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Buy Compound in the UK

Compound

COMP
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Overview

#132Popularity
DeFiAsset type
2018Active since

What is Compound?

Why do investors buy Compound (COMP)? Because it is decentralised lending made convenient. Cryptocurrencies have revolutionised the financial landscape, and decentralised finance (DeFi) platforms play a pivotal role in this transformation. One such platform is Compound. But what is the platform Compound? And what about its token, COMP?*

NB Where you see the following symbol “*“, please note the standard risk warning at the bottom of the article.

What is Compound?

Compound (COMP) is a DeFi platform that uses blockchain.

It is designed to give cryptocurrency users access to borrowed funds in an efficient, automated way.*

Think of it as a decentralised lending marketplace where users can interact with smart contracts to access funds or earn interest on their holdings.*

How does Compound work?

Liquidity pools

Compound operates on the Ethereum blockchain. It creates liquidity pools for various cryptocurrencies (like ETH, DAI, USDC, etc.). A liquidity pool in crypto is like a digital central swimming pool where people throw in their coins. These coins help make trading efficient and smoother on platforms like decentralised exchanges (DEXs).

When users want to trade one coin for another (say, swap Bitcoin for Ethereum), the liquidity pool helps make it happen instantly. If someone wants to trade Bitcoin for Ethereum, but there is no Ethereum in the pool, then the trade will have to wait until there is Ethereum in the pool, and this slows everything down. The more coins in the pool, the more efficient the trades will be.*

Supply and borrowing

Users can supply their crypto assets to these pools, becoming lenders. In return, they earn interest on their deposits.

And on the other side of the coin, users can borrow from these pools by putting assets down as collateral. The interest rates are dynamic and adjust based on supply and demand.*

Interest rates

Compound uses an algorithm to set interest rates. When more users borrow a specific asset, its interest rate increases. But if supply is more than demand, the interest rate decreases. This ensures efficient allocation of capital.*

Collateralisation

Borrowers must maintain a collateral ratio (usually 150%) for e their loans. If the value of their collateral falls below this threshold, their assets are liquidated to repay the loan.*

COMP token

Here’s where COMP comes into play. It’s the native token of the Compound ecosystem. Holders of COMP have governance rights, allowing them to propose and vote on protocol changes. Additionally, they receive a share of the platform’s fees.*

Why would anyone want to borrow against their crypto holdings?

Imagine you bought some Ethereum (ETH) a while ago, and now its value has increased by 20 times. Instead of selling your ETH and paying taxes on the gains, you have another option. You can borrow money against your ETH holdings without triggering any taxes. This borrowed money is tax-free in most places (but it’s always a good idea to get independent tax advice).

While this loan is ongoing, if your ETH rises in value, you can still benefit from this. If you had sold your ETH instead of borrowing, you would have reduced your exposure to the underlying asset. So, borrowing against your ETH allows you to access funds while maintaining your investment position.*

House deposit scenario

Alex owns 20 ETH (worth $60,000) and dreams of buying a house. However, he doesn’t want to sell his ETH because he believes its value will increase over time. Instead, Alex decides to use their ETH as collateral to borrow funds for the house deposit.

Using Compound, Alex follows these steps:

Deposit Collateral: Alex interacts with the Compound protocol. He deposits his 20 ETH into a liquidity pool on Compound. This ETH serves as collateral for the loan.

Borrowing Funds: Alex borrows $50,000 worth of stablecoin (e.g., DAI) from Compound. The borrowed funds are used as the house deposit. The collateral used for this loan is Alex’s ETH collateral.

Loan Terms: Compound sets an interest rate (let’s say 6%) for the borrowed DAI. Alex agrees to repay the loan over time, making regular payments. If Alex fails to repay, their ETH collateral could be sold to pay for the balance of the loan.

Advantages: Alex avoids selling his ETH, allowing them to benefit from potential future price increases. By using Compound, Alex can access funds without going through traditional banks or revealing personal information. If the price of ETH rises, Alex’s investment pays off even more.

Risks: If the value of their ETH falls significantly, Compound may liquidate part of it to repay the loan.

In summary, Alex leverages his crypto holdings as collateral through Compound, enabling access to a house deposit while keeping their long-term investment intact.*

What are the advantages of the Compound DeFi platform?

Decentralisation

Compound operates without intermediaries. Users interact directly with smart contracts, reducing reliance on traditional banks.*

Efficiency

The algorithmic interest rate model ensures efficient capital allocation, benefiting both lenders and borrowers.*

Incentives

COMP incentivises participation. Users earn COMP tokens for supplying assets or borrowing. This aligns interests and encourages network growth.*

Transparency

All transactions are publicly recorded on the Ethereum blockchain, ensuring transparency and auditability.

