What is Compound?
Compound is a money market protocol on the Ethereum blockchain — allowing individuals, institutions, and applications to frictionlessly earn interest on or borrow cryptographic assets without having to negotiate with a counterparty or peer. Each market has dynamic interest rates, which float in real-time as market conditions adjust.
Where can I access the Compound protocol?
Where else is Compound?
Community developers are building novel new interfaces and product experiences on top of Compound, including Bloqboard, StableWire, Curious Giraffe, etc. — over time, you’ll have more ways to access Compound.
Why are there different interest rates?
Interest rates are a function of the liquidity available in each market. When liquidity is plentiful (lots of supply, low borrowing demand), interest rates are low. As liquidity becomes more valuable (supply is low, and borrowing demand is high), interest rates increase, incentivizing new supply and the repayment of borrowing.
How often is interest calculated?
The interest rates you see in the Interface and Market Overview 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!
When I supply an asset, am I locked into an interest rate?
Nope! Every supplier of an asset earns the same interest rate, each block, regardless of when they originally supplied the asset. The interest rate floats (adjusts) each block as market conditions change.
How is interest paid?
Interest isn’t distributed through Ethereum transactions; instead, your balances in the protocol increase each block.
Why is there a spread between supply and borrowing rates?
The Compound protocol allows there to be a mis-match between the quantity of supply, and the quantity of assets borrowed; by design, there is always an excess of liquidity. The flip-side is that the interest paid by borrowers must be spread across a larger pool of suppliers, such that their interest rate is proportionately lower.
The /markets page shows sponsor equity. What is that?
In each market, 10–15 percent of the interest generated by borrowers is retained by the protocol (the rest is distributed proportionately to suppliers of the asset). Equity grows over time, and absorbs losses in the event that an at-risk borrower is not properly liquidated.
Are there any costs to use the Compound protocol?
Aside from the gas costs of submitting an Ethereum transaction, there are no costs or fees to supply assets to Compound.
There is a
0.025% origination fee to borrow an asset, e.g. if you borrow 1 Dai, you’ll receive 1 Dai, and owe the protocol 1.00025 Dai — in addition, you’re responsible for the interest that you accrue.
How much can I borrow?
You can borrow any asset, as long as you maintain a Supply Balance
1.50x your Borrow Balance as collateral. You can use multiple assets as collateral; for instance, you can supply Ether, Augur, and Basic Attention Token to borrow Dai. Your supplied balances earn interest, regardless of whether or not you are using them as collateral.
How long do I have to use Compound for?
You can use the Compound protocol for as short as one block; there are no requirements on how long an asset must be supplied or borrowed for, and because interest accrues every block, you’re free to withdraw or repay at any time.
What happens if the value of my collateral declines?
If your Supply Balances is less than 1.50x your Borrow Balance (your collateral declines in value, or the borrowed assets increase in value), the community can repay a portion of your Borrow Balance to bring you back to a 1.50x collateral ratio.
The liquidating user receives a proportionate amount of your collateral, at a
5.0% discount, as a reward.
So, how much should I borrow?
That’s up to you, but we recommend you exercise caution. The Compound Interface defaults to a minimum collateral ratio of 1.60x for borrowing and withdrawal transactions. Please carefully monitor any positions you may hold.
Can I liquidate people?
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, and scroll to
14. getSupplyBalance. Enter your address, and the token address (such as
0xC02aaA39b223FE8D0A0e5C4F27eAD9083C756Cc2 for WETH). Click Query, and your balance (with 18 decimals) will be shown.
Who controls the Compound protocol?
Compound Labs, Inc., the developer of the protocol, currently controls the Ethereum address
0x8b8592e9570e96166336603a1b4bd1e8db20fa20, which is the protocol admin. The admin has the right to support additional assets, suspend assets, upgrade the price feed oracle, upgrade the interest rate models, and withdraw sponsor equity.
Will the protocol be upgraded?
The Compound protocol is a first-of-its-kind experiment in economics and decentralized finance. There was a lot that we couldn’t anticipate before launching the protocol for the first time—and a lot that we’ve learned since. Soon, we’re going to begin work on V2 of the Compound protocol. If you have any improvements you’d like to see, let us know in Discord.
Will governance ever become decentralized?
The plan is for the protocol to become fully decentralized; over time, the protocol admin will be replaced with a DAO, governed entirely by the community.
Where does the price oracle source prices from?
The price of Dai is sourced from the Maker ETH/USD price feed; the prices of BAT, ZRX, and REP are the median of prices from Bittrex, Poloniex, and Binance.
Where are the assets stored?
The Compound protocol records balances in the same way that an ERC-20 token records token-holder balances — your private key / public address controls the ownership of the balances in the protocol. All contract code and balances are publicly verifiable.
Has Compound been audited?
Prior to deploying the protocol to the Ethereum mainnet, the protocol was audited by Trail of Bits (which also audited MakerDao) and Certora.
How safe is the Compound protocol?
Compound was deployed to
0x3fda67f7583380e67ef93072294a7fac882fd7e7 on September 27, 2018, and currently holds >$10M of assets.
The first rule of crypto always applies — only interact with the protocol with assets you are comfortable losing. Ethereum, and all software built on top, including Compound, is extremely experimental technology, and the risks are not completely understood yet.
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.