Compound is an autonomous interest rate protocol built for developers. It now allows crypto devotees to make their holdings available for short-term loans by earning interest on those loans.
The launching of the platform on the Ethereum blockchain discloses exclusively to CoinDesk. Compound is creating a money market. A money market, when defined, is a fund that provides short-term loans at a flat, publicly stated rate. This is where investors place funds into a pool. Loans create against it, and when the investor decides to withdraw, they get a portion comparable to their investment.
Remember that these financial tools are reserved for individuals who can pay off debt quickly. Also, lenders and borrowers will know the interest rate upfront, eliminating the need for haggling.
Hence, there are five different coins that compound offer in a smart contract-enabled money market for lending. These are Ether, Trust Token’s trueUSD, 0x’s ZRX, Brave’s BAT, and Augur’s REP.
A publicly stated interest rate for supplying and borrowing will assign to each asset depending on the breakthrough for each asset. There will be a standard rate for all users.
Because of this, the compound is able to help holders find a way to barricade against a weak market. This platform should reimburse the costs incurred by retaining them, such as custodial and security fees.
Compound has already piqued the interest of many people.
Polychain CEO Olaf Carlson-Wee stated in an email that Compound is constructing one of the main crypto-financial primitives for Web3. According to him, decentralized banking will be one of the first major Web3 use-cases.
On top of that, more than 26 institutional partners have pledged a minimum of $100,000 in crypto to the market. Making at least $2.6 million in crypto ready for lending at launch.
Furthermore, Large institutional funds resting on big crypto holdings now can tremendously benefit from minor percentage point gains in the market.
Thus, Robert Leshner, the founder of Compound Labs, expressed the straightforward business model of his company. It is to keep a small residual of all the interest that moves through the system. He added that they could earn more if there were more assets inside the system.