what is compound finance?
Compound finance is a landing protocol which runs on the Union blockchain, it allows people to lend and borrow popular cryptocurrencies like bitcoin, Ether. The great thing about it's frictionless it's much more efficient and more decentralized than current financial money markets. compound currently falls in the middle of the centralized decentralized spectrum. it uses open-source smart contracts, however, there are plans for future implementation of a decentralized autonomous organization, This should allow for markets and interest rates to be governed by community members rather than current structure, where all proposals are made by compound people that want to borrow digital assets. users can do that directly with the protocol they don't need to negotiate anything with a counterparty however they do need to add cryptocurrency as a collateral before they are allowed to borrow.
The beauty of this platform is that all you need to participate is a cryptocurrency wallet like the trust wallet, which is a mobile wallet or a hardware wallet like The Ledger an OS and this allows you to log into the compound finance that without having to create a new account your wallet is automatically your account and password and this makes everything a lot easier supplying it tokens. Supplies a token it isn't directly lend to someone else over the length funds get added to the supply pool and this results in a much higher level of liquidity, this lending mechanism allows users to withdraw the tokens at any time as long as there's enough liquidity in the pool borrowing token.
on compound finance users can borrow directly through the compound finance protocol. This asset comes directly from that assets liquidity Pool, this liquidity pool has a floating interest rate, which changes based on the amount of liquidity available in its asset pool. if the liquidity is high then the interest rate is low, when a user wants to borrow funds from compound finance. the compound finance protocol enforces a rule that each account has to have a balance that covers the amount of borrowed funds this rule is known as the collateral ratio and a user cannot initiate action. for example borrowing or withdrawing assets that would bring a uses account value below the collateral ratio interest rates the current lending and borrowing rates can be found on the compound finance platform many of the assets that you can borrow or lend have a floating interest rate and that changes on the man of liquidity available to borrow.
The supply rate lower than over grade because in each liquidity pool there needs to be an excess of funds asset supplied needs to be higher than the amount of assets that are borrowed and this allows the users to quickly withdraw all fronts from the protocol without having to wait for enough liquidity and the interest rate that is paid by borrowers is earned by the suppliers of assets. You don't earn the same amount of interest on your funds that someone has to pay to borrow funds from the compound Finance protocol. furthermore 110 or 120 of the interest rate based on which market is paid by rowers is added to the reserve pool and it's pool is a liquidity it's a type of safety mechanism to make sure that there's enough liquidity in the market.
