How to Earn Interest and Borrow Ethereum Assets
Instantly accessible money markets for ETH, BAT, REP, and ZRX
The Compound Protocol lives on the Ethereum blockchain — it’s open-source, immutable, and accessible by any Ethereum account, forever. But for most people, decentralized protocols are hard to use. If you prefer a more visual experience (I do!), you can visit https://app.compound.finance/ using a Web3-compatible Ethereum wallet such as MetaMask, Brave Browser, or Coinbase Wallet. In this guide, I’ll walk you through the steps to use Compound for the first time.
- The Account Overview summarizes the health of your account; the value of assets supplied, borrowed, and your borrowing capacity.
- In order to use the Compound protocol, you must first enable each asset you plan to use. Once enabled, you can navigate to the asset’s page.
- You may either Supply or Borrow any asset — but not both.
Supply assets and begin earning interest instantly:
- Enter the quantity of the asset you’d like to Supply, and then submit the transaction. Assets are supplied directly from your Ethereum account into Compound, and once supplied, immediately begin earning the prevailing interest rate.
- Interest accrues directly into your Supply Balance; you won’t see Ethereum transactions, or distributions — but your balance, and the Interest Earned (since your last transaction), will slowly increase over time.
- You can Withdraw your balance at any time, back to your Ethereum account.
- Note that for Ether, you need to first “Wrap” your Ether to the Wrapped Ether (“WETH”) ERC-20 standard before you can supply it to decentralized finance protocols like Compound. WETH can be unwrapped back to Ether at anytime.
Easily borrow assets for liquidity, trading, or use:
- In order to open a borrowing position, you must have supplied assets to Compound with a value of at least 150% of the borrowing position you wish to open. For example, if you’ve supplied $150 of REP, this supports borrowing of up to $100 of any assets on Compound.
- Enter the quantity of the asset you’d like to Borrow, and then submit the transaction. Borrowed assets are sent to your Ethereum account — from there, you can send them anywhere you like!
- Note that there is an origination fee of 0.025%, or 2.5 basis points, for opening a borrowing position. For example, if a user borrows 1 ETH, the actual borrowing position will be for 1.00025 ETH. This very small origination fee prevents spam-like misuse of the protocol.
- Your Account Overview can be used to monitor the value of your Supply and Borrow positions. If the value of your Supply Balance declines, or the value of your Borrow Balance increases, such that you no longer have 1.5x collateral, your account will be partially liquidated, to return you to a 1.5x ratio.
Example Borrowing Use Cases
- Alice wants increased long exposure to ZRX. She supplies 10,000 ZRX to Compound, and uses it as collateral to borrow 30 WETH. Alice unwraps the WETH, and sends Ether to her favorite exchange to purchase 6,000 more ZRX. Alice now has long exposure to 16,000 ZRX, and owes Compound 30 WETH. She is long ZRX/ETH. If ZRX/ETH increases in value, Alice will be able to repurchase the 30 ETH she owes Compound for less than 6,000 ZRX. She can then repay her debt, and keep the excess ZRX as profit.
- Bob wants short exposure to ZRX. He supplies 100 WETH to Compound, and uses it as collateral to borrow 12,000 ZRX. Bob sends the ZRX to his favorite exchange, and sells it for 60 ETH. Bob now has long exposure to 160 ETH, and owes Compound 12,000 ZRX. He is short ZRX/ETH. If ZRX/ETH decreases in value, Bob will be able to repurchase the 12,000 ZRX he owes Compound for less than 60 ETH. He can then repay his debt, and keep the excess ETH as profit.
View summary metrics for each asset market:
- Visit https://app.compound.finance/#Markets to see the total liquidity and current interest rates for each market that Compound supports.