Compound (COMP) is the native token of the Compound platform. The supply of COMP tokens is limited to 10 million. The Compound network was launched in September 2018.
Compound is a lending protocol on the Ethereum blockchain designed to allow users to gain interest on the cryptocurrencies they own. This becomes possible by depositing cryptos into one of the pools supported by the platform.
The scheme is quite simple. Suppose you have ETH. You deposit coins into a pool and receive cETH back. With time, the rate of cETH increases against ETH. When you decide to redeem the tokens you put into the pool, you will get more than you initially had. The difference will be your interest.
If you need funds, you can take out a secured loan. To do so, you need to deposit a collateral asset. The interest rate you will have to pay varies from 50% to 70%, depending on the collateral asset. The collateral asset can be liquidated if it falls below a certain threshold.
As COMP is the governance token of the Compound network, its holders can participate in the development of the platform without the Compound team’s involvement. Holders can suggest protocol changes and vote for changes proposed by others. For instance, a holder can vote in favor of support for a certain cryptocurrency or change how the native token is distributed.
COMP isn’t only a governance token that allows its holders to vote and debate, it also makes it possible for its owners to delegate rights to vote for the network’s development. For instance, a holder’s wallet, another user, a DeFi expert, or an application can be delegated to participate in the governance of the Compound Mainnet. Complex voting systems can be built with the help of the token as it has a code to query the historical weight of the voting address.
COMP is paired with the US dollar. Although the American dollar is a legal tender in five territories of the USA and eight countries, including Palau, the Marshall Islands, Ecuador, El Salvador, Micronesia, Zimbabwe, and East Timor, it’s accepted worldwide.
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