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Compound: What & How Does it Work?

Compound COMP was created by Geoffrey Hayes and Robert Leshner in 2016, after they invented the system in 2016.

What is Compound & How Does it Work? iBase Trading.
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Geoffrey Hayes and Robert Leshner created compound COMP in 2016 after they invented the system in 2016. It’s a decentralized blockchain network or, to be more precise, a DeFi (decentralized finance protocol). Customers can deposit and borrow bitcoins and earn interest on their deposits and borrowings.

The COMP method implemented on Ethereum and is a smart contract amongst non-Ethereum cryptocurrencies at its simplest form.

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Compound kicked off the DeFi summer in May 2020 with its COMP token liquidity mining operation. Individuals who participated in this scheme for borrowing and lending receive COMP Tokens. The APYs of several coins skyrocketed as a response to this payout.

Consumers should also swap between lending and borrowing different tokens in order to maximize their profits. The development of yield farming occurred as a response to this. As a result, the DeFi summer officially began. Following the debut of this program, a slew of new protocols emerged, all of which started to distribute their tokens through liquidity mining in the same way. This has opened up even more prospects for high-yield farming.

Using and Earning COMP Tokens

COMP tokens can be used and earned in two ways: one through borrowing and lending and the other through COMP mining. Whenever clients borrow or lend cryptocurrency on the Compound platform, they can gain COMP.

Even though the user’s interest income is negative, they gain COMP. This occurs because customers that borrow and lend cryptocurrencies acquire COMP tokens. This can be utilized to obtain a higher proportion of COMPANY every annum. In other words, customers get rewards for taking out loans using exact calculations.

COMP mining is a clear and uncomplicated process. Users can optimize their COMP payout in the quickest length of time by mining COMP. There are further methods to boost your earned COMP even more.

Users who want to be the lenders will supply their tokens in financial markets set up for specific tokens like ETH or BTC. The supply APY of the coin could interest such customers as they invested in the financial markets.

Lenders Supply Tokens to the Money Market

It then enters into a smart contract and are available for borrowing by other users. The smart contract issues cTokens with interest to the lender in exchange for the borrowed tokens.

The borrower must also provide a guarantee in other tokens worth more than the loan amount. If the collateral price multiplied by the collateral ratio drops below the loaned value, the collateral will dissolve. The collateral should always be worth more than the entire borrowed amount.

Compound permits users to generate compound interest by providing assets to its liquidity pool, such as cryptocurrency. Compound mortgage rates adjust constantly based on the supply and demand of a particular asset. There is no lockup period, and the collateral can be reclaimed or paid at any moment.

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Peter Gonzalez is an experienced writer focusing on cryptocurrencies and other financial topics with a passion for personal finance. Peter enjoys Sports cars and travelling.