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Project history

Compound, launched in September 2018, is a decentralised finance (DeFi) platform built on the Ethereum blockchain that allows users to lend and borrow digital assets in a fully automated way and without intermediaries. It is one of the first projects to create a liquid money market for cryptocurrencies using a decentralised and permissionless framework.


The Compound protocol operates on a dynamic model where interest rates for lending and borrowing cryptocurrencies are automatically adjusted based on supply and demand. Users looking to lend their cryptocurrencies to the protocol are issued cTokens in return. These are ERC-20 tokens representing the lender’s stake in the liquidity pool that accrue interest over time.

Compound employs an overcollateralisation strategy to secure loans, requiring borrowers to supply collateral of greater value than the loan. This ensures the system’s stability and mitigates the risk of default. Borrowers supply one type of cryptocurrency, such as BTC or ETH, to receive another one, for example, DAI. This allows users to access liquidity without having to sell their digital assets.

The protocol incentivises participation and liquidity through yield farming (also known as liquidity mining), where users earn Compound’s governance token, COMP, by lending and borrowing different cryptocurrencies. COMP tokens serve both as a reward mechanism and grant holders governance rights, allowing them to propose and vote on changes to the protocol.

Token supply model

COMP has a maximum supply of 10 million tokens, but the distribution of new COMP tokens is designed to incentivise participation in the Compound protocol. New COMP tokens are distributed to users that interact with the protocol’s market (50 percent to lenders and 50 percent to borrowers), with an adjustable issuance rate based on the relative borrowing demand in each market.

Key value drivers

Compound aligns with the broader DeFi trend by providing users with a decentralised platform to directly participate in lending and borrowing markets outside the traditional banking system.

Furthermore, Compound contributes to the liquidity of the crypto markets, encouraging the lending of idle assets to generate returns for the lender, while providing essential liquidity to borrowers.

Compound’s ability to provide alternative access to credit and improve DeFi market liquidity, could potentially drive demand and value for COMP tokenholders.

This information was prepared by Sygnum Bank AG. This information may contain forward looking statements and may be subject to change. The opinions expressed herein are those of Sygnum Bank AG, its affilitates, and partners at the time of writing. This is for informational purposes only and contains general material. It does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum Bank AG to purchase or sell assets or securities. It is not intended to be used as a general guide to investing, and it should be used for informational purposes only. When making an investment decision, you should either conduct your own research and analysis or seek advice from an expert to make a calculated decision. The information and analysis contained here have been compiled from sources believed to be reliable. However, Sygnum Bank AG makes no representation as to its reliability or completeness and disclaims all liability for losses arising from the use of this information.

Bitcoin Bitcoin BTC
Ethereum Ethereum ETH
Uniswap Uniswap UNI
Litecoin Litecoin LTC
Chainlink Chainlink LINK
Bitcoin Cash Bitcoin Cash BCH
Polygon Polygon MATIC
Internet Computer Internet Computer ICP
Tezos Tezos XTZ
Aave Aave AAVE
Maker Maker MKR
Compound Compound COMP
Curve Curve CRV
Synthetix Synthetix SNX
Bancor Bancor BNT
1inch 1inch 1INCH
Aragon Network Aragon Network ANT
Digital Swiss Franc Digital Swiss Franc DCHF
Sushiswap Sushiswap SUSHI
Cardano Cardano ADA
Solana Solana SOL
Avalanche Avalanche AVAX
NEAR Protocol NEAR Protocol NEAR
Polkadot Polkadot DOT
Kusama Kusama KSM
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