Although I have been seeing COMP on the crypto markets, I didn't really check on it until yesterday when while on SanR, I noticed that its price keeps shooting up. That got me interested and went for a quick research about the token. And today, let me just share what I found out about it.
Before delving into the token COMP, let's first learn about its protocol, Compound Finance which according to data from Coingecko, was founded by Robert Leshner and Geoffrey Hayes in 2017. Compound officially launched on the Ethereum mainnet in 2018.
So What is Compound
Compound or Compound Finance is a decentralized, blockchain-based protocol or marketplace that allows users to lend and borrow digital assets. It is an algorithmic, autonomous interest rate protocol built for developers to unlock a universe of open financial applications.¹ It is an Ethereum smart contract for borrowing and supplying of assets.²
From a technical perspective, you can think of Compound as a system of smart contracts developed on Ethereum with open accessibility. The protocol emphasizes enabling borrowers to take loans and lenders to offer loans through locking their crypto assets in the protocol. It enables tokenization of assets locked in the system by using COMP tokens.³
How Does it Work
Users can supply assets to the protocol by depositing them into the Compound liquidity pools and they receive cTokens in return as a representation to their balance.
The cTokens earn interest and users can redeem them for the underlying assets at any time. The interest that users earn is denominated in the same token that they deposit or lend. Depositing ETH means earning interest in ETH too.
The interest rates for both borrowing and lending assets are algorithmically set based on the supply and demand of each asset. Hence, they are not fixed but fluctuating based on market conditions.⁴
Users can also use the cTokens as collaterals when taking a loan and can borrow up to 50 to 70% of the value of their collateral depending on the asset.
Supported Assets & Networks
The protocol supports its own token COMP, ETH, Aave, USDC, Sai, Dai, BAT, Tether, Ox, Augur, Wrapped BTC, LINK, Sushi, TUSD, Uniswap, PAX Dollar, Yearn.Finance (YFI) and Maker.
It currently supports Ethereum, Polygon and Arbitrum.
COMP Token
This is an ERC-20 token that serves as the governance token for the Compound protocol. It gives its holders special voting rights and allow them and their delegates to debate, propose and vote on changes or any network decisions.
Compound (COMP) token holders can delegate their voting rights to any address, including their own. The delegate's voting rights are automatically adjusted when the owner's token balance changes.⁵
All users and all applications built on top of Compound will continuously, and automatically receive governance rights, for free— in order to shape the future of the protocol. (Source)
Currently, around 1,891 COMP are distributed to users of the protocol each day - the distribution is allocated to each market (ETH, USDC, DAI…), and is set through the governance process by COMP token-holders.⁶
Each time a user interacts with any of the Compound market (by borrowing, withdrawing or repaying the asset), he gets rewarded with additional COMP tokens.⁷ The daily distribution can be monitored on the Compound Dashboard.
COMP Tokenomics
Circulating Supply: 6,856,085 COMP
Total Supply: 10,000,000
Max Supply: 10,000,000
Token launch: 15th Jun 2020
The Initial token distribution is as follows:
- 42.15% was allocated to Liquidity Mining (4,215 million)
- 23.95% was allocated to Shareholders (2.395 million)
- 22.46% was allocated to Founders & Team (2.246 million)
- 7.73% was allocated to the Community (773k COMP)
- 3.71% was allocated to Future Team Members (371k COMP)
Based on the supply schedule, the total token supply is to be completely vested by June 2024.
(src)
COMP can be traded on Binance, Coinbase Exchange, BTSE, UniSwap V2 & V3 and various other CEXes and DEXes.
For further reading and information, check out the following official sites.
Summary (TL;DR)
Compound Protocol is a DeFi that enables users to lend and borrow cryptocurrencies by locking their assets on the Compound liquidity pools. In return, they get cTokens as a representation to their deposited assets which they can earn interests from or use as collateral when taking loans.
The protocol currently supports Ethereum, Polygon and Arbitrum networks and various digital assets like ETH, DAI, USDC, Pax Dollar, COMP, YFI etc.
Users of the protocol get COMP tokens daily. Around 1,891 COMP are distributed each day to the users.
COMP is the governance token of Compound Protocol and holders can debate, propose and have a say (vote) on decisions or changes to the network among other things. 1 COMP = 1 vote. COMP has a total supply of 10M and is available to trade in over 100 crypto exchanges, like Binance, UniSwap, Coinbase Exchange etc.
Lead image created on Canva. Logo from Compound Finance. No copyright infringement intended. 14072023/09:30ph