Compound, a DeFi lending protocol, has attracted a lot of new users since its launch in 2018. It is a decentralized application (DApp) that runs on top of the Ethereum network. The platform works by letting users contribute to a liquidity pool or deposit crypto money to earn interest on their assets.

Introduces a decentralized system for lending ethereum tokens so that appropriate money markets can operate, and creates a secure positive yield method to store assets.

In the market, some people's tokens are stuck in the money wallet, and there are no effective investment channels. At the same time, a large number of users need to borrow money.

The COMP token incentivizes both lenders and borrowers, bringing large amounts of capital into the liquidity pool.

The main participants in Compound are Foursquare, Lender, Verticals, Liquidator, and Compound itself. First, lender mortgages qualified assets into Compound smart contracts. Compound currently accepts a total of nine eligible assets and future COMP holders (legislators) can vote to approve new eligible assets. There are currently 11 different token pools within Compound (BAT, DAI, SAI, ETH, REP, USDC, WBTC, UNI, COMP, ZRX, and Tether(USDT)). After Lender mortgages the assets, it gets the corresponding token, called a cToken. Because there are 11 kinds of assets, get cToken also divided into 11 kinds, respectively called cBAT, cDAI, cSAI... , cTether. Second, the Lender is eligible to borrow after mortgaging its assets. Lender can become so that its borrowing amount is less than the present value of the mortgage asset, that is, the ratio of the loan amount to the mortgage asset is less than 1. Finally, when he or she borrows money, he or she must pay it back, with interest. This interest is Compound's entire source of income. If, due to the appreciation of the borrowed asset or the depreciation of the previously mortgaged asset, the ratio of the outstanding balance to the collateral nears a safe level, the liquidator facility will pay off the debt and acquire lender's assets originally mortgaged for sale at a profit. After liquidation, the Ctokens held by the lender will become invalid.

Community governance vote.

In the Compound settlement system, it adds collateral factor to each asset class, which defines how much collateral a given asset class can borrow against other assets. The mortgage rate. Current major lending agreements borrow through excess collateral, typically requiring a ratio of less than 150%, and trigger liquidation if the value of the collateral falls below the 150% required for a mortgaged asset such as ETH. Once the liquidation process is initiated, the liquidator can immediately obtain the collateral (such as ETH) at a discount of 3%-5% below the market price, i.e. the original collateral is liquidated.

Compound provides technical support such as tokenized balance, ERC20 normalized cToken and hedging collateral.

The COMP token incentive model uses "equity" to subsidise both lenders and borrowers, enabling lenders to earn higher yields and thus lower interest rates. The action it encourages is lenders borrow more, borrowers borrow more. Token is used to encourage both depositors and borrowers, so as to increase the liquidity of Compound market. The COMP will be distributed free to users of the protocol as long as they use the Compound protocol for loan transactions. And the more money you borrow, the more COMP you get, which is called borrowing and mining.

Under the Maker agreement, anyone can use their ETH assets to generate DAI on the platform, and DAI holders can use DAI Savings Rate (DSR-Multi-mortgage model) to achieve stable, low-risk investment returns. In a Compound agreement, participants can lend out their crypto assets and earn interest on them. Participants deposit their crypto assets as collateral in a Compound Smart contract and borrow against it. The contract automatically matches borrowers and lenders and dynamically adjusts interest rates based on supply and demand. Aave offers credit mandates, whereby depositors with unused borrowing power can entrust a line of credit to someone they trust to earn extra interest.

Borrowing mining, liquidity mining are allocation mechanisms and incentive mechanisms for tokens, which are good catalysts, but only meaningful if the project itself has a fundamental business. Compound itself can continue to operate without COMP tokens. In terms of DeFi economy, more innovative attempts are needed to continue the development of bitcoin's "decentralized" concept. Compound is a step in the right direction.

Pay off the risk of non-execution, contract loopholes, security attacks, etc.

The token COMP is currently tied only to the voting rights, not to the right to distribute, but to the community governance token. The user's use of the Compound platform involves two types of expenses, one is the fee charged for each transaction (paid to the miner confirming the blockchain transaction on Ethereum), and the other is the interest rate difference between the deposit and the borrowing rate, and some of the income from the profit and borrowing interest may become the COMP value support. There is no indication of where this profit is being used (the previous white paper referred to it as economic profit for the Compound operation team). In addition, without access to the real economy, it is still doubtful whether the deposit and loan demands of users on the platform can be sustained in the long run.