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What is Compound Governance Token and What Makes It Unique?

16 Oct 2020

Reading Time: 4 minutes

“Compound is a protocol built on the Ethereum blockchain to create Interest Rate Markets for Ethereum Tokens” Robert Leshner (Founder of Compound) 

Compound Governance Token (Compound Coin) is an ERC-20 asset token that will run on the Ethereum Network. 

What makes this crypto coin interesting is that it really is doing something ahead of its time and is a big contender in the functionality of Decentralised Finance in a true David VS Goliath move.

Let me ask you.. 

Have you ever experienced the inconvenient “Terms and Conditions” of High Interest Accounts?  

To accumulate Interest, you suspend your access to your own deposited funds for a set period of time. However, with Compound Governance Token (Compound Coin) this dilemma becomes a thing of the past. 

So I can keep accumulating interest with Compound Coin and have access to my digital currency when I need it? 

With Compound Governance Coin, you get to accumulate interest while still having access and use of your Digital Currency when you need it most at no loss to you! 

Created by Compound Finance Team, the Compound Governance Token is taking a step towards recreating Lending Protocols. Compound Governance will ultimately work on a Delegated Proof of Stake model, much like EOS, Lisk, Steem or Bitshares.

Instead of the administrators holding the power, Compound Lending Protocols are through community governance. The goal is that Compound Governance Token will be allowing its users to Create Suggestions, Implement Changes and even debate changes just by utilizing the Compound lending platform.  

Don’t feel confident making decisions yourself? You can transfer your voting rights to another user's wallet or a DeFi (Decentralised Finance) expert. 

What changes can be Voted on?

Changes can include adding support for a new asset, changing an asset’s collateral factor, changing a market’s interest rate model, or changing any other parameter or variable of the protocol that the current administrator can modify. The intention is for Compound to eventually become a Decentralized Autonomous Organization in the future. 

What is the Process of Putting an Idea Forward to Being Implemented?

Idea Brought Forward for voting

  • A 3 Day period for all COMP owners or delegates to vote on the proposition.  

  • Once it has obtained 4% quorum with majority support, the proposal is queued in a Time lock, and can be implemented after 2 days. 

  • 2 day time period is enforced so users who are not in agreement can  withdraw their positions from Compound if they choose to before the changes are implemented. 

"My personal belief is that nobody would use bitcoin if it was run by the ‘Bitcoin Corporation,’” Robert Leshner, Compound’s founder.

How do the Interest Rates of Compound Coin Work?

With traditional finance and centralised banks, suppliers and borrowers negotiate over the terms and rates to come to an agreement on a set term and interest rate. For example, a bank will give you on average 2% return p/a on your funds. With Decentralised Finance, this can be variable but is said to offer on average around 8% p/a.   

As a borrower, you can take a loan by locking your cryptocurrency into protocol interest rates paid and received which is determined by the Supply and Demand” of Compound Coin.  This is based upon the number of blocks mined. 

Following economic theory, loan fees should increment as a function of demand; when demand is low, loan fees ought to be low, and vice versa.

Final Thoughts 

When I first started to look into Compound Coin, I thought it was nothing special by comparison to other Cryptocurrencies available. Now in understanding the usability of this Cryptocurrency and the value of Decentralised Finance Protocols and Smart Contracts, tied into the Ethereum Network, this is a big contender with huge potential. It takes a lot to be out there competing with Traditional Finance and Central Banks and Compound Coin is doing it! 

What are your thoughts on Compound Coin? 

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