Conclusion: What investors buy Compound (COMP)

Compound simplifies lending and borrowing, making DeFi accessible to everyone. Understanding Compound opens doors to a new financial horizon, creating new options for those that want to try an alternative to traditional banking.*

How to buy COMP on CoinJar

If you’re interested in buying Compound (COMP) through CoinJar, here’s a step-by-step guide to get you started:

Sign Up to CoinJar: Download the CoinJar app on iOS or Android. Create an account and verify your ID.

UK residents are required (in accordance with local legislation) to complete an appropriateness assessment to show they understand the risks associated with what crypto/investment they are about to buy and enabling CoinJar to categorise them as an investor.

Lastly, UK residents are required under local regulations to wait 24-hours as a “cooling off” period (from account creation), before their account is active (i.e. to deposit, trade, withdraw etc.).

Deposit Funds: Transfer funds from your bank account using bank transfer, PayID, or Osko. Buy Your First Crypto: Once your account is funded, you can buy Compound (COMP) along with other cryptocurrencies using cash or credit card.*

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How to buy Compound with CoinJar

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Step oneDownload the appGet the CoinJar app on iOS or Android.
Step twoCreate an accountCreate an account with CoinJar and verify your ID.
Step threeMake a purchaseBuy more than 60 cryptos using Faster Payments, SEPA, bank transfer, or a debit card.
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Frequently asked questions

What is Compound?

Compound is a decentralised finance (DeFi) platform built on the Ethereum blockchain. It allows users to lend and borrow various crypto assets.*

How does Compound work?

Users deposit Ethereum and ERC20 assets into Compound’s liquidity pools. These deposits earn interest based on dynamic interest rates determined by supply and demand.

The platform enforces collateralisation factors to secure borrowed assets. Smart contracts govern all interactions with the Compound protocol.*

Who can use Compound?

Compound users include both lenders and borrowers. Lenders earn interest by supplying assets. Borrowers collateralise their assets to borrow other crypto assets.*

What are cTokens?

When you deposit supported Ethereum tokens, you receive cTokens in return. cTokens represent your share of the pool and accrue interest over time.*

Who founded Compound?

Compound was founded by Robert Leshner and Geoffrey Hayes. Their vision was to create an efficient, decentralised lending platform.

How is Compound decentralised?

Compound operates without intermediaries. Users interact directly with smart contracts, removing the need for traditional banks.

Why is collateral important?

Borrowers must maintain collateral levels to secure their loans. This safety net protects lenders and creates earning opportunities for liquidators.*

How can users propose changes to the protocol?

Community governance allows COMP token holders to propose and vote on protocol changes.

This ensures a decentralised decision-making process.*

What role does the Compound team play?

Compound Labs Inc. oversees software development and protocol maintenance. They sold control of the protocol to the community through COMP tokens.*

What assets can be borrowed on Compound?

Crypto assets supported by the platform can be borrowed. The protocol enforces collateralization factors for all supported assets.*

Who manages Compound’s software Development?

Compound Labs, Inc. oversees the maintenance, upgrades, and enhancements to ensure the platform’s efficiency and security.

As the driving force behind Compound, their team collaborates with the community to shape the future of decentralised finance (DeFi).

Compound Labs Inc the software development of the Compound protocol is ongoing.

When Ethereum and ERC20 assets are deposited, do they become part of the Ethereum ecosystem?

Yes. But let's break that down a bit. ERC-20 refers to the technical standard for creating fungible tokens on the Ethereum blockchain.

ERC-20 tokens are fungible, meaning they can be exchanged with other tokens of the same type. Unlike non-fungible tokens (NFTs), which are unique, ERC-20 tokens represent assets, rights, ownership, or anything transferable.

How ERC-20 Works: Developers create these tokens using smart contracts on Ethereum.

When you deposit Ethereum and other ERC-20 assets, they become part of the Ethereum ecosystem.

These assets can be stored in most ETH wallets and sent to any Ethereum wallet address.

Interchangeability: ERC-20 tokens are interchangeable with other smart contract tokens.

They symbolise association with any fungible asset, making them versatile for various use cases.

History and Standardisation: In 2015, developer Fabian Vogelsteller proposed ERC-20 to address token interoperability.

The proposal was approved and implemented as Ethereum Improvement Proposal 20 (EIP-20) in 2017.

All smart contract tokens on Ethereum must adhere to this standard to be considered ERC-20 compliant.

In summary, ERC-20 assets play a crucial role in the Ethereum ecosystem, enabling seamless tokenization and efficient interactions within decentralised finance (DeFi) platforms like Compound.*

The above article is not to be read as investment, legal or tax advice and it takes no account of particular personal or market circumstances; all readers should seek independent investment advice before investing in cryptocurrencies. The article is provi

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