How to Earn Interest and Borrow Ethereum Assets

Access ETH, USDC, DAI, REP, WBTC, BAT, and ZRX on Compound

Calvin Liu
Sep 27, 2018 · 5 min read

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.

In this guide, we’ll walk through how to use the Compound Dashboard with a Web3-compatible Ethereum wallet — a visual, intuitive way to access Compound’s interest rate markets for the first time. If you’d like to try other interfaces and products built on Compound, you can find a selection of alternatives on our home page.

For a more technical understanding of what’s happening under the hood, please see our protocol Documentation.

Connect your Wallet

  • When you first visit the interface, a pop-up modal will ask you to connect your Web3 wallet. We recommend using MetaMask, the most popular browser-based Web3 wallet.
  • These wallets secure the private keys to your crypto and enable you to authorize transactions, view balances, and perform other essential functions on the Ethereum blockchain.
When you first visit the Compound app, a pop-up window will ask you to connect your Web3 wallet.

The Compound Interface

  • After connecting your wallet, you’ll see the main components of the interface: Supply markets on the left, Borrow markets on the right, and Summary Information on top.
The Compound Interface shows all available markets and summary information for your wallet.

Supply Assets to Earn Interest

  • To begin the supply process, click on an asset in the Supply panel on the left to bring up a modal with more details.
  • In order to use Compound, you must first enable each asset you plan to supply. Your wallet will ask you to confirm this transaction, and there will be a small gas fee.
You’ll have to enable each asset before you can supply it.
  • After an asset has been enabled, you can enter the quantity of the asset you’d like to Supply, and submit the transaction. Assets are supplied directly from your Ethereum wallet into Compound, and once supplied, immediately begin earning the prevailing interest rate.
  • Interest accrues directly to your Supply Balance; you won’t see Ethereum transactions, or distributions — but your balance and Interest Earned will slowly increase over time.
  • At any time, you can Withdraw any portion of your balance back to your Ethereum wallet.
After you “Supply“— you’re now earning interest on your crypto!

Manage your Borrowing Limit

The Compound protocol relies on collateral to determine how much you can borrow — each asset you’ve supplied can be used as collateral to increase your Borrow Limit.

  • An asset’s Collateral Factor represents the proportion of its value that can be borrowed when the asset is used as collateral. For example, if you’ve supplied $100 of ETH, which has a collateral factor of 75%, your Borrowing Limit will increase by $75.
  • You can enable, or disable an asset to be used as collateral by pressing the toggle on the right.
The “Collateral” toggle must be green for each asset you wish to use as collateral.
  • You’ll be presented with a confirmation modal, which will display how your Borrow Limit will change.

Borrow Assets, For any Duration

Borrowing is instant, and assets are transferred from the protocol directly into your wallet.

  • To begin the borrow process, click on an asset in the Borrow panel on the right to bring up a modal with more details.
  • Enter the quantity of the asset you’d like to Borrow, and submit the transaction.
  • For convenience, the SAFE MAX button will borrow up to 80% of your Borrow Limit
Use supplied assets as collateral and borrow other assets on-demand.

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 ETH. Alice sends the ETH to her favorite exchange to purchase 6,000 more ZRX. Alice now has long exposure to 16,000 ZRX, and owes Compound 30 ETH. 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 ETH 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.

Liquidation

If your Borrow Balance exceeds your Borrow Limit, your account will be partially liquidated. This can occur when collateral declines in value, or borrowed assets increase in value.

If your account is in liquidation, a member of the community can repay up to 50% of your outstanding borrowed assets; the liquidating user receives a proportionate amount of your collateral, at a 8.0% discount, as a reward.

Carefully monitor your Borrow Limit, and what portion you’re using.

Compound Markets

An overview of each Compound market is available in real-time at https://compound.finance/markets.

Thanks for Your Support, and Enjoy the Protocol!

  • Join our Discord to ask questions and stay in touch.
  • Subscribe to our newsletter to stay up to date with new developments.
  • Visit our website to learn more about Compound.

Compound

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

Calvin Liu

Written by

Strategy Lead at Compound (https://compound.finance)

Compound

Compound

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

Calvin Liu

Written by

Strategy Lead at Compound (https://compound.finance)

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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