transactions immediate and easy to carry out, eliminating any intermediary and allowing anyone to lend sufficient guarantees in the form of cryptocurrencies.
The protocol immediately aroused the curiosity and interest of the investor community, in fact Compound is one of the most clicked and searched financial treads currently. In June 2020, the value of funds deposited on Compound reached a value of $910 million.
How it works
The Compound protocol bases its functionality on decentralized finance and the Ethereum blockchain. Its essential elements are block loans, COMP governance token and CTokens.
Compound offers the ability to open lines of credit and create loans through blocks of crypto assets. The interest rate is defined by the relationship between supply and demand, so it is inextricably linked to cryptocurrency volatility. For each block realized, indicated by the CTokens token, the user receives interest in COMP and thus has the opportunity to realize gains through the immobilization of their capital. Unlike traditional loans, the blocked capital can be withdrawn at any time.
COMP is the governance token of the Compound protocol. Anyone who owns the cryptocurrency, therefore, can participate in decisions about updates and changes to the project by exercising their voting rights. COMP is also the token through which users receive the interest accrued with their deposits.
Each loan or deposit made is indicated by its corresponding value in CTokens. The cryptocurrency deposited by the user, therefore, is transformed into the Compound protocol’s own token and remains immobilized in the system, generating interest, until the user decides to withdraw it. Currently Compound supports only a few types of cryptocurrencies and, among them, we find: Ether (ETH), Tether (USDT), Dai (DAI), Sai (SAI), USD Coin (SUDC), Augur (REP), Ox (ZRX) and Basic Attention Token (BAT).
The Compound Project: Benefits and Risks
Compound offers a new model of economic ecosystem centered on cryptocurrencies and, thanks to blockchain technology, it is established as a great alternative to traditional loans and deposits. Although it was launched in 2017, it only gained fame and popularity during 2020, the year when investors started to take advantage of its high potential.
Among the advantages offered by Compound (COMP) we find the interesting possibility of generating passive income without investing a large capital. It is therefore an excellent opportunity for all those who own non-interest-bearing sums of money. The decentralized governance, without intermediaries, makes deposit and withdrawal operations simple and fast, optimizing the cumbersome bureaucratic processes typical of the traditional financial system.
On the other hand, one of the risks of depositing capital in cryptocurrencies is their high volatility. A sudden collapse in the value of the currency, in fact, would affect both those who have requested loans and those who make deposits. Compound then proves to be a highly speculative protocol, requiring a fair amount of knowledge of the online trading industry.
Predictions for the Future
As we have seen Compound (COMP), although it has been on the market for a relatively short time, is a protocol with great potential. Its trend shows how, after an initial period marked by various fluctuations, its value has managed to stabilize and in 2021 has followed a strongly bullish trend.
The opinions of the major expert analysts, such as Wallet Investor Prediction, Long Forecast, Digital Coin Price and GOV Capital foresee in the near future a further increase in the value of COMP, but there are also companies that maintain more neutral valuations (such as Trading Beasts).
In conclusion, it can be said that Compound (COMP) seems to present an excellent opportunity for all those who look with interest at the sector of loans and deposits related to the world of DeFi. An investment with speculative purposes, therefore, could prove to be highly convenient.