Compound Explained

Learn about the Compound Protocol

The following describes Compound v2. Click here for information on v3- >

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.