Compound is an emerging decentralized protocol that enables a network of computers to operate a traditional money market. The protocol is made up of a series of decentralized interest rate markets that lets users supply and borrow different Ethereum tokens at different interest rates.
Compound has two primary users: lenders and borrowers. Lenders send their tokens to an Ethereum address managed by Compound. These addresses then act as lending pools and lenders earn through interest. Borrowers then share collateral to borrow cryptocurrencies supported by Compound at a percentage of the posted value.
Compound has two types of tokens: the cTokens and COMP.
cTokens
As lenders deposit their crypto assets, the Compound protocol awards them a cToken. The cToken represents the deposit made. cToken examples include cETH, cBAT, and cDAI. By minting cTokens, lenders can earn interest through the cToken exchange rate, increasing the value of the underlying asset. Each cToken can be transferred or traded without restriction. However, it is only redeemable for the initiall cryptocurrency.
Using cTokens is the primary way to communicate with the Compound protocol. The cToken contract is used for traditional money market activities like redeeming, borrowing, repaying a loan, liquidating a loan, or transferring cTokens on the protocol. cTokens employ the EIP-20 interface which enables any tokens on Ethereum to be reused by other applications. The cToken contract integrates each asset supported by the protocol.
Compound COMP Token
COMP is an ERC-20 token that is native to the Compound protocol. Every time a user interacts with the Compound protocol, they receive COMP Tokens as a reward.
COMP token holders have the ability to propose changes to the protocol and vote on these changes. Owning at least 100 COMP tokens allows a user to create one autonomous proposal. This autonomous proposal evolves into a governance proposal once it receives 65,000 COMP tokens. After the governance proposal turns into a draft, it goes through a two-day review period. After the review period, voting starts and lasts for three days. When the proposal gets a majority and at least 400,000 votes, the proposal then goes to queue in the Timelock. The proposal is then effective two days later.
It is important to note that COMP tokens are not minable. The Compound Labs team issues 2,800 new COMP tokens that they equally distributedbetween the borrowers and lenders. The total supply of Compound coins is 10 million.
