Compound

Compound is a DeFi decentralized application built on the Ethereum network. It's a service that uses multiple crypto assets to allow lending and borrowing between users. This is done without a financial intermediary such as a bank. The platform is completely peer-to-peer. Compound lets users deposit crypto assets into a liquidity pool, which in turn allows them to earn interest on their assets.

The Compound platform gives users the ability to lend, borrow, and farm yield with their crypto. When lenders deposit crypto into a liquidity pool, Compound rewards them with a cToken. This token is a representation of the deposit. So if you deposit some ETH, you're going to receive the amount of cETH corresponding to the value of the lent ETH. cTokens can be freely transferred or traded by users. They are however only redeemable for the crypto they represent, which was initially locked. With time, the exchange rate of cTokens increases. This means that users may redeem them for more crypto than they initially deposited.

The second type of user are borrowers. They take secured loans from their chosen Compound Pool, by depositing collateral. The LTV (loan-to-value) ratio is varied and depends on the asset used as collateral. It usually ranges from 50% to 75%. If the provided collateral falls under a certain threshold, borrowers will face automatic liquidation.

To create an incentive for users, Compound rewards them with COMP, the native currency of the platform. Each time a user lends/borrows/repays an asset, they get rewarded in COMP. For example, lenders on the platform receive COMP based on the value of their cTokens in their wallet. The amount of COMP is also determined by the interest rate on the specific assets represented by the users' cTokens. COMP tokens have a daily issuing schedule, and their maximum supply is fixed at 10 million tokens.

Users who hold COMP can take part in the governance of the protocol. This is done by making, and voting on different proposals. COMP holders may also choose different users, to vote on proposals, on their behalf.