Compound Finance - helping to change the landscape for the future of finance.

Viva la revolución - Compound Finance, and their goals for DeFi (Best DApp Contest).

By ZackNorman97 | Life Blog. | 19 Dec 2019

The world as we know today is advancing rapidly forwards, as our civilisation begins to transition from the analogue, which has remained so for thousands of years, to the digital, which has already begun to alter us, our memories, our values, and the very machinations which help to maintain over 8 billion of our fellow human kind.

The same way automobiles have replaced horses, and as the telegram was replaced by the telephone, computerisation has opened up ever newer possibilities, which were imaginary only decades earlier. With this new understanding, we have enabled our humanity to expand ever further, and deeper. 

human history change evolution

"The times are a-changing and if we don’t we will sink like a stone." - Bob Dylan

Artwork by elenabsl.

We have seen how industries have made human lives better, as new technology becomes more accessible, food becomes more nutritious and tastier, and our medicine becomes more potent against ailments. Yet, there exists one important industry, which has itself remained largely unchanged, even as the world around them has evolved.

That is the state of the finance industry, one with great importance as it has, and continues to fund, maintain, and grow the world's wealth. Yet, in the centuries since the Knights Templars, through countless cultural, social, and industrial revolutions, the economics of our civilisation have remained relatively stagnant.

Certainly, its structure has been improved, as computers and digitalisation have allowed for wealth to move ever faster, across farther boundaries, and affording each person greater convenience. Nevertheless, its very principle has not gone through the same renaissance as other industries, as the world's wealth becomes more concentrated unto a small group of powerful and monolithic organisations, helmed by the fewest, most affluent and insatiable individuals.

compound finance bitcoin crypto blockchain decentralized decentralised

Source: Compound Finance

This is an industry which manufactures only one good - money. And it is the principle of this industry, which we seek to change, as challenging as it may be. This is becoming ever more possible with a decentralisation of the finance industry. Decentralised Finance, or DeFi, has only one aim, and that is to return the wealth, with its control, accountability, and privileges, back to the people.

With a decentralised system, you are your own bank, with no need for middle-men. Here, you have greater security and responsibility at your finger tips, shared with the whole world, and without reliance to a powerful, centralised party. Every exchange of information, occurs on a public ledger, recorded anonymously, providing each person around the world attainable, fair, responsible, and equal access to wealth.


Source: Compound Finance

As with my belated participation in the best Decentralised App (DApp) contest, I would like to highlight one platform which is spearheading this change - Compound Finance. Compound, as a money market platform and test-bench for the future, forms part of a key component in the DeFi movement, by creating a decentralised platform built on top of the Ethereum blockchain, and running their protocol.

They are providing a new, open-sourced, and decentralised medium, for the lending and borrowing of money, built on top of the latest and cutting edge technology, but running with a modern and open understanding of traditional, core economic teachings. Compound has weaved into their platform, an algorithmically-controlled, and transparent system for determining fair interest rates, and allowing users to lend and borrow monies, spread across multiple assets with ease.

compound finance bitcoin crypto blockchain ethereum lending money

Source: Compound Finance

The modern global economy is built with credit, by the act of lending and borrowing money from one party to the next, affording themselves benefits. Car loans, student loans, mortgages, and so forth, all run on this system, which has remained the same for too long. With DeFi, and Compound, this system of lending and borrowing can be made more accessible.

There are countless people who hold their cryptocurrencies stationary, without any interest, and without sharing them with others. Now, platforms such as Compound aim to change that mentality. With their services, one person's hard-earned cryptocurrency can be lent to another person who may have a productive, and practical use, and the lender is able to earn interest for doing so.

compound finance crypto bitcoin blockchain markets

Source: Compound Finance

The Good:

Here are some of the advantages for using Compound:

1)Give and borrow money easily.

bitcoin crypto blockchain sharing money lending

"Sharing money is what gives it value" - Elvis Presley

Artwork by elenabsl.

Firstly, unlike traditional lending platforms, such as those utilised by banks, Compound not only provides the ability to earn interest by lending your money out, but also has a hassle-free experience for borrowing money.

While traditional banks, or governments may require extensive paperwork, or haggling over the respective terms and conditions, which may prove to be a daunting experience, Compound has no middle-men, and no paperwork. All the money lent, and borrowed are recorded publicly on the blockchain, and are then put into separate treasuries, one for lenders, and one for borrowers.

