Compound USDC (cUSDC) is a ERC20 token that represents the cryptocurrency assets which were deposited and locked in the Compound protocol. cUSDC is an interest-earning version of USDC that is lent by the members of the Compound community.
Compound is a decentralized money market network developed on the basis of Ethereum enabling users to earn on their deposits and borrow money against collateral. This is the second-biggest lending protocol at the time of writing. The scheme to earn rewards is very simple and doesn’t require profound knowledge.
The platform was developed by former economist Robert Leshner, the founder and CEO of the company. Compound is a San Francisco-based project that started growing fast in 2019. The explosive growth followed in 2020 with the popularity of decentralized finance. Developed by the in-house team, the interest rates of cUSDC are created on the basis of algorithmic calculations depending upon the supply and demand.
The goal of the protocol is to allow customers to earn money on their cryptocurrency assets easily so the team tried to develop the system without making it too complicated. It means that even novices don’t encounter difficulties when they decide to use the service. Also, the company tried to help people derive profit from crypto assets they own without leaving them idle.
Compound Finance can be compared with a large pool of money that is operating based on transparent rules. The customers participate deposit ethers or any assets based on Ethereum (ERC-20 standard) and earn the interest. The factors that attract users include the full automation of the process and the decentralization of the system. It’s possible to begin earning interest after each ETH block is completed that takes 15 seconds.
The main point was to create the system opposing the scheme used by a bank when people don’t have access to the funds they deposit. The idea of DeFi is to give people the chance to use the assets while they remain on the deposit. Customers get rewards from people who borrow funds from the pool and are ready to pay for it. So they pay the fee for borrowed funds while the other party that deposits crypto assets gets the interest rate.
The release of the Compound protocol took place in June 2020. After the distribution of the main tokens, the platform has become fully decentralized. The members of the community received 50% of the tokens, while the other half was allocated to the team. After the distribution of tokens in June 2020, 15 governance proposals were created. 12 of them were implemented.
In an effort to motivate borrowers and lenders to use the protocol and avoid decline, the platform started its liquidity mining program in June 2020.
The platform employs cutting-edge technologies for the generation of cUSDC. For instance, Infura, an API access provider, is used for bridging with the Ethereum network. The members of the community can use the API of the platform to invoke smart contracts through HTTP requests. Also, the team of Compound has developed its own oracle Open Price Feed that uses data received from price reporters and posters. Also, it temporarily uses Uniswap V2 price feed. The oracle is implemented in different networks. The developers used Solidity, the most popular programming language, to create Ethereum smart contracts, which can be then executed with JSON RPC from Web3.js.
According to the Compound protocol, the regulation of supply and demand is performed by a complicated algorithm that is often updated. As the demand increases, the rates grow proportionally to balance the market and not to let members of the community borrow too much. The lenders at the same time get the incentive to lend. The scheme employed helps keep assets accessible for borrowers who can apply for them at any time.
It may seem that Compound is just another decentralized lending protocol employed for the use of cryptocurrencies as collateral. However, the Compound protocol differs from them as it enables tokenization of the assets, which are locked in the pools via using cTokens. When the funds are deposited the assets become Compound tokens, which are a kind of Ethereum tokens with the letter C in the beginning. For instance, cUSDC is also built on the principle of cToken. This is the coin that customers get after depositing USDC on the platform. The coin is designed to change its value proportionally as the interest is accrued in the pool.
The system has become very popular due to the capability to redeem tokens when needed. At this, the members of the community don’t only redeem the amount they deposited in cUSDC but the interest as well. The interest rates vary depending upon conditions of the market affecting the supply and demand of cUSDC.
cUSDC market differs from other markets presenting on the platform as the amount of supply and demand determining the interest rates affect the user’s ultimate profit. cUSDC can be used as collateral for borrowing. The token is also supported by several unique DeFi products including Set Protocol Yield Sets that rebalances assets in cUSDC during stable phases.
In 2019, Compound managed to complete Series A fundraising led by Andreessen Horowitz during which 25 million USD was raised. The other participants include leading financial investment companies such as Bain Capital Ventures, Paradigm, Polychain Ventures, and some other investors. Andreessen Horowitz also invested in the company during the seed round in May 2018. At that time Compound raised 8.2 million USD.
It is worth mentioning that the project developed by Compound Labs Inc. was a kind of experimental work that turned out so successful. Robert Leshner, CEO of Compound, previously created two software companies and took different positions at Postmates, the online food delivery company. He is also a famous investor who invested in such popular cryptocurrency companies as Opyn, Argent Wallet, Blockfolio, and others. Now Robert Leshner actively works over the Compound Chain, which is a distributed ledger that can cheaply store and transfer liquidity and value between different peer ledgers.