Compound (COMP) is one of the leading forces behind the DeFi movement. The company pioneered the concept of yield farming and has remained a popular option for users since its launch. According to company documentation, the platform now has assets of over $3 billion. Additionally, it recorded a total transaction volume of $285 billion since its launch.
A lot has happened at Compound since its launch in September 2018 amid the DeFi rush. The protocol started as a community-inspired project that allowed users to borrow crypto assets. The network was revolutionary as it was the first time that a user-to-protocol approach was used instead of a peer-to-peer lending model.
Continuous upgrades
Compound I and II allowed users to lock in returns by providing liquidity to loan pools. These iterations of the network utilized a basket of fiat-pegged stablecoins, which helped the platform gain greater popularity. Additionally, the algorithmic, autonomous interest protocol was developer-centric, making it ideal for use by Dapp and other DeFi systems. Now Compound III promises big improvements.
Compound (COMP) – Borrowing USDC with ETH collateral
Pool-to-User
In the compound yield farming model, people borrowed money directly from the pool. The process meant a user could lock in returns by depositing funds into Compound. In return, you received a token that represented the amount you deposited. These items can be traded or used on other networks.
The Compound (COMP) III Comet Upgrade is a game changer
The Compound III upgrade brings some significant changes to the protocol, its supported assets, and even its user audience. Compound III was created after Compound II was discovered to pose risks. Specifically, according to developers, a single faulty asset could bring down the entire protocol.
The new version of Compound has streamlined the lending process in many ways. For one thing, it reduces the number of cryptocurrencies that users can use. The underlying asset is now USDC, which has proven stable since its launch.
Improved capital efficiency
The upgrade improves capital efficiency and user experience by eliminating the pool risk model. Users are now only allowed to use wrapped Bitcoin (wBTC), Chainlink (LINK), Uniswap (UNI), and Compound (COMP) as collateral to borrow assets from the pool. Additionally, your collateral remains your property and will not be mixed into the pool unless the protocol liquidates your position.
Compound III users will be able to borrow via ETH, WBTC, LINK, UNI, and COMP, with lower liquidation penalties after the upgrade. The downside to the upgrade is that users will now not receive interest on their collateral. However, this disadvantage is offset by the ability to borrow more and additional stability.
Compound (COMP) integrates Chainlink Oracles
Another cool upgrade that Compound III brings is the use of Chainlink oracles. An oracle is an off-chain sensor that can transmit data to and from the blockchain. These sensors are crucial to the operation of many of the most popular DeFi protocols. The introduction of Chainlink oracles to exclusively price the protocol improves reliability and sustainability.
Chainlink is considered a frontrunner when it comes to decentralized oracle solutions. The network helped solve centralization, which was one of the biggest problems that oracles struggled with. Before Chainlink, a single oracle could provide incorrect data and cause major problems, especially on networks that cannot be changed. Chainlink solved the problem by introducing a decentralized blockchain network of oracles.
Compound Treasury receives S&P credit
Compound also modernized its treasury this year. This protocol acts as the network's cash management solution and is specifically tailored to the needs of institutional clients. This year, Compound stayed true to that pioneering spirit and became the first DeFi protocol to receive an offer from a major credit rating service.
Compound Treasury received a B credit rating from S&P Global Ratings, which speaks volumes for the entire crypto market. A B rating means the protocol is considered stable. The platform could have received an A, but the uncertain regulatory framework for stablecoins could not be overlooked.
Notably, the review noted that Compound has a track record of zero USDC losses. On the matter, Reid Cuming, General Manager of Compound Treasury, said that the assessment proves that the network is liquid, compliant and transparent. He also added that the platform is now officially rated, which is another reason why users should consider it.
Compound Treasury launches borrowing for institutions
Compound Treasury has been hard at work and also unveiled a new lending mechanism aimed directly at fintech, crypto companies and banks. The system allows these groups to borrow assets using other digital assets as collateral. The advantage of this approach is that Compound is proven to deliver a reliable 4% APR on its holdings.
Compound (COMP) – Home page
The upgrade will allow accredited institutions to increase this APR to 6% with flexible terms. There are no preset repayment dates or payment plans. The main thing is that these institutions must remain over-collateralized. The upgrade also allows these companies to use ERC-20 assets as collateral.
Yield farming continues to develop
It is worth mentioning that Compound was the first network to successfully launch yield farming pools. His concepts were copied by a variety of other networks and are still used today. Yield farming is like staking, but with fewer restrictions and more work.
When you generate a farm, you deposit money into a smart contract and receive rewards in the form of interest payments in return. Unlike staking, you can access and move your funds when you want as there are no lock-up periods. However, the effective annual interest rate also varies, which is why it is also called agriculture. Users need to move their assets to the best pools to get the highest ROI. These actions are similar to crop rotation as a farmer, hence the name.
Compound (COMP) – Companies to Watch
Compound continues to prove that you could miss out on some important upgrades if you look away for just a second. The latest version of the protocol reduces risk and improves returns. Compound has a reliable track record and continues to pioneer new strategies and models to improve DeFi adoption. This means the company remains a leader in the blockchain sector.
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