Earn interest on your crypto
Lesson 1 – Earn interest with Compound
- Compound is a protocol running on Ethereum that lets individuals, developers, and applications earn interest on their crypto without relying on third parties.
- This is Maya
- She is a sophisticated crypto investor,
- with assets on exchanges and in private wallets.
- However, these assets are effectively idle,
- because she’s not earning interest on any of them.
- Her cash savings account pays interest.
- Why can’t her crypto ?
- This is why Compound was created.
- With Compound, Maya can earn interest on her crypto assets
- by supplying them to the protocol.
- Other users can then borrow her crypto,
- and then they pay interest on the borrowed assets.
- All of the suppliers and borrowers who use Compound
- combine to form a series of blockchain-based interest rate markets.
- When Maya supplies an asset to Compound, it gets added to a global liquidity pool,
- which other users can borrow from by providing collateral up front.
- When borrowers in a specific market accrue interest,
- the Compound protocol automatically distributes it to suppliers like Maya.
- This idea is already well established in the traditional finance world,
- where a 5.5 trillion dollar short-term borrowing and lending industry exists,
- in what are called money markets.
- Compound allows its users to participate
- in a decentralized money market for crypto assets,
- where individuals like Maya can supply their assets to Compound
- and immediately begin earning interest.
- Compound has no fixed terms,
- meaning that Maya can supply and borrow when she pleases,
- whether that’s for 30 minutes, or 30 years.
- Once a crypto asset is supplied to Compound,
- interest is automatically calculated and distributed with each new Ethereum block,
- every 15 seconds on average.
- This allows Maya to start earning interest
- on her idle crypto assets in a trustless economy
- that doesn’t rely on a central authority
- to manually calculate and distribute her supply interest.
- But Compound wasn’t just built for individuals like Maya.
- Because Compound is a decentralized protocol running on Ethereum,
- it works for everyone, anywhere in the world,
- and can also be integrated with all kinds of financial services and applications.
- Any application that holds crypto assets
- can integrate Compound’s interest rate markets.
- Unlocking the power of compound interest to offer brand new features and services.
- Already, there is a quickly growing ecosystem of apps
- built on top of Compound that do this.
- Compound makes this possible by providing the infrastructure for developers
- to launch future proof, decentralized financial services and applications,
- that can pass down Compound’s benefits to their users,
- enabling every user to simultaneously begin earning interest.
- The Compound protocol is a collection of Ethereum smart contracts,
- meaning it’s both decentralized, and completely autonomous.
- It allows Maya, as well as developers using Compound,
- to stop relying on and paying fees to third parties.
- That gives it a big advantage over traditional finance.
- To learn more about how Compound
- unlocks a universe of decentralized finance,
- visit compound.finance
- What’s a key benefit of using Compound ?
- Sending cryptocurrencies anonymously
- Mining Bitcoin and other cryptocurrencies
- Storing data privately on the blockchain
- Earning interest on your crypto
- Tracking real world goods using the blockchain
Lesson 2 – Borrowing crypto with Compound
- In addition to earning interest, the Compound protocol also lets individuals, developers, and applications borrow crypto via a series of interest rate markets.
- Typically, in order to take out a loan, Maya would have to fill out an application
- with a centralized financial service provider.
- It’s a long process, with a host of requirements and opportunities for bias.
- To avoid this, Maya could borrow crypto assets directly from Compound instead,
- using assets she has supplied to the protocol as collateral.
- In traditional finance, this process of borrowing against supplied assets
- is called over-collateralized lending.
- Compound is different from a typical money market though, because it’s decentralized
- and operates completely autonomously,
- the only central authority is the code itself.
- With Compound, Maya, or any financial application or service
- can instantly access borrowed crypto assets,
- and then make use of them however they see fit.
- For example, Maya’s goal might be to put an advanced trading strategy into place,
- like leverage her borrowed crypto to invest in other assets.
- To borrow crypto, the first thing Maya does is supply an asset to Compound.
- Supplied assets immediately start generating interest,
- and can also be used as collateral to borrow any other supported asset
- of Maya’s choice, the more she supplies, the higher her borrowing limit increases.
- To limit risk across the protocol,
- Compound gives each asset its own unique collateral factor,
- this means that each supplied asset will affect the borrowing limit differently.
