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8:36 PM · Jun 18, 2020Twitter Web App

2) COMP is the governance token of

@compoundfinance

, a DeFi company. I've known and liked the Compound team for a while--especially

@cjliu49

, but only took a deep dive into their product more recently.

Replying to

3) compound.finance is a DeFi lending portal. You can deposit one ERC20 token and borrow another, getting ~3x leverage or so. So far not too unique--there are lots of DeFi lending platforms.

compound.finance

Compound

Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

4) One cool thing about Compound is the interest rate calculation--it looks at the supply and demand of each coin and algorithmically determines an interest rate. So if lots of people want to borrow USDC and no one wants to lend, rates will increase until that evens out.

5) The really cool things, though, are the cTokens. Rather than just paying you interest directly, Compound tokenizes it. What does that mean?

6) Say you deposit 5 USDC and lend it out for 1%/year. Compound takes your USDC and in return gives you cUSDC, $1:$1. So if cUSDC is worth $0.25, it'll give you 20 cUSDC for you 5 USDC. All cUSDC is fungible--you can send it to a friend, who can then redeem it back for 5 USDC.

7) So cUSDC is basically an IOU for 0.25 USDC, which Compound gives you in return for the USDC you're loaning out. Now, when Compound goes to pay interest to the USDC lenders, it doesn't send them USDC. Instead, it just increases the number of USDC you get per cUSDC.

8) Since all USDC lenders are owed the same % interest, Compound can just increase the value of the cUSDC they all have. And so if you earned 10% total interest, when you go to redeem your 20 cUSDC, you get 5.5 USDC back instead of your original 5.

9) So cUSDC is basically just an every-increasing number of USDC, growing at the interest rate on Compound. I'ts kinda like a coin that can only go up! (Unless there is a liquidation failure/hack/etc. on the platform, in which case it can go down.)

10) Here's the kicker--this means that you can effectively lend USDC on Compound without ever touching the platform! All you have to do is buy cUSDC with your USDC, and it'll grow at the Compound interest rate. It's a tokenized DeFi interest rate, which is really cool!

Cryptocurrency Derivatives Exchange

11) So, today, ftx.com and ftx.us are going to list cUSDT markets. This means you can buy cUSDT with your USDT, keep the USDT exposure, and automatically effectively earn interest.

ftx.com

FTX

12) We'll even allow cUSDT to be collateral for futures on FTX and spot margin on FTX US, so you can earn interest on your USDT collateral while using it to trade other products.

Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

13) Alright, enough about cTokens--what's COMP? COMP is the 'governance' token of compound.finance -- sort of like an exchange token, except more DeFi.

compound.finance

Compound

14) There's probably a lot more to COMP than I know, but here are the biggest things I've been thinking about: 1) voting 2) interest rate distribution

15) You can use COMP to vote on proposals on app.compound.finance/vote. So the way the platform will evolve is by the will of the COMP token holders. Right now some people are proposing USDT collateral, and voting on that proposal with their COMP.

Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications.

16) In addition, each day COMP is distributed to users of the platform proportional to the interest they pay/receive; this has driven a lot of the growth in assets managed by compound.finance in the last few days.

compound.finance

Compound

17) COMP has also skyrocketed in price; it's now the highest market cap DeFi token (if you look at fully diluted value), having surpassed MKR. Will it sustain that? I don't know! I guess a lot of it comes down to whether it's going to set the new standard for DeFi lending.

18) I'm not the most involved in the DeFi space, and so I'm not equipped to know what the future holds. But I can repeat what our head of engineering said when he learned how cTokens work: "I wonder why we didn't come up with it".

19) Anyway that's a quick foray into Compound Finance. I'm sure I screwed a lot of it up--people who know more than I, feel free to roast me in the comments!