Guides to Blockchain Related Apps
16. Compound Market Protocol Application
Compound application is developed by Compound Labs, Inc. and is a market protocol platform running on the Ethereum blockchain that provides a marketplace for users to seamlessly earn interest on or loan cryptographic assets without needing to negotiate with anyone. Every market has dynamic interest rates that will adjust according to market conditions in real time. The admin has the access to suspend assets, upgrade interest rate models, withdraw sponsor equity etc but the team has plans to turn Compound into a fully decentralized platform.
Interest rates will change because when there are lots of supplies and less demands, realistically interest rates will be low. And when demands are high with low level of supplies, interest rates will be higher to attract new suppliers.
Interest rates quoted in the Interface and Market Overview are annual rates. Interests are not paid to users via Ethereum transactions, instead, their balances in the protocol will increase each block. After every 15 seconds, user’s balance will increase by 1/2102400 as interest accrues each Ethereum block and every supplier of an asset will earn the same interest rate.
Users only need to pay gas costs of submitting Ethereum transaction to supply assets in Compound market. There will be origination fee of 0.025% to borrow asset and users will be responsible for the interest that they accrue.
Users can borrow as many as they wish, as long as they maintain a Supply balance of 1.50x borrow balance as collateral. Multiple different assets can be used as collateral and supplied balances (Regardless of collateral) can earn interest. User can supply or borrow asset for as long as he/she wishes or for as short as 1 block, asset can be withdrawn or repaid at any time.
The Compound team reported that Compound records are stored in the same way as an ERC-20 token records are stored. Users control and have ownership of the balances in the protocol with their private keys or public addresses.
Compound is still an experimental technology with risks not completely understood by even the development team. Users are advised to use Compound cautiously and with assets they are comfortable in losing.