Most people acquire cryptocurrencies and keep them in their digital wallets. Metaphorically they hide them under their mattresses, awaiting market-price hikes so they can sell them and make profit. There is nothing wrong with doing so; however, this is old-school, and you are missing a great chance to generate interest the way traditionally banked assets do. If you deposit some money in a traditional bank, what happens? They make money with your money by lending your hard-earned cash to other people in desperate need. The bank collects considerable interest and pays you just a peanut back, and you say, “thank you”.
Now think of this, your deposited digital money is in a global crypto network, controlled by no banks, governments, or institutions. Your idle money in your wallets can be lent to people on the crypto network globally, and you can also borrow money on the network within seconds. All these will happen without fees, as we are all used to with traditional financial systems. This is Compound Network at work in combination with the power of crypto and blockchain technology.
How the internet changed our print and electronic media world and how mobile phone technology changed and affected our landline telephone system is precisely how cryptocurrency and blockchain networks will revolutionise the banking system as we know it today. So, it pays to educate yourself timely on the principles of this technology, so you are not left out when the train is on the move.
Compound is an algorithmic, autonomous interest rate protocol built for developers to unlock a universe of open financial applications. Compound aims to create liquid money markets for cryptocurrency by algorithmically setting interest rates and letting you invest by borrowing and then short-selling coins you think will sink.
Compound has published its powerful allies for that quest. Compound (Comp) has become the first-ever investment by crypto exchange juggernaut Coinbase’s new venture fund. It is part of an $8.2 million seed round led by top-tier VC Andreessen Horowitz, crypto hedge fund Polychain Capital and Bain Capital Ventures — the start-up arm of the big investment firm.
The future of cryptocurrency is fast and dynamic. While Compound deals in cryptocurrency through the Ethereum blockchain, co-founder and CEO Robert Leshner says that eventually, he wants to carry tokenised versions of real-world assets like the Dollar, Yen, Euro or Google stock.
How Can You Get Compound Interest on Your Crypto?
Here is how this works: It is an “overnight” market that permits super-short-term lending. While it is not a bank, it is centralised, so you loan to and borrow from it directly instead of through peers, saving you paper crams, filling of forms and long negotiation. If you take a loan, you can earn interest. If you borrow, you must put up 100 per cent of your borrowed value in an asset that Compound supports. If prices fluctuate and your borrowed sum becomes worth more than your collateral, some of your collateral will be liquidated through a repo agreement, so they stand equal.
To set the interest rate, Compound analyses supply and demand for a particular crypto asset to set a fluctuating interest rate that adjusts as market conditions change. You, therefore, earn on what you constantly lend and can pull out your assets at any time within a 15-second lag. Furthermore, Compound takes a 10 per cent cut of what lenders earn in interest. You also pay that rate when you borrow. According to Leshner, “Eventually our goal is to hand-off responsibility [for setting the interest rate] to the community. In the short term, we are forced to be responsible. Long-term, we want the community to have more say. We think it is a game-changer. Ninety per cent of assets are sitting in people’s cold storage, or wallets, or exchanges. They are not being used or traded; Compound could let people interact globally with crypto in a whole new way”.
The History of Compound Creation:
Compound is the third company Leshner, and his co-founder and CTO Geoff Hayes have started together. They have been teamed up for 11 years since going to college at UPenn. Nevertheless, before that Leshner got into the banking and wealth management business, becoming a certified public accountant. A true economics nerd, he is the chair of the SF bond oversight committee and got into crypto five years ago. Robert Leshner is arguably most known for founding a decentralised finance lending platform Compound back in 2017. A graduate of the University of Pennsylvania in economics, he is also the former chair of the San Francisco Revenue Bond Oversight Committee.
Sitting on coins, Leshner wondered, “Why can’t I realise the time value of the cryptocurrency I possess?” Compound was born in mid-2017 and came out of stealth in January. Now with $8.2 million in funding that also came from Transmedia Capital, Compound Ventures, Abstract Ventures and Danhua Capital, Compound is pushing to build out its product and partnerships and beyond its seven current team members based in San Francisco’s Mission District
The Race is on: Conquering the Money Markets
Money markets are just one piece of the financial infrastructure puzzle that still needs to emerge around blockchain. Custodians, auditors, administrators, and banks are still largely missing. Meanwhile, there are plenty of peer-to-peer crypto lending protocols on the Ethereum blockchain, like ETHLend and Dharma. There are other crypto lending platforms, but none is like Compound. Centralised exchanges like Bitfinex and Poloniex let people trade on margin and speculate more aggressively. But they are off-chain, while Leshner says Compound is on-chain and transparent. That could make it a more critical piece of the blockchain finance stack. In every venture, there are risks. There is the risk of these exchanges getting hacked and your coins getting stolen. However, Leshner is happy to dream big despite all the crypto world’s volatility.
How to Buy Compound (COMP)
- Open an Online Account. Before investing in Compound, you will typically want to open an account with a cryptocurrency broker.
- Buy a Wallet. After you complete your first cryptocurrency purchase, it is a good idea to transfer your coins or tokens to a wallet.
For more information: visit Coinbase