Compound is an Ethereum protocol that allows people to lend and borrow cryptocurrency.
What is Compound v2?
Compound v2 is based on the Compound whitepaper launched in 2019. Like most DeFi protocols, it is a system of openly accessible smart contracts built on Ethereum. The platform allows borrowers to take out loans and lenders to provide loans by locking their crypto assets into the protocol. Unlike in traditional finance, however, the interest rates paid and received by borrowers and lenders on Compound are determined algorithmically by the supply and demand of each crypto asset. Interest rates are generated with every block mined, and locked assets can be withdrawn at any time.
The Compound Protocol is an Ethereum smart contract for supplying or borrowing assets. Through the cToken contracts, accounts on the blockchain supply capital (Ether or ERC-20 tokens) to receive cTokens or borrow assets from the protocol (holding other assets as collateral). The Compound cToken contracts track these balances and algorithmically set interest rates for borrowers.COMP is an ERC-20 token that allows the owner to delegate voting rights to any address, including their own address. Changes to the owner’s token balance automatically adjust the voting rights of the delegate.
What is Compound III?
Different from v2, Compound III enables users to supply crypto assets as collateral to borrow base assets. Now, Compound III is deployed on Ethereum. Users can use $ETH, $WBTC, $LINK, $UNI, and $COMP as collateral to borrow base asset USDC.
$COMP is an ERC-20 asset that empowers community governance of the Compound protocol; COMP token-holders and their delegates debate, propose, and vote on all changes to the protocol.
The community governance of Compound
$COMP allows the owner to delegate voting rights to the address of their choice; the owner’s wallet, another user, an application, or a DeFi expert. Anybody can participate in Compound governance by receiving the delegation, without needing to own $COMP.
Anybody with 1% of $COMP delegated to their address can propose a governance action, such as adding support for a new asset, changing an asset’s collateral factor, changing a market’s interest rate model, or changing any other parameter or variable of the protocol that the current administrator can modify.
Proposals are executable code, not suggestions for a team or foundation to implement.
All proposals are subject to a 3 day voting period, and any address with voting power can vote for or against the proposal. If a majority and at least 400,000 votes are cast for the proposal, it is queued in the Timelock, and can be implemented after 2 days.