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 inception. According to company documentation, the platform now has over $3 billion in assets. Additionally, since its inception, it has had a total transaction volume of $285 billion.
A lot has happened with Compound since it launched 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 because it was the first time 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 leveraged a basket of fiat-pegged stablecoins that helped the platform grow in popularity. Additionally, the algorithmic, autonomous interest protocol was developer-centric, making it ideal for leveraging Dapp and other DeFi schemes. Now Compound III promises major upgrades.
Compound (COMP) – Borrowing from 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 secure returns by depositing funds into Compound. In return, you will receive a token representing the amount you have deposited. These items can be traded or stacked on other networks.
Compound (COMP) III Comet Upgrade is a game changer
The Compound III upgrade makes some significant changes to the protocol, its supported assets, and even the target user base. Compound III emerged after it was determined that Compound II was at risk. According to developers, a single bad asset in particular could exhaust the entire protocol.
The new version of Compound has streamlined the lending process in many ways. For one, it reduces the number of cryptocurrencies that users can leverage. The base asset is now USDC, which has proved stable since its inception.
Improved capital efficiency
The upgrade improves capital efficiency and also 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. Furthermore, unless the protocol liquidates your position, your security remains your property and is not shuffled into the pool.
Compound III users can borrow via ETH, WBTC, LINK, UNI, and COMP with lower liquidation penalties after the upgrade. The downside of the upgrade is that now users will not earn interest on their collateral. However, this disadvantage is offset by the ability to raise more funding and additional stability.
Compound (COMP) integrates Chainlink oracles
Another cool upgrade 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 critical to the operation of many of the most popular DeFi protocols. The introduction of Chainlink oracles for exclusive prices on the protocol improves reliability and sustainability.
Chainlink is considered the front runner when it comes to decentralized oracle solutions. The network helped solve centralization, which was one of the biggest problems oracles faced. Before Chainlink, a single oracle could provide incorrect data and cause a lot of headaches, especially on networks that cannot be changed. Chainlink solved the problem by launching a decentralized blockchain network of oracles.
Compound Treasury receives S&P credit
Compound has also upgraded its treasury this year. This protocol serves as the network’s cash management solution and is specifically designed to meet the needs of institutional-level clients. This year, Compound stayed true to that pioneering spirit as it 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 crypto market as a whole. A B rating means the protocol is considered stable. The platform could have gotten an A, but the uncertain regulatory framework for stablecoins was not to be overlooked.
Notably, the rating indicated that Compound has a track record of zero USDC losses. Reid Cuming, General Manager of Compound Treasury, said the rating proves the network is liquid, compliant and transparent. He added that the platform is now officially rated, which is another reason why users should consider it.
Compound Treasury starts borrowing for institutions
The Compound Treasury has been hard at work as it also unveiled a new lending mechanism aimed squarely at fintech, crypto companies and banks. The system allows these groups to lend assets using other digital assets as collateral. The benefit of this approach is that Compound is proven to deliver a reliable 4% APR on its holdings.
Connection (COMP) – Homepage
The upgrade will allow accredited institutions to increase this APR to 6% with flexible terms. There are no preset repayment dates or payment schedules. The main thing is that these institutions must remain overcollateralised. The upgrade also allows these companies to use ERC-20 assets as collateral.
Yield farming is developing
It’s worth noting that Compound was the first network to successfully introduce yield farming pools. Its concepts have been duplicated by a variety of other networks and are still in use today. Yield farming is like staking, but with fewer restrictions and more work.
When you give up a farm, you deposit money into a smart contract and receive rewards in the form of interest payments. Unlike staking, you can access your money and move it around if you wish as there are no lock-up periods. However, the APY also varies, which is why it is called farming. Users need to move their assets to the best pools to get the highest ROIs. These actions are similar to rotating crops as a farmer, hence the name.
Compound (COMP) – Company in mind
Compound continues to prove that if you look the other way for a second, you could be missing out on some key upgrades. The latest iteration 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. The company thus remains a leader in the blockchain sector.
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