These "treasuries", as I describe it, can be accessed by anyone, albeit with some ground rules, to maintain the integrity of the platform for each user. Thus, with direct access, the act of either lending or borrowing money can be done simply by connecting your secure wallet, and looking over the fair and fixed agreements, before then selecting the amount, with neither hardship nor worry.

bitcoin crypto blockchain helping charity africa economy markets money

"Rain does not fall on one roof alone" - Cameroon Proverb

Artwork by VectorMine.

The upsides for this, either for Compound or its built-in system is best seen for places on Earth where economies need easy access for more liquid credit. In poorer communities such as Africa, a system such as Compound could have a profound effect at transforming the local economy. For example, a wealthy urban entrepreneur may lend out his money to a farmer in the countryside, to purchase crops or equipment, without having a banker stand in the way dictating and grabbing a piece of the pie.

Simply, this negates the need for negotiating access or terms between lenders, borrowers, and the third-party, such as a bank, or without the inconsistencies of dealing through a peer-2-peer service, where there may be discrepancies of certain terms negotiated between the lender, and the borrower.

2)Clear-cut interest rates.

bitcoin crypto blockchain markets economy money interest rates

"For the love of money is the root of all evil" - I Timothy 6:10

Artwork by Zenzen.

Secondly, unlike traditional institutions , or even against its equally disruptive competitors, Compound does not have fixed, or controlled interest rates. Instead, Compound uses algorithms to decide the value of the interest rate for lenders and borrowers in real-time, depending purely on the simple concept of supply and demand, amongst the 8 assets listed on their platform.

They have a neat system for ensuring that each person, regardless of their income, background, or status, are able to attain fair and uniform rates. Alternatively, it also has the mental effect of incentivising more people to lend out unused money, and for the financially-needy to borrow. Thus, Compound does not guarantee liquidity of credit, but its algorithm adjusts interest rates in a way to encourage more lending and borrowing for the whole system.

bitcoin crypto blockchain money sharing helping charity lending jar

"No one has ever become poor by giving" - Anne Frank

Artwork by StockVector.

By having multiple different assets, it provides an opportunity for lenders and borrowers to choose, depending on interest at the time, changes resulting from users minting, redeeming, borrowing, repaying or liquidating assets. For example, if one particular asset has too much supply, the interest rate decreases, which helps to incentivise borrowing, decentivises lending, and vice versa.

3)On-Chain vs Off-Chain.

bitcoin crypto ethereum blockchain law privacy security lock

"If privacy is outlawed, only outlaws will have privacy" - Philip Zimmerman

Artwork by Jesus Sanz.

Another advantage which Compound brings with it, is their decision to use an on-chain protocol. This means, that every transaction and exchange, is recorded onto the Blockchain, publicly and anonymously. One clear advantage for this, is to have reliable and fraud-resistant financial transactions, with greater security and privacy for its users.

This too can have an immense impact on helping to redevelop the financial system for a new world, as Blockchain has already proven capable of cutting down corruption and bureaucracy. For example, in those troubled parts of Earth, the use of on-chain protocols for transactions could prevent cases of abuse, embezzlement, and financial crimes, as is already strife in some parts of the world, by creating a more accountable economic system, and verifiable on a public ledger.

4)A platform designed for humans.

internet program web development programming security theft leak hack

"Alone we can do so little, together we can do so much" - Helen Keller

Artwork by Tartila.

Next, Compound also trumps over their rivals in terms of constructing their platform. By making their protocol open-sourced, it has allowed for developers and programmers, even those outside of Compound, to contribute new, better changes for its users.

It helps to provided a foundation for developing new applications utilising and embedding Compound's technology. Moreover, it also helps to add further to security, which is important for any financial service. Further helped by opening a "bug bounty" programme, Compound is encouraging tech enthusiasts to pry their code for weaknesses and security holes, hence hoping to avoid theft and fraud by unwanted parties.

On the subject of security, Compound also helps to add greater privacy compared to its rivals. While most lending and borrowing platforms require identity verification and collection of personal data, Compound avoids this entirely. By choosing Compound, there is no need for KYC, AML, or CTF processes to follow through, and its functions are easily accessible through direct integration of secure cryptocurrency wallets, which also helps with enhancing security.

bitcoin crypto money blockchain safe secure lock wallet

"Safety first is safety always" - Charles M. Hayes

Artwork by Viktoria Kurpas.

Compound also has a clean, and simple user interface, which makes it easy for anyone to interpret, and avoids unnecessary bloat or confusion, resulting in a pleasant experience for the end-user. And the great news, is that Compound's great experiences can soon be had by more people, coming up in 2020 and beyond.

