Compound

Compound is a decentralized finance (DeFi) lending protocol that allows users to earn interest on their cryptocurrencies by depositing them into various pools supported by the platform. When a user deposits tokens into a Compound protocol pool, they receive corresponding cTokens in exchange. These cTokens represent the user's proportional stake and ownership in the overall pool. The exchange rate of these cTokens to the underlying asset increases over time, allowing users to redeem them for more of the initial asset they deposited, thus earning interest. On the borrowing side, users can take out secured loans from the Compound pools by depositing collateral. The maximum loan-to-value (LTV) ratio varies based on the collateral asset, but currently ranges from 50 to 75%. Borrowers must maintain a specific collateralization level, and if it falls below the maintenance threshold, the collateral will be sold to liquidators at a 5% discount. Compound is unique in its community-driven governance model. Holders of the platform's native COMP token can propose changes to the protocol, debate them, and vote on their implementation, without direct involvement from the Compound team. This allows the community to have a direct say in the platform's development, such as choosing which cryptocurrencies to support, adjusting collateralization factors, and modifying the COMP token distribution. The Compound protocol is secured through its smart contracts, which automatically handle the minting of cTokens, the enforcement of collateralization factors, and the liquidation of undercollateralized positions. This helps to ensure the safety and stability of the lending and borrowing activities on the platform.