What Is Compound Crypto Protocol and cTokens

Decentralized Finance (DeFi) has given crypto enthusiasts a great opportunity to earn from their holdings. It is now easier to invest a very small amount and gain tremendously. And all this has exploded since the launch of a platform and asset that allows users to invest, buy, sell, borrow or loan their cryptocurrencies, all with ease. Meet Compound (COMP)!

What is Compound Protocol?

The compound protocol is a lending protocol that allows owners to lend their tokens and earn interest. The native token COMP runs on the Ethereum blockchain just like the majority of the trending tokens. The users can borrow or lend through smart contracts that are based on the Ethereum blockchain.

The blockchain runs the transactions fully, thus eliminating the need for a third party.

While COMP exploded onto the DeFi scene in 2020, its roots go back to 2017. The platform started as the dApps network Compound Labs Inc, pioneered by Robert Leshner,(the CEO) and Geoff Hayes (the CTO).

In the second half of 2017, Compound was flooded with investors who contributed to the protocol's massive win of over $900 million. Since then, the protocol has continued to attract more investors and raise more funds.

In 2020, Compound's returns ranked better compared to existing and prominent cryptocurrencies like Bitcoin. It was one of the notable events in the Ethereum blockchain network.

What's so special about compound crypto protocol?

The protocol is versatile and open to all crypto-users, whether small scale or large scale. This nature has pooled all crypto investors, without limiting their potential. There is no point in "storing" your crypto and waiting for unknown outcomes.

One of the recent unique features of Compound is its ability to use one of the highest-ranked crypto-Bitcoin in the DeFi industry. Following the launch of the locked Bitcoin dubbed the Wrapped-Bitcoin (WBTC), users of these tokens can transact on the protocol seamlessly. The WBTC is used as a security on the Compound protocol.

  • Steady COMPOUND price gains. Most tokens explode on launch and then experience wild volatility, often plummeting afterward. Compound's native token has mostly witnessed a steady rise in its price, mirroring the price action of top cryptocurrencies, with price fluctuations not as wild as some altcoins. Today, COMP trades around $400 against the US dollar and is likely to continue rising as more people join the DeFi ecosystem.
  • Compound protocol makes use of smart contracts which automatically complete all the transactions. Investors don't need to worry about the management or storage of their tokens.
  • With DeFi, users can invest their tokens and gain interest instantly. This means every investor has a form of income through lending their cryptos rather than letting them lie idle in a wallet. Moreover, the uncertainties of aluation of cryptos are eliminated, since you harvest your earnings soonest.
  • Security is well taken care of. The protocol engages reputable firms like Trail of Bits to check and ascertain that there are no security loopholes. The instant gain after lending or borrowing is in itself a form of security as you don't let your token off-hand and leave with nothing.
  • The Compound protocol is the only DeFi that allows users to monetize by lending their cryptocurrencies. Notably, Compound is very versatile, thus the many crypto investors flooding its protocol.
  • The protocol similarly allows for collateralized loans. Buying and selling of assets are automated through smart contracts and its effect on the asset's price is insignificant. The interest rate could go as high as 1.5 times the principle.

How are cTokens produced?

Whenever a user deposits funds in the Compound protocol, the system automatically creates cTokens. The Compound which is dependent on the cTokens, simply known as ERC-20 tokens is the exchange platform. The ERC-20 tokens are the equivalent of an investor's fund deposit and they can lend, sell, buy or exchange the tokens at will.

A user deposits funds in the protocol and they are converted to cTokens. If for instance, you deposit USDC, the system gives you cUSDC tokens in return. With the tokens in the Compound, they are accessible to any interested party in the Ethereum-based network.

At the same time, you gain your interest and can decide whether to redeem your tokens. Each token has an Annual Percentage Yield (APY) which is used to calculate the interest rate you earn when you deposit a certain amount.

The smart contracts process all transactions on Ethereum-based protocol when you deposit. All interest calculations and conversions from for instance, Ether to cETH is done for you. This makes it easy for anyone to operate. It's also time conscious due to the automated system generation.

The cTokens are exchanged on the blockchain where users can lend their crypto tokens, work with a given interest rate, or request for loans using the smart contracts. It is also possible to transact using reliable interfaces like Coinbase Wallet. This makes the compound protocol an attractive product to many investors.

If you need to redeem your cTokens back to regular USDC, it is possible any time. Upon redeeming l, the funds are then moved to your linked wallet. Exchanges such as Coinbase also allow for token redeeming.

What can you do with Compound?

Compound is a recent development that promises good returns without making a large investment in the DeFi space. As a crypto-enthusiast, you can exchange cTokens for normal funds and vice-versa, and earn profits. Asset trading, loan borrowing, and selling of tokens is as easy and cheap as never before. It is for all and not just large firms.

With your functional wallet linked to the Ethereum-based network, you can deposit funds, get cTokens and trade them. Before selecting an asset to trade with, you need to confirm their current APR for both borrowing and selling.


Compound has been said not to be fully decentralized, thus the total control by the Compound Labs team. However, it relies on a decentralized governance protocol where users have a say on new proposals in the network. Users with over 1% supply can also vote and give protocol development suggestions. Besides, Compound Crypto protool has beckoned reputable firms like Polychain Capital, Coinbase, and Dragonfly Capital Partners among others.