COMP is the governance token of the Compound protocol and a predetermined amount is distributed to all lenders and borrowers on the Compound protocol every day.
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A brief history
A brief history Compound was founded by entrepreneurs Robert Leshner and Geoffrey Hayes. The Compound software runs on the Ethereum blockchain and it aims to incentivize a distributed network of computers to operate a traditional money market. Compound uses multiple crypto assets to enable lending and borrowing without a financial intermediary like a bank. Compound focuses on allowing borrowers to take out loans and lenders to provide loans by locking their crypto assets into the protocol, with the interest rates paid and received by borrowers and lenders being determined by the supply and demand of each crypto asset. Where Compound stands out is the tokenization of the assets locked in their system through the use of cTokens. Once a deposit is made, Compound awards a cToken (which represents the deposit, ex. cETH, cBAT and cDAI) to the lender. Each cToken can be transferred or traded without restriction, but it is only redeemable for the cryptocurrency initially locked in the protocol.
COMP in practice
Compound uses its native COMP token to incentivize the borrowing and lending described above. Every time a user interacts with a Compound market by borrowing, withdrawing or repaying an asset, they are rewarded with additional COMP tokens. The amount of COMP that users receive is related to the interest rates of each crypto asset and the number of transactions that they partake in using the protocol. Because COMP is the governance token of the Compound network, COMP token-holders can debate, propose, and vote on all changes to the protocol, incentivizing the collective stewardship of the network.