- For example, for every $1 of ETH Maya supplies,
- she can borrow up to 75 cents worth of USD Coin,
- this is because ETH’s collateral factor is 75%.
- Maya earns interest on any asset she supplies,
- even while they are being used as collateral.
- This helps to lower the cost of borrowing
- as the net cost to borrow can be seen as the borrow rate
- minus the interest being earned on supplied assets.
- The interest rate for each compound market is dynamic
- and based purely on supply and demand.
- These rates determine the interest Maya pays for borrowing an asset,
- and are calculated per block, just like when earning interest.
- This is done to ensure the rates always reflect current market conditions.
- Over time, markets with fewer suppliers and lots of borrowers
- will become more expensive to borrow from
- and more rewarding to supply to,
- while markets with lots of suppliers and fewer borrows
- will become cheaper to borrow from
- and less rewarding to supply to.
- In essence, the more an asset is borrowed,
- the higher the interest rate will rise and vice versa.
- With Compound, Maya can save time and borrow crypto instantly,
- without having to liquidate her other crypto assets,
- provide her credit score, fill out an application
- or wait for an underwriter’s decision.
- To learn more about how Compound
- unlocks a universe of decentralized finance,
- visit compound.finance
- What do you need to do to borrow crypto with Compound ?
- Fill out a loan application
- Run a Compound node on your computer
- Stake at least 100 ETH
- Deposit cash through a traditional bank
- Supply a crypto asset as collateral
Lesson 3 – What is the COMP token ?
- COMP is an Ethereum token that enables community governance of the Compound protocol. COMP holders have the exclusive right to propose and vote on changes to the protocol.
- Compound’s goal is to create a protocol that can run forever
- and evolve in entirely new ways.
- In order to achieve this goal, the protocol was decentralized
- by creating and distributing COMP, Compound’s native Ethereum token.
- All changes to Compound originate from COMP token holders,
- who can propose and vote on changes to the protocol.
- Any user or application interacting with Compound can earn COMP.
- The more crypto-assets a participant supplies or borrows with Compound,
- the more COMP they will earn in return.
- Similar to how interest is earned with Compound,
- COMP distribution is calculated dynamically
- on a per-block basis and is distributed to suppliers and borrowers in each market.
- With the release of COMP, every Compound user will earn a say
- in the future of the Compound protocol
- without involving the Compound team.
- This is because simply holding COMP tokens
- will allow users to vote on proposed changes and upgrades,
- delegate their vote to a trusted person or group, to act on their behalf
- and submit their own proposals for improvements to the protocol.
- Each proposal is executable code,
- meaning that there is no space for different interpretations
- and doesn’t require a centralized team to implement.
- What’s seen within a proposal is exactly what will get deployed
- if it’s voted in by the community.
- When a proposal succeeds, it directly upgrades the protocol,
- allowing for new assets, revised interest rate models,
- and new functionality to be added over time.
- This puts the power of governance into the community’s hands.
- It creates a global protocol that is upgradable
- and can grow alongside the ever-changing needs
- of its users in new and unique ways.
- When this video was created, about 2880 COMP was being distributed per day
- across all eligible markets.
- As market conditions evolve, so too will the allocation of distributed COMP between users.
- The amount of interest paid by borrowers in each market
- affects how much COMP is awarded to participants of that market.
- The more interest paid, the more COMP is earned.
- While some markets will earn more COMP than others,
- suppliers and borrowers of any specific market will always earn an equal share.
- 100 years from now, Compound hopes for the protocol and its interest rates
- to be integrated into many applications around the globe,
- enabling entirely new products to come to life,
- across a wide range of industries and use cases.
- This will allow financial applications and end users to make use of idle crypto-assets
- and gain instant access to borrow funds
- all while supporting the ongoing development
- of unique financial applications and services worldwide.
- Collectively, it is up to Comp holders like Maya, to decide the future of the protocol.
- With Maya’s help, and with the support of Compound’s community
- of developers and users, Compound hopes to continue to evolve over time,
- adding new integrations and supported assets
- to grow the reach and capabilities of the protocol
- for many years to come.
- To learn more about how Compound
- unlocks a universe of decentralized finance,
- visit compound.finance
- Who gets to decide the future of the Compound protocol ?
- A randomly selected validator
- No one
- The World Bank
- The Compound developer team
- COMP token holders