Compound (protocol)
Compound (protocol)
Compound is an open-source money market protocol built on the Ethereum blockchain developed by Compound Labs, Inc.
In August 2020, Compound released its own price oracle as part of its efforts to migrate to the Open Price Feed, its permissionless, upgradable price feed.
A price oracle is a third-party, decentralized feed that provides the data necessary to carry out smart contracts.[14]
History
In 2017, Robert Leshner and Geoffrey Hayes formed Compound Labs, Inc. for an alternative money market built on the Ethereum network.[13]
In September 2018, Compound Labs, Inc. publicly released Compound (protocol) v1 which enabled a smart-contract-based money market for borrowing and lending on five different tokens — ETH, TUSD, ZRX, BAT, and REP.[10]
On May 23, 2019, Compound (protocol) v2 was released, enabling easier developer integration, and the release of "cTokens," an ERC20 token that wraps the underlying asset for each money market available.[11]
In November 2019, Compound Labs Inc. raised a $25 million Series A round from venture capital firm Andreessen Horowitz.[1] It follows Compound’s $8.2 million seed round in 2018.[6]
In an interview with Fortune, founder Robert Leshner said Compound now has over $150 million worth of assets on its platform, and that it plans to use its new investment to make the service more accessible to ordinary people. Compound will be integrated with crypto exchanges, custodians, and wallets by the end of 2020.[1]
Compound
The way Compound works are lenders provide capital in the form of Ethereum tokens.
On the other side, borrowers take out Ethereum token loans by providing collateral in the form of Ethereum or a handful of other digital currencies.[1] There are currently seven tokens that can be supplied and used as collateral on the Compound protocol — ZRX, BAT, DAI, ETH, USDC, REP & WBTC.[5]
According to Leshner, there are two primary groups of borrowers.
The first I is the numerous cryptocurrency companies that have raised money in Ethereum and are using it as collateral to borrow money for salaries and other operational costs.
The second group is traders and crypto hedge funds that want to leverage their Ethereum holdings for short-term investments.[1]
Suppliers and borrowers of an asset interact directly with the protocol, earning and paying a floating interest rate, without having to negotiate terms such as maturity, interest rate, or collateral with a peer or counterparty.
The Compound protocol tokenizes balances by wrapping the underlying asset in the protocol; these are called cTokens.
They can be transferred or programmed by developers to create new experiences.[3]
Open Price Feed
In August 2020, Compound introduced Open Price Feed, a decentralized oracle whose crypto market prices will allow the project’s lending system to function.
The Open Price Feed is currently being tested on a variety of networks.
It has operated for almost two weeks on the Ethereum (ETH) Kovan and Ropsten testnet for almost two weeks, and its price feeds have been available for 10 days on the mainnet. On Ropsten, a proposal to use the new price feed locked in on Aug. 6.[14][15]
The system relies on price reporters and posters.
The reporters will be exchanges, initially just Coinbase Pro, who will regularly sign price data with their public key. Posters, on the other hand, will be responsible for publishing this signed data to the blockchain. Posters are permissionless, meaning that anyone could become one if they wish. In addition to Coinbase Pro, the system also uses the on-chain Uniswap V2 price feed as a fallback. Called the anchor price, it acts as a sanity check on input from other exchanges. If the price being reported deviates over 20% from a 30-60 minute time-weighted average of Uniswap prices, the off-chain data will be ignored.[14][15]