About Compound (COMP)

Compound Frequently Asked Questions (FAQ)

What is the purpose of the Compound protocol in DeFi?


The purpose of the Compound protocol in DeFi is to create an algorithmic, autonomous interest rate protocol built for developers to unlock a universe of open financial applications, allowing users to lend and borrow crypto assets without having to negotiate terms such as interest rates or collateral with a peer or a counterparty.




How do cTokens work in the Compound ecosystem?


In the Compound ecosystem, cTokens represent tokens that users get in exchange for supplying assets to the protocol. When users deposit cryptocurrency into Compound, they receive an equivalent amount of cTokens. These cTokens accrue interest over time, representing the user's share of the underlying asset plus accrued interest. Users can redeem their cTokens for the underlying asset plus the interest earned at any time. This model allows users to earn passive income on their assets while maintaining liquidity in the protocol.




Can users borrow from the Compound protocol using collateral, and how does it work?


Yes, users can borrow from the Compound protocol by supplying assets as collateral. The process involves depositing a supported cryptocurrency into the protocol, which then enables the user to borrow other cryptocurrencies up to a certain percentage of their collateral's value. This percentage is known as the 'Collateral Factor.' Users must maintain a collateral balance above a specified minimum threshold to avoid liquidation.




What is the role of COMP tokens in the Compound platform?


COMP tokens serve as the governance tokens of the Compound platform, allowing holders to propose and vote on changes to the protocol, such as adding new collateral types, adjusting collateral factors, or upgrading the system. This decentralized governance model empowers COMP holders to shape the platform's evolution.




Who are the founders of Compound and what is their background?


The founders of Compound are Robert Leshner and Geoffrey Hayes. Robert Leshner has a background in economics and worked in various roles including as a product lead and economist, while Geoffrey Hayes has a technical background with experience in engineering and leadership positions.




How does Compound aim to utilize cryptocurrencies that are idly sitting on exchanges?


Compound aims to utilize cryptocurrencies that are idly sitting on exchanges by allowing users to earn interest on their assets through a decentralized finance (DeFi) lending platform. Users can supply their cryptocurrencies to Compound's liquidity pool, where they become available for borrowing by others. In return, suppliers earn interest, which accumulates over time, incentivizing the utilization of idle assets.




What sets Compound's community governance model apart from other platforms?


Compound's community governance model is distinctive due to its fully decentralized approach, which gives COMP token holders the power to propose, debate, and implement changes to the protocol without reliance on a central authority. This means all changes are subject to community voting, ensuring that every decision made is reflective of the collective view of its stakeholders. The emphasis on an open and autonomous system fosters a transparent and inclusive platform for decision-making.




How many COMP tokens are in circulation and what is the total supply?


As of the last available information, there are approximately 6.82 million COMP tokens in circulation. The total supply is capped at 10 million COMP tokens.




What is the distribution plan for the total supply of COMP tokens?


The distribution plan for COMP tokens is structured as follows: 42.3% to Compound users as rewards for protocol interaction, 24% reserved for Compound founders and team members with a 4-year vesting period, 22.25% for future governance participation incentives, 7.75% to investors with a 4-year vesting period, and the remaining 3.72% for Compound Labs, Inc. with a 4-year vesting. The total supply is 10 million COMP tokens.




How are interest rates determined on the Compound platform?


Interest rates on the Compound platform are determined algorithmically based on the supply and demand of each asset within the market. Rates adjust automatically as market conditions change, incentivizing lenders and borrowers to bring the supply and demand into equilibrium.




What happens if a borrower's collateral falls below the maintenance threshold on Compound?


If a borrower's collateral on Compound falls below the maintenance threshold, their position becomes undercollateralized and subject to liquidation. Other users can then repay part of the borrower's debt in exchange for their posted collateral at a discounted price, up to a maximum liquidation limit.




How has the Compound protocol grown since its launch in terms of locked value?


Since its launch, the Compound protocol has seen significant growth in terms of locked value. Initially, the protocol had a lower total value locked (TVL), but over time it attracted more users and assets, with TVL increasing into the billions of dollars. This represents a substantial growth in user confidence and utilization of the protocol for lending and borrowing cryptocurrencies.




What measures are in place to secure the Compound network and its users?


To secure the Compound network and its users, the following measures have been implemented: rigorous smart contract audits conducted by reputable security firms, formal verification processes to mathematically prove the correctness of the protocol's algorithms, and bug bounty programs incentivizing the discovery and reporting of potential vulnerabilities. In addition, the network operates with an upgradable proxy pattern for smart contracts to address any identified issues, and governance is decentralized, allowing the community to propose and vote on changes and upgrades. Furthermore, the use of time-locked contracts and multisig wallets adds an extra layer of protection for administrative operations.