With strong venture capital funding and support from large companies such as Coinbase, Andreessen Horowitz, Polychain Capital, Paradigm Capital and Bain Capital Venture, Compound is prime for further expansion to more users around the world.

We’re planning to integrate Compound into as many custodians, exchanges, wallets, and brokers as we can.

-Robert Leshner, Compound CEO


The Bad:

But Compound also has some disadvantages, here are some:

1)A tad bit slower.

bitcoin crypto blockchain transaction speed plane bomber slow fast

"I'm not a fast driver. I've seen what speed can do" - Carol Alt

Artwork by momojung.

While there are many upsides to using Compound, there are also a couple of disadvantages as well. To begin, we should talk about Compound's use of an on-chain protocol for marking their transactions. Indeed, on-chain stays true to the principles of cryptocurrency, that is to say, being recorded on the public blockchain, to maintain a balance of security, privacy, transparency, and fairness in the financial system.

However, while on-chain aims to be the best of all worlds, in practice there are some downsides compared to off-chain protocols, which underpins most cryptocurrency platforms today, such as exchanges and wallets.

The foremost problem with on-chain is in regards to speed. On-chain transactions were programmed to occur in real-time, with no noticeable lag between sending and receiving cryptocurrency. However, as is well known in the real world today, on-chain transactions can take a while, sometimes up to several hours, if the transaction volumes are high, especially given the limited number of nodes to confirm and verify those transactions.

Thus, while Compound's use of on-chain does have positives, the speed at which the pace of lending and borrowing in the platform can be done, may sometimes handicap the seamless and pleasuring experience. However, as the process of giving or acquiring credit is not something which we do often, unlike say trading or purchasing goods, this may not necessarily be too bad, especially comparing the ease and speed of getting a loan from Compound, compared to a bank or government, which may take days.

2)Minimal wallet support (for now).

bitcoin crypto blockchain wallet secure money

"I don't want to be a thief of my own wallet" - Johan Cruijff

Artwork by alexacrib.

Another downside with Compound's platform is their wallet support. One of the key interactions with Compound, is the integration of a secure cryptocurrency wallet, negating the need for complicated account setups and verifications that are normally done on other lending platforms.

However at present, Compound only supports 3 different wallets - Coinbase Wallet, Ledger, and Metamask. Clearly, one who is more in-depth with cryptocurrencies will know there are some large omissions from Compound's wallet support, with large names such as Trezor, MyCelium, Electrum, or Exodus being missing.

compound finance bitcoin crypto blockchain lending wallet coinbase ledger metamask

Source: Compound Finance

As before, the lack of wallet support may not be entirely too negative, at least according to Compound's promise for 2020 and later, with aims to integrate more secure wallets, and even more interestingly, custodian support, meaning the potential for institutional-grade services to be implemented into Compound next year.

3)Regulatory approval.

bitcoin crypto blockchain law regulation hammer

"If you want to keep a secret, you must also hide it from yourself" - George Orwell

Artwork by Bakhtiar Zein.

There is but one thorny issue on Compound's side, and that is potential regulatory crackdowns. Disruption, especially in the all-important financial industry, can have a negative purview by regulators and bureaucrats, as they see developments such as decentralisation to be harmful to the traditional order at which the world has worked.

Moreover, decentralisation could be destructive to their status quo, given the importance of the global economy, and the power of responsibility that comes with it. Compound for the time being, as with the rest of the DeFi movement, is a relatively new concept, and has slipped under the radar. While it has not garnered any regulatory pressure as of yet, Compound is growing fast, and it'll soon be more difficult to hide their activities from the prying eyes of the regulators, which could prove worrying for their future.

Final Thoughts:

bitcoin crypto blockchain finance global economy humanity humans happy sharing

"Being human is given, but keeping our humanity is a choice" - Anonymous

Artwork by ProStockStudio.

Overall, the time which I've spent reading and researching about Compound has certainly opened my eyes to the greater possibilities of a decentralised financial system. While there are plenty other good decentralised applications and platforms, Compound remains the best in my opinion, due to its unique system for algorithmically-controlling interest rates, measuring between the need to encourage greater lending or borrowing, thus maintaining a steady equilibrium in the system.

I have also come to admire Compound, for their stance on trying to be entirely decentralised. Due to their nascent entry, its protocols do not yet allow for a fully autonomous system of financial transactions, but that technology will soon evolve and mature over time.

It is for that reason, and for the principles which Compound is fighting for - a new financial system for a new humanity, just and equal - that I have chosen Compound for my entry unto Publish0x's BestDApp competition.

Thank you for reading my entry unto Publish0x's Best DApp contest, and I hope you can support me in this competition :-)













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