Centralized exchanges allow customers to trade blockchain assets on margin, with “borrowing markets” built into the exchange. These are trust-based systems (you have to trust that the exchange won’t get hacked, abscond with your assets, or incorrectly close out your position), are limited to certain customer groups, and are limited to a small number of (the most mainstream) assets.
Finally, balances and positions are virtual; you can’t move a position on-chain, for example, to use borrowed Ether or tokens in a smart contract or ICO, making these facilities inaccessible to dApps. Peer-to-peer protocols facilitate collateralized and uncollateralized loans between market participants directly. Unfortunately, decentralization forces significant costs and frictions onto users; in every protocol reviewed, lenders are required to post, manage, and (in the event of collateralized loans) supervise loan offers and active loans, and loan fulfillment is often slow & asynchronous (loans have to be funded, which takes time)
To solve this, a decentralized system for the frictionless borrowing of Ethereum tokens without the flaws of existing approaches, enabling proper money markets to function and creating a safe positive-yield approach to storing assets. The Compound Protocol Compound is a protocol on the Ethereum blockchain that establishes money markets, which are pools of assets with algorithmically derived interest rates based on the supply and demand for the asset.
An asset’s suppliers (and borrowers) interact directly with the protocol, earning (and paying) a floating interest rate without negotiating terms such as maturity, interest rate, or collateral with a peer or counterparty. At its core, a Compound money market is a ledger that allows Ethereum accounts to supply or borrow assets while computing interest, a function of time. The protocol’s smart contracts will be publicly accessible and completely free for machines, dApps and humans. The protocol does not guarantee liquidity; instead, it relies on the interest rate model to incentivize it.
In periods of extreme demand for an asset, the liquidity of the protocol (the tokens available to withdraw or borrow) will decline; when this occurs, interest rates rise, incentivizing supply and disincentivizing borrowing. Each money market is unique to an Ethereum asset (such as Ether, an ERC-20 stablecoin such as Dai, or an ERC-20 utility token such as Augur) and contains a transparent and publicly-inspectable ledger, with a record of all transactions and historical interest rates.
Who is the founder of Compound DAI (CDAI)?
The founder of Compound DAI is Robert Leshner.
What is Compound DAI (CDAI) used for?
Unlike an exchange or peer-to-peer platform, where a user’s assets are matched and lent to another user, the Compound protocol aggregates the supply of each user; when a user supplies an asset, it becomes a fungible resource. This approach offers significantly more liquidity than direct lending; unless every asset in a market is borrowed.
Users can withdraw their assets anytime without waiting for a specific loan to mature. Assets supplied to a market are represented by an ERC-20 token balance (“cToken”), which entitles the owner to an increasing quantity of the underlying asset. As the money market accrues interest, a function of borrowing demand, cTokens become convertible into an increasing amount of the underlying asset. This way, earning interest is as simple as holding an ERC-20 cToken.
Individuals with long-term investments in Ether and tokens (“HODLers”) can use a Compound money market as a source of additional returns on their investment. For example, a user that owns Augur can supply their tokens to the Compound protocol and earn interest (denominated in Augur) without managing their asset, fulfilling loan requests or taking speculative risks.
dApps, machines, and exchanges with token balances can use the Compound protocol as a source of monetization and incremental returns by “sweeping” balances; this has the potential to unlock entirely new business models for the Ethereum ecosystem.
Compound allows users to borrow frictionlessly from the protocol, using cTokens as collateral for use anywhere in the Ethereum ecosystem. Unlike peer-to-peer protocols, borrowing from Compound requires a user to specify a desired asset; there are no terms to negotiate, maturity dates, or funding periods; borrowing is instant and predictable. Similar to supplying an asset, each money market has a floating interest rate set by market forces, which determines the borrowing cost for each asset.
Assets held by the protocol (represented by ownership of a cToken) are used as collateral to borrow from the protocol. Each market has a collateral factor, ranging from 0 to 1, representing the portion of the underlying asset value that can be borrowed. Illiquid, small-cap assets have low collateral factors; they do not make good collateral, while liquid, high-cap assets have high collateral.
Risk & Liquidation
If the value of an account’s outstanding borrowing exceeds its borrowing capacity, a portion of the outstanding borrowing may be repaid in exchange for the user’s cToken collateral at the current market price minus a liquidation discount; this incentive an ecosystem of arbitrageurs to quickly step in to reduce the borrower’s exposure, and eliminate the protocol’s risk.
Purchase computer power
Without waiting for an order to fill or requiring off-chain behavior, dApps can borrow tokens to use in the Ethereum ecosystem, such as purchasing computing power on the Golem network.
Traders can finance new ICO investments by borrowing Ether, using their existing portfolio as collateral.
Short tokens and profit from it
Traders looking to short a token can borrow it, send it to an exchange and sell the token, profiting from declines in overvalued tokens.
How is Compound DAI (CDAI) unique?
Rather than individual suppliers or borrowers having to negotiate terms and rates, the Compound protocol utilizes an interest rate model that achieves an interest rate equilibrium in each money market based on supply and demand. Following the economic theory, interest rates (the “price” of money) should increase as a function of demand; when demand is low, interest rates should be low, and vice versa when demand is high.
Each money market is structured as a smart contract that implements the ERC-20 token specification. Users’ balances are represented as cToken balances; users can mint cTokens by supplying assets to the market or redeem cTokens for the underlying asset. The price (exchange rate) between cTokens and the underlying asset increases over time as borrowers of the asset accrues interest.
Compound creates properly functioning money markets for Ethereum assets. Each money market has interest rates determined by the supply and demand of the underlying asset; when the demand for borrowing an asset grows or when supply is removed, interest rates increase, incentivizing additional liquidity. Users can supply tokens to a money market to earn interest without trusting a central party. Users can borrow a token (to use, sell, or re-lend) by using their balances in the protocol as collateral.
How many Compound DAI (CDAI) coins are in circulation?
It has a circulating supply of 6,856,085 CDAI coins and a total supply of 10,000,000 CDAI.
How is the Compound DAI network secured?
The security of the Compound protocol is the highest priority of the development team, alongside third-party auditors and consultants. They have all invested considerable effort to create a safe and dependable protocol. All contract codes and balances are publicly verifiable, and security researchers are eligible for a bug bounty for reporting undiscovered vulnerabilities.
The team believes that size, visibility, and time are the true test for the security of a smart contract; please exercise caution, and make your determination of security and suitability. The Compound protocol has also been reviewed & audited by Trail of Bits and OpenZeppelin.
How do I buy Compound DAI (CDAI)?
The CDAI token can be used for a wide range of uses, like staking and governance.
CDAI tokens can be easily purchased by following the following steps.
Open an account with the crypto trading platform.
* Transfer the specific amount of your fiat currency to your account.
* Wait for your deposit to be confirmed and buy CDAI through your trading account.
Which Cryptocurrency Wallet Supports Compound DAI (CDAI)?
The PTPWallet platform supports many cryptocurrencies, with CDAI soon to be included. Because of its vast use case, PTPWallet has grown to become one of the most used platforms, as it serves as an exchange and an engine to discover other cryptocurrencies. The platform offers a simple user interface, is supported by both Android and iOS devices, and comes with its own mobile wallet app.