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What is Compound Token? What is this DeFi craze? Is it worth the risk?

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Compound Token Review

Compound Token listed on the CoinmarketCap on June 17, 2020 at around $74 then lost XX% value to land at $64 then it quickly shot upto $334 in less than 3 days. At the time of this writing Compound is coasting at around $200.

What is the craze behind this DeFi token? 

If you want to understand What DeFi is, use cases, advantages, etc., click here

What to expect in this article?

  • What is Compound?
  • How does Compound work?
  • How to Lend and Borrow on Compound?
  • How does Liquidity Mining work on Compound?
  • How much interest can I receive?
  • Advantages and Disadvantages of Compound
  • Red Flags you need to consider
  • How to earn interest on Compound using Coinbase Wallet?
  • How to earn interest on Compound using Exodus Wallet?
  • How to earn interest on Compound using MetaMask wallet?
  • How to earn Interest on Compound using Ledger?
  • Conclusion

What is Compound?

Compound is a Decentralized Finance (DeFi) project that allows you to place your crypto assets as collateral to earn interest and even take a loan against your crypto collateral.

There are many DeFi projects out there that let you deposit your crypto to earn interest, however, what makes Compound special is the ability to earn a spread between your deposit vs. your loan while earning COMP tokens. The COMP token is currently trading at over $234 dollars.

How does Compound work?

To get started with Compound you will need to have some crypto.  As of today, the cryptos that are accepted on the Compound platform are:  0x, Augur, Basic Attention Token, DAI, Ether, USD Coin, USDT, Wrapped BTC.

For every cryptocurrency you deposit on Compound platform you receive a receipt of deposit in the form of cTokens. That means, for example, if I deposit Ether on the platform, I will receive cEther. These ERC20 cTokens are proof that you have deposited money on Compound. When you are ready to take your money out, you simply exchange your cTokens for the underlying asset.

You can check how many cTokens you can receive from your crypto assets.

Compound Ether

For example, cETH is valued at .02001216 ETH which simply means that for every 1 Ethereum(ETH) we deposit on Compound we get 50 cETH.  You will always retain this 50 cETH until you are ready to redeem your ETH.  

When you redeem your 50 cETH you might receive 1.1 ETH, the extra represents the interest you have accrued for the time you have supplied your crypto asset to the platform. In theory, cTokens increase in value over time based on the interest that gets accrued into the cTokens.  In addition, you would have accrued COMP tokens throughout the duration of your deposit.

How to lend (supply) money on Compound?

To get started, you need to click on the App button on the Compound website.

Compound finance 01

You will then be prompted to connect with one of your wallets to transfer the funds.  Right now, there are three options:  Coinbase Wallet, Ledger and Metamask.

Compound Finance App

Click on the option that best suits you. Once connected, you can transfer the money into your Compound account.

How to borrow on Compound?

Once you have supplied the assets on the platform, Compound lets you borrow against your collateral.  Generally, there is a collateral to borrow limit, that means, for every $100 you supply to the platform you will be able to borrow a certain % (depending on the asset), in this case, let’s say the limit is 75% then you can borrow $75. 

How does Liquidity Mining work on Compound?

Liquidity Mining is a concept that has evolved in the past year with the DeFi projects. 

Incentivizing users for providing liquidity to the platform is termed as Liquidity Mining.   Liquidity mining replaces the rigs and PoW with the ‘usage of platform and creating value on the platform.’  

Let’s use an example.  For a platform like Compound to run it needs two parties: those who are willing to put their assets on the platform and those who are willing to take loans from the platform.  Because most DeFi platforms require ‘collateral’ to borrow, the users act as borrowers as well as lenders. 

In other words, the users create liquidity on the platform by both supplying their assets and then taking loans against their assets. For creating liquidity on the platform they are rewarded with COMP tokens.  While the increasing price of the COMP tokens is definitely a factor in wanting to access more, these COMP tokens also provide them with ‘voting’ rights so that people who have provided the most to the platform can also have a voice in how the platform operates.  

To avoid 51% attack, Compound keeps 50% of voting rights with the core team while assigning 50% voting rights to those who acquire most COMP tokens by providing liquidity to the platform.  

Bubble in the making?

Some industry voices have raised concern that the Compound’s model of creating value by exchanging one asset to ‘game’ the system to generate more COMP tokens will not sustain in the long term.  For instance, one could take a $1450 USDT loan against crypto collateral of $1500 and receive COMP for bringing their assets to the platform as collateral and for taking the loan. However, some people are now taking that 1450 in USDT back to the platform (as a supply) and taking a loan against this USDT in USDC (for example, $1400), thus getting paid for lending and borrowing again.   

In this situation, the liquidity on the platform will show as if it has a supply of $2950 and lending of $2850, however, in reality the total assets on the platform are only $1500 and total lending is still $2850.  In other words, total asset collateral is much less than the money lent.

And we have only run 1 iteration. People have been playing multiple iterations of this gaming model to inflate the value on the Compound platform.  

This is very close to the broken fractional reserve model that Banks use in the traditional financial markets and having this model in a place that is highly unregulated is somewhat disconcerting.  

