Compound is a decentralized finance (DeFi) platform built on the Ethereum blockchain that allows users to lend and borrow cryptocurrencies. It was launched in 2018 and has gained popularity in the DeFi space for its innovative approach to lending and borrowing.
Compound operates as a decentralized lending platform, meaning that it does not rely on intermediaries such as banks or financial institutions. Instead, users can lend their cryptocurrencies to the platform and earn interest, or borrow cryptocurrencies by using their own cryptocurrency as collateral. The interest rates for lending and borrowing are determined by market supply and demand, and they can change in real-time.
What sets Compound apart from other lending platforms is its algorithmic interest rate model. Compound uses an algorithm to determine interest rates based on the supply and demand of each cryptocurrency on the platform. This means that interest rates can change in real-time based on market conditions, making it a more dynamic and flexible lending platform.
Compound also uses a unique governance model that allows holders of its native cryptocurrency, COMP, to participate in the decision-making process of the platform. Holders of COMP can propose and vote on changes to the platform, such as fee adjustments or new features. COMP can also be earned by users who lend and borrow on the platform, incentivizing participation and providing a mechanism for decentralized governance.
Overall, Compound is a decentralized lending platform that offers a unique approach to interest rates and governance through its algorithmic interest rate model and COMP token. It has become one of the largest DeFi platforms, with billions of dollars in total value locked in its lending pools.