Why Compound Finance is Crypto’s Hot DeFi Lending Protocol

Unknown Speaker  0:01  

Welcome to the New To Crypto podcast designed to guide you through the crypto landscape with pinpoint accuracy created for the new and intermediate crypto investor. Join your host Crypto Travels Michael as he takes you through the different facets of getting started and succeeding in your crypto journey. New to crypto podcast brings you new episodes daily Monday through Friday with surprise bonus episodes sometimes on the weekend. Let me ask you, are you new to crypto don’t know where to start? Are you more experienced but have questions? Then you’re in the right place. This podcast is designed for you, coming at you from the training center in the lifestyle design studio. Here’s your host Crypto Travels Michael.

Michael  0:51  

Hey, welcome to today’s show. I’m really excited about this project, everyone that listens and the entire community and I just look forward to growing things and providing more valuable resources for you. We’re coming out with how to guides on the website. I’m coming out with a crypto apparel line and NFT collection drop and many more resources and tools including a course that’s in development, and it’s all designed to help you grow and navigate the crypto landscape. So without further to do, let’s jump into today’s episode.

This is an awesome one. It’s all about Compound Finance. So why is Compound Finance Cryptos hot DeFi lending protocol and that’s what we’re gonna dive into. So put your seat belt on because here we go. The Compound protocol is a decentralized financial protocol that seeks to create an ecosystem of financing and loans through credits to its users by applying interest on the assets that they have within the system. So let’s unpack the benefits and technology. Compound is an open source protocol that allows working on the creation of new decentralized financial applications using cryptocurrencies by making available a financing model through credits to its users and interest on the assets that they have within the system. 

This system sort of works like a cryptocurrency bank where people can deposit their their tokens or their cash via tokens in the crypto assets that the platform makes available for trading within the platform such as ETH and CRK. In addition, it works on the Ethereum blockchain, making use of its smart contracts, which means that when implementing blockchain technology, it is not necessary to have central authorities acting as intermediaries, which is why this is a tool that is closely framed under the concept of DeFi technologies or decentralized finance. So basically, in my previous episodes, in my very first episodes, I broke down and mentioned decentralized and the beautiful thing about crypto and the fact that there’s no intermediaries, there’s no payment processors, you’re just dealing direct in crypto. 

So Compound allows developers to obtain funding for the creation and development of various cryptocurrency applications that will accelerate the processes of the total decentralization and this this is sort of changing traditional banking methods, if you will. And things are rapidly changing with this new thing called digital money or crypto when I say new I mean in relatively in the last decade, because this entire industry is basically implementing and expanding on a large scale current through all types of different exchanges worldwide, including centralized and many, many dexes which are decentralized exchanges. Compounds main function is based on creating money markets based on crypto assets by making available a real time and changing exchange according to the supply and demand that the market has and it’s updated every 10 seconds. Whenever there’s a fluctuation in interest rate according to the amount of funds that are available for loans or vice versa. 

All positions in Compound are tracked in tokens called ctokens. Compounds native tokens. See tokens are ERC20 tokens that represent claims to a portion of an asset pool in Compound, if users deposit ETH into Compound it’s converted to c if users deposit the stable coin DAI it’s converted to cDAI if users deposit multiple coins. they’ll earn each interest based on their individual interest rates or return. In other words, cDAI will earn the cDAI rate and cETH will earn the cETH ROI. ctokens can be redeemed for the portion of the pool they represent which makes the supplied assets available in the connected wallet as the money market earns interest ctokens earn interest and become convertible to more of the underlying asset. Lending and Compound is really simple, and a user just has to unlock the asset that they wish to supply liquidity for sign the transaction and then start supplying cap. The assets are instantly added to the pool and borrowing is a little more complicated but not too bad. Users deposit funds to cover their loan in return, they earn borrowing power, which is required to borrow on Compound, every asset that is available for supply will add a different amount of borrowing power, users can then borrow according to how much borrowing power they have. 

With the emergence and implementation of Compound there are multiple benefits that have been attained in terms of the advancement of decentralized finance as the new model of the economic ecosystem. So who’s the founders of Compound? Well, Robert leshner is the founder of the project and he’s a chartered financial analyst and former economist and founder of two previous software startups. So let’s break down the token for Compound which is C-O-M-P, COMP is a governance token of the Compound protocol and is predetermined amount is distributed to all lenders and borrowers on the Compound protocol every day. COMP distributions happen every time an Ethereum 

block is mined, which is approximately every 15 seconds give or take. So COMP distributions happen every time an Ethereum block is mined in an amount proportional to the interest accrued by each asset. Token holders propose and vote on changes to the protocol. Compound governance proposals are executable code, which is subject to a three day voting period. If a governance change to the protocol is passed by the community it will take effect two days later, giving anyone a chance to close any open positions before the changes go into effect. In this way Compound is entirely self governed ecosystem. Each day approximately 2312 COMP will be distributed to users of the protocol the distribution is allocated to each mark for example ETH USDC, DAI etc. and is set through the governance process by COMP token holders. Within each market. Half of the distribution is earned by suppliers and the other half by borrower.

So this is the overview of Compound today. I hope this has been informative for you definitely like and subscribe to the podcast. I have some excellent episodes coming out for the rest of this year. And I look forward to joining you here tomorrow. Until then I’m out.

Unknown Speaker  7:29  

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