Compound Finance is an open source protocol created to allow developers to create a transparent and autonomous money market, which allows users and applications to obtain loans or earn interest without relying on counterparties. The protocol is based on Ethereum and is used thanks to various interfaces created by the community, including also the Coinbase and Huobi wallets.

Compound in this way becomes a "liquidity pool", which allows you to go beyond simple direct loans to individual other users, instead providing liquidity to an entire market within which users can obtain loans from the market itself or earn interest by injecting liquidity.

In each market, interest rates are determined algorithmically, based on supply and demand, and interest accrues with each new block of Ethereum. Furthermore. there are no predefined durations or terms: users can also use the compound protocol for the duration of a single new block, or indefinitely, remaining free to withdraw or refund at any time. Interest rates are calculated based on the liquidity available in each market, and fluctuate in real time based on supply and demand. When liquidity is abundant, interest rates go down, while if it were to become scarce they would increase, encouraging the new offer and the repayment of the loans.

They appear as annual interest rates, but in reality interest accrues with each new Ethereum block, approximately every 15 seconds.

There are also no theoretical limits to the figures that can be borrowed from the market, but the protocol provides collateral that prevents you from requesting higher amounts than the funds held. The protocol in fact tokenizes the balances of the wallets of the users using the so-called cTokens, thanks to which it is also possible to determine the maximum amounts that can be obtained on loan. In fact, the cTokens are used as collateral to apply for loans, thus determining the maximum obtainable ceiling.

The loans are immediate and the assets thus obtained are transferred from the protocol directly to the debtor's wallet. The interfaces that support the Compound protocol allow you to select which assets to use as collateral, and which to enter the market to earn interest on it.

Compound Finance is a DeFi (decentralized finance) project, given that the markets it creates are decentralized and without intermediaries. It acts as an intermediary itself, but being only a public and open source computer protocol, it is neither controlled nor managed by anyone.

Compound Labs Inc. is the company that developed the protocol and you can checks its Ethereum address 0x8b8592e9570e96166336603a1b4bd1e8db20fa20 or its protocol admin, which allows you to add resources, update the oracle of the price feed, update the interest rate models and update the risk model of the protocol.

However, the company promises that in the future the admin will be replaced with a DAO, governed by the community.

The cToken smart contract is also publicly available on the Ethereum blockchain, while the markets currently available are those of BAT, DAI, REP (Augur), WETH (Wrapped Ether) and ZRX (0x).

The goal of the project is to allow people to exchange the temporal value of digital assets, that is, to give those who hold digital assets the opportunity to loan them to other people and earn interest on them.

But the real innovation lies in the fact of having eliminated the intermediaries by replacing them with an open source protocol and having overcome the limits of one-to-one loans with the creation of real liquidity markets in which there is no direct relationship between the borrower and creditor, but only between these two and the protocol itself.

In this way, the loans do not take place from creditors to debtors, but from the owners of the assets to the protocol itself, also allowing, for example, to withdraw the tokens at any time. Furthermore, the negotiation is in fact conducted by the algorithms of the protocol itself, and there are no time limits imposed.

If it will emerge, this decentralized model could expand and create many liquidity markets capable of operating in real time with different digital assets, in a much faster and safer way than is possible with traditional instruments.