# Compound Explained {% hint style="info" %} The following describes Compound v2. [Click here for information on v3- >](/protocols/compound/compound-v3-explained.md) {% endhint %} ### Algorithmic Lending Compound works by algorithmic lending tables so rates are determined by supply and demand. Users can deposit assets which can be borrowed against. Depending on the asset the Compound protocol allows you to borrow a percentage against the asset; this is something called the Collateral Factor or Loan to Value. For example if WBTC has a collateral factor of 80% then users can borrow up to 80% of the value of their WBTC. If they deposit $1000 worth of WBTC they can borrow up to $800 against it. ### Tokenized Deposits - cTokens Compound deposits are tokenized as cTokens. For example when a user deposits USDC they receive cUSDC in their wallet. The cUSDC represents their deposit and interests and when redeemed users receive their collateral plus interest. When users withdraw their deposits they are redeeming their cTokens for the underlying assets. ### Address Based Position Compound treats each address as one position to Compound. This each address can only have one position on Compound i.e you cannot maintain two separate loans on Compound. You can use Instadapp to create additional DeFi Smart Accounts each DSA has its own unique address and can be used as a separate Compound Account. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://guides.instadapp.io/protocols/compound/compound-explained.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.