Compound is a decentralized money market protocol built on the Ethereum blockchain.

Project Vision:

Construct a multi-currency money market fund to provide a money market for mutual financing of different currencies.

Market needs:

Compound is an agreement based on Ethereum, which is used to establish a fund pool based on the change of supply and demand of assets, and the interest rate is calculated by algorithm. Suppliers and borrowers of assets interact directly with the protocol, earning or paying floating rates. The Compound protocol tries to solve the liquidity problem through the money market system, and currently most cryptocurrencies are idle in exchanges and wallets, and asset owners have no corresponding interest.

Solution:

The COMP token incentive model is to use "stock" to subsidize both borrowers and lenders, allowing lenders to get higher returns and borrowers to get lower interest rates. The behavior it incentivizes is that lenders deposit more and borrowers borrow more. And use tokens to motivate both depositors and lenders, so they actively deposit and lend to improve the liquidity of the Compound market. COMP will be distributed to users of the protocol for free, as long as the user uses the Compound protocol for lending transactions. Moreover, the larger the loan amount, the more COMP you will get. This process is called "borrowing is mining".

The specific mechanism is as follows:
4,229,949 COMP tokens are placed in a "Reservoir" smart contract, and each Ethereum block will transfer 0.5 COMP tokens (that is, about 2880 COMP tokens per day) COMP), which means that it will take 4 years to distribute all;
COMP will be allocated to each lending market (ETH, USDC, DAI, etc.), and the interest generated in the market As a ratio, this means that the allocation ratio will change at any time;
In each market, 50% of COMP will be allocated to asset providers, and 50% of COMP will be allocated to borrowers. The market share is obtained;
Once an address obtains 0.001 COMP, any transaction in Compound will transfer the corresponding COMP to their address, and for a smaller amount, the obtained COMP can also be collected by itself.

Project Features:

The main participants in Compound are four parties, lender, borrower, liquidator and compound itself.
First, the lender mortgages qualified assets into the Compound smart contract. Compound currently accepts a total of nine eligible assets, and future COMP holders (legislators) can vote to approve new eligible assets. Currently, there are 11 different token pools in Compound (BAT, DAI, SAI, ETH, REP, USDC, WBTC, UNI, COMP, ZRX and Tether(USDT)).
After the Lender mortgages the assets, it will get the corresponding certificate pass, called cToken. Because there are 11 types of assets, there are 11 types of cTokens, which are called cBAT, cDAI, cSAI..., cTether.
Secondly, after the Lender mortgages the assets, it is eligible to borrow. A lender can become a borrower, and at the same time, it is stipulated that the loan amount of a borrower should be less than the current value of the mortgage asset, that is, the ratio of the loan amount to the mortgage asset is less than 1.
Finally, after Borrower borrows money, it needs to be repaid and interest needs to be paid. This interest is the entire source of income for Compound.
If the ratio between the arrears balance and the collateral is close to the safety line due to the appreciation of the assets borrowed by the borrower, or the depreciation of the previously mortgaged assets, the liquidator (liquidator) mechanism will pay off the debt, and then obtain the lender's original mortgage Assets can be sold in a timely manner for a profit. After the liquidation, the cToken in the hands of the lender will be invalid.

In the liquidation mechanism of the Compound protocol, it adds a collateral factor attribute to each type of asset, which defines the amount of a certain type of asset unit collateral that can be borrowed from other assets. Namely, the mortgage rate. The current main lending agreement borrows through over-collateralization, usually requiring a collateral ratio of less than 150%. If the collateral value falls below the required collateral ratio of 150% for collateralized assets (such as ETH), a liquidation procedure will be triggered. Once the liquidation process is initiated, the liquidator can immediately obtain collateral (such as ETH) at a discount of 3%-5% below the market price, that is, the original collateral is liquidated.

Incentives:

COMP, the governance token of the Compound protocol, represents the voting rights of the holders. Community members can make changes to the protocol through proposals and voting. In the loan mining incentive launched by COMP, 50% of the 4.23 million pieces will be allocated to lenders, and 50% will be allocated to borrowers. Users can obtain the corresponding proportion of COMP according to the proportion of their assets in the market.

Token distribution and release:

The total amount is fixed, and 42.3% of the tokens will be mined with Ethereum starting from June 16. Each Ethereum block will produce 0.5 COMP, and 845,989 COMP will be produced every year, and it will be mined in four years.

23.96% has been distributed to Compound Labs shareholders
22.26% will be distributed to founders and team members in 4 years
3.73% will be distributed to future team members
50.05% is reserved for users of the agreement (42.3% of them have clearly assigned methods)

Security Audit:

On September 3, 2019, the security company Zeppelin passed the audit of Compound.

Market Opinion:

Lending mining and liquidity mining are token distribution mechanisms and incentive mechanisms, which are good catalysts, but only when the project itself has a basic business, this mechanism is meaningful. Even if Compound itself does not have COMP tokens, it can continue to operate in line with the market. As far as the DeFi economy is concerned, the continuation of the development of Bitcoin's "decentralization" concept also requires more innovative attempts. Compound can be regarded as a phased start.

Project risk:

During the sharp drop in currency prices, Ethereum network transactions are clogged, and the risk of repayment cannot be executed; contract loopholes and security attack risks.

Value Judgments:

Token COMP currently only binds voting rights, not dividend rights, and is just a community governance token. There are two kinds of expenses involved in the use of the Compound platform by users. One is the handling fee charged for each transaction (paid to the miners who confirm blockchain transactions on Ethereum), and the other is the interest rate difference between the deposit and borrowing rates. The profit part Part of the income from compound and loan interest may become the value support of COMP, but it is currently unclear where this part of the profit will be used (the previous version of the white paper was referred to as the economic profit of the Compound operating team).