In this article I’ll discuss;
- Compound finance overview
- Market overview
- Financial metrics
- Tokenomics
- Compound Safety
- Final thought (Conclusion)
COMPOUND FINANCE OVERVIEW
Compoud is a protocol on the Ethereum blockchain that establishes money markets, which are pools of assets with algorithmically demand interest rates, based on the supply and demand for assets.
Suppliers (and borrowers) of an asset interact directly with their protocol, earning (and paying) a floating interest rate, without having to negotiate terms such as maturity, and and interest rate collateral, peer or counterparty.
Each money market is unique to Ethereum assets ( such as ether, an ERC- 20 stablecoin such as Said, or an ERC- 20 utility token such as Argue and contains a transparent and publicly respectable ledge, with a record of all transactions and historical interest.
Architecture
- cTokens contract: each money market is structured as a smart contract that implements the ERC-20 token specification. Users' accounts are represented as tokens balances, user can mint (tokens by supplying assets to the market & random tokens for the underlying asset
- Interest rate mechanics: compound money market is defined by an interest rate, applied to all borrowers uniformly, which adjusts one time as the relationship between supply & demand changes
- Borrowing: A user who wishes to borrow and who has sufficient balancers stored on the compound may call on borrow on the relevant tokens contract.
MARKET OVERVIEW
-Ethereum; total earning- $550m, total borrowing- $17.15m, earning APR - 0.07%, borrow APR - 2.09%
-USDC; total earning- $479.3, total borrowing- $256.9m, earning APR - 1.65%, borrow APR - 3.33%
- Wrapped WTC; total earning- $383m, total borrowing- $3.69m, earning APR - 0.02%, borrow APR - 2.75%
- Dai; total earning- $374m, total borrowing- $192.8m, earning APR - 1.40%, borrow APR - 3.20%
-USDT; total earning- $216m, total borrowing- $131.49m, earning APR - 2.12%, borrow APR - 3.77%
- Basic attention token; total earning- $40.33m, total borrowing- $162.07k, earning APR - 0.01%, borrow APR - 2.63%
- Uniswap; total earning- $28.03m, total borrowing- $3.82m, earning APR - 0.64%, borrow APR - 6.29%
- Compound governance token; total earning- $8.22m, total borrowing- $564..14k, earning APR - 0.28%, borrow APR - 5.47%
- Wrapped BTC; total earning- $3.99m, total borrowing- $19.331, earning APR - 0.00%, borrow APR - 2.57%
- Chainlink token; total earning- $3.95m, total borrowing- $342k, earning APR - 0.32%, borrow APR - 4.9%
- Shushitoken; total earning- $3.78m, total borrowing- $346k, earning APR - 0.35%, borrow APR - 5.05%
- Aave token; total earning- $1.27, total borrowing- $464k, earning APR - 3.50%, borrow APR - 12.73%
- Maker; total earning- $327k, total borrowing- $678k, earning APR - 1.48%, borrow APR - 3.50%
- Market overview summary: Ethereum has the highest total earning, Aave has the highest earning APR and highest borrowing APR out of all the underlying assets.
FINANCIAL METRICS
Circulating marker cap - $298.43
Fully diluted market cap - $435.27
Total value locked - $1.53b
Active loans - $626.31m
Fees (30d) - $2.20m
Revenue - $216.56k
- The revenue of the protocol is gotten from the interest rate attached to the borrowing power of each underlying money market asset.
The interest is then shared in two ways,
The lenders take 90% of the revenue, while the holders of the token take 10% of the revenue
- Liquidity pool that generates more fees for the protocol;
i. cUSDC - $24.2k
ii. cDAI - $19.1k
iii. USD - $7.7k
iv. cWETH- $1.4k
v. cUNI $350
TOKENOMICS
Supply
Circulating supply 6,856, 085
Total supply 10, 000, 000
Max supply 10,000,000
The initial token distribution
42.15% is allocated to liquidity mining
23.95% is allocated to shareholders
22.46% is allocated to founders and team
7.73% is allocated to the community
3.71 % is allocated to the future team
Demand
$COMP token holders own & govern the protocol through the governance module.
One other factor on the demand side that should drive the need for the token which will result in a price increase will be governance.
Governance is the right given to the token holders to vote on the following:
Ability to list a new token market, update the interest rate module market, update the oracle address, withdraw the reserve of tokens and choose a new admin
When the governance of compound protocol moves from being centralized to being decentralized, holders will be able to execute the above-highlighted rights.
This should drive the price of the token high because almost 65% of the token supply is already circulating.
Less supply should also drive the price of the token because more and more people will want to get the tokens so they can be a part of the stakeholders in making some key decisions and upgrade on the protocol
COMPOUND FINANCE SAFETY
- Smart contract and team: The smart contract can be easy to find, with an active primary contract, a public software repository, good development history & a doxxed team
- Documentation: There is a public white paper, a well-documented software architecture, and a possibility to trace the documented software to its implementation.
- Testing: The protocol has its tested code deployed.
- Security: The protocol is sufficiently audited & the bouncing value is acceptably high
- Admin & control: The protocols admins control information is easy to find, with a well-labeled contract as upgradeable
- Oracle: The protocol’s oracle is efficiently documented, it’s mitigated by a front-running, flash loan attack is possible but the risk for it is mitigated
We can say from the above safety breakdown that Compound finance is a haven for your long-term investment plan.
Final thoughts (Conclusion)
Compound finance protocol money market design & it's future rights reserved for the users of the token holders will unlock quite a lot of opportunities for the protocol and more people getting to use the protocol.
- Investment tips: Any Defi enthusiast should consider playing around with owitpoundss, by either depositing their asset on compound finance protocol to earn them yields (rewards) instead of just holding them. Also if you would love to borrow funds, you can check any of the underlassetassets highlighted above and see which of them offers a low APR on borrow.
However, don't always forget that comes every investment opportunity in Defi, also comes its risk. Although looking at the smart contract safety, we can say it's safe to play around with it. But watch out for high APR on borrowing, so you don't get liquidated on the assets.
