Compound FAQ

Robert Leshner
Dec 6, 2018 · 4 min read

Compound is an algorithmic, autonomous interest rate protocol— allowing users & applications to frictionlessly earn interest or borrow Ethereum assets.

If you have questions or to learn more, join the Compound Discord.

Getting Started

How do I use Compound?

Where else can I access the Compound protocol?

There are a number of community-built interfaces that you can use to access the Compound protocol & markets, including Zerion, InstaDapp, etc. You can find the full list on Compound’s website.

How does the Compound protocol work?

Compound is the first “liquidity pool” — instead of lending assets directly to another user, you supply liquidity to a market, and users borrow from that market.

In each market, interest rates are determined algorithmically (based on supply and demand), and interest accrues every Ethereum block.

There are no pre-defined durations or terms (such as “90 days”) — you can use the Compound protocol for as short as one block, or as long as you’d like; you’re free to withdraw or repay at any time.

I’ve heard of cTokens, what are those?

When you supply assets to the Compound protocol, your balance is represented as a cToken, which can be transferred, traded, or programmed by developers to create new experiences, similar to other Ethereum tokens..

Interest Rates

How are interest rates set?

Interest rates are a function of the liquidity available in each market, and fluctuate in real-time based on supply and demand. When liquidity is plentiful, interest rates are low. As liquidity becomes scarce, interest rates increase, incentivizing new supply and the repayment of borrowing.

You aren’t locked into an interest rate — expect it to change frequently.

Why is the supply rate lower than the borrow rate?

In each market there is excess liquidity (assets supplied > assets borrowed), which allows you to quickly withdraw or borrow funds from the protocol.

The interest paid by borrowers is earned by the suppliers of the asset. Because there are more suppliers, the interest rate they earn is proportionately lower; this is the liquidity effect.

Second, a portion (1/10th or 1/20th by market) of the interest paid by borrowers is set aside as reserves, which provides a liquidity cushion, and is a safety mechanism in the liquidation process.

How is interest calculated?

The interest rates you see in the Interface are quoted as annual interest rates. Interest accrues each Ethereum block; every ~15 seconds, your balance will increase by (1/2102400) of the quoted interest rate. Really!

Security

Is the Compound protocol safe? Has it been audited?

The security of the Compound protocol is our highest priority; our development team, alongside third-party auditors and consultants, has invested considerable effort to create a protocol that we believe is safe and dependable. All contract code and balances are publicly verifiable, and security researchers are eligible for a bug bounty for reporting undiscovered vulnerabilities.

Our security page contains details on each security audit, and the formal verification of the protocol.

How does the protocol’s price feed work?

The price of BAT, REP, ZRX, and WBTC are a median of prices from Coinbase Pro, Bittrex, Poloniex, and Binance, denominated in Ether, and posted on-chain after a 1% deviation in an asset’s median price. For security, price changes are limited (at the protocol level) to 10% per hour, unless a manual approval is provided by a second, offline address. DAI, SAI, and USDC are based on Maker’s ETH/USD price feed.

Compound is developing an advanced price feed, the Open Oracle System, to create a transparent, decentralized, resilient, and tamper-proof price feed.

How can I view my balance, without trusting the interface?

Sometimes, a balance appears as 0 (typically due to an issue with MetaMask or Infura). Relax — this is common.

To view your balance on the Ethereum blockchain, visit the Etherscan contract for the cToken, and scroll to 13. balanceOf. Enter your address, click Query, and your cToken balance (with 8 decimals) will be shown.

To calculate your balance in the underlying asset, multiply your cToken balance by 4. exchangeRateStored, and divide by 1e18.

Help! I can’t access Compound!

The Compound protocol lives on the Ethereum blockchain, and is “always-on”. In the event that MetaMask or the Compound Interface are malfunctioning, you can always access the Compound protocol manually.

Governance

Who controls the Compound protocol?

Compound is managed by a decentralized community of COMP token-holders and their delegates, who propose and vote on upgrades to the protocol.

How does Governance work?

Any address with more than 100,000 COMP delegated to it may propose governance actions, which are executable code. When a proposal is created, the community can submit their votes during a 3 day voting period. If a majority, and at least 400,000 votes are cast for the proposal, it is queued in a Timelock contract, and can be implemented after a 2 day waiting period.

How do I get involved in Compound Governance?

The community has created a Compound Forum to discuss governance proposals, and share ideas.

Compound

Compound is an algorithmic, autonomous interest rate protocol built for developers.

Robert Leshner

Written by

Full-stack founder of Compound. Chartered Financial Analyst, previously a finance guy.

Compound

Compound

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

Robert Leshner

Written by

Full-stack founder of Compound. Chartered Financial Analyst, previously a finance guy.

Compound

Compound

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

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