Advantages of Compound

Elite team backing the project

This is what distinguishes Compound from other DeFi projects (some may even be superior to Compound) but Coinbase and the VC relationships that Compound has is quite crazy.  This is why Compound got listed on Coinbase so quickly bringing exposure to a big trading base.  

Interest income

The US Banks pay almost no interest on your deposits.  In certain cases, you are charged with ‘maintenance’ fees while the bank turns around and makes money on your money.  The DeFi changes this equation and provides an opportunity for your money to work for you.  DeFi platforms like Compound and Celsius Network help you earn interest on your cryptos.

No lock-ins

The thing we like the most about the up and coming DeFis’ including Compound is that there is no lock-in period.  You will earn interest for the time you held your cryptos on the platform.  You will have complete control on when you get in and get out.

Liquidity

When you are in a fix for some immediate cash but don’t want to sell your crypto wealth – platforms like Compound can be of immense help (don’t forget to look at market volatility aspect below in the disadvantages).

No credit checks to borrow

Traditional financing options are available to people with good credit history.  People who do not have good credit history are penalized with massive interest rates.  DeFi takes away the need for credit checks to borrow money.

Economical

Compared to the loan sharks in the traditional market the interest rates on the DeFi platforms are quite reasonable.   The only drawback is that you need to have collateral to avail the loans which is counter-intuitive for many people in need.  In the future, when the non-crypto assets are brought to the DeFi platforms – they could upend the existing loan shark practices with the roots.

Disadvantages of Compound

Market volatility

What happens if there is a flash crash and a quick recovery?  Between March 10 through 12th of 2020, Bitcoin fell from $8000 to $4900, a crash of 40%.  In the next 30 days or so Bitcoin cruised through its $8000 price point.  If you had taken a loan using Bitcoin as Collateral (let’s say you took $6000 against $8000 Bitcoin, when the price tumbled, your bitcoin would have been liquidated to cover the $6000 loan.  You could have lost in the eventual recovery.    The whole point of using Crypto as collateral is to AVOID liquidation of your favorite cryptos but that is exactly what will happen if the market faces a flash crash.  You must be aware of this before putting your assets as collateral.

Same is true if the value of the asset you borrow increases.  For instance, let’s say you put your $1000 in DAI as collateral and borrow Ethereum.  Let’s assume that on the day $750 (maximum loan) was equal to 3 Ethereum at $250 each.  If Ethereum’s price shoots up to $500 each, you would have experienced a partial liquidation since the asset you borrowed has gone over the underlying ‘collateral’.

Auto-Liquidation of crypto

This is a no no for longterm crypto hodlers who never want to liquidate their crypto wealth and if the market takes a nosedive (like it did in March 2020) you will run into the risk of auto-liquidation of your crypto wealth to cover the ‘loan’.  You cannot do anything about it as these smart contracts are executed automatically when the value of your collateral goes to a certain level you agreed to when taking out the loan.

No customer support in case sh*t hits fan

If you run into problems or there is loss of funds either during transfer or after transferring the funds for whatever reason, your options to get help might be limited to none.

Collateral, instead of credit rating

If you have Bitcoin but need USD – you could simply sell your Bitcoin to avail the USDT.  The real value of a loan is where people are short on money.  Compound doesn’t address this market since it needs people to have collateral.  Compound model works for people who have cryptos that they don’t want to dispose of because they expect the prices to go up, as such, they could use a platform like Compound to take care of short-term cash flow issues through a collateral based loan.

Limited crypto options

Compound may add more assets in the future but for now they have limited options which could deter many potential clients from using the platform.  

Meager interest rates for non-Stablecoins

Compound’s model is based on demand and supply.  Since most people want to avail loans in stablecoins like USDT and USDC the volume for those stablecoins is through the roof while other good cryptos lack demand on the platform, this in turn limits the interest rates on these crypto collaterals.

Gas fees

Every transaction on Compound costs you gas (fees in ethereum). You have to keep an eye on the fees you are paying each time you transact on the platform.

Red Flags with Compound to consider

Hacks/future vulnerabilities in smart contracts

You don’t know what you don’t know. This is particularly true about the smart contracts and system vulnerabilities in the crypto space. What happens if someone finds an exploit in the code to mine Comp or what happens if the system is hacked by brute force?  What happens to the coins that are collateralized on the platform?  There were some concerns about the Compound code that was brought to the company’s attention.

Connecting your wallets to withdraw might be risky

You are connecting your Coinbase/Metamask wallets to Compound. What happens if there is a glitch in the contract or someone deliberately attacks through brute force to execute unauthorized transfers?

Not fully decentralized

Don’t let the name DeFi fool you.  Compound aspires to be a fully Decentralized Finance platform in future, however, it is not fully decentralized at the moment.  This means, in theory, the team can override the control on the assets on the platform to walk away with your funds, again this is in theory not that the team will do such a thing.

What happens if and when Comp token value falls down?

People are getting creative and choosing to get paid in Comp tokens.  When people have accumulated Comp tokens and dump it on the market, what happens?  If the value of Comp falls down drastically, it could disrupt the entire model on which the current framework works.

How to Earn Interest on Compound using Exodus?

Earn Interest with Exodus Wallet & Compound Finance

Exodus cryptocurrency wallet now allows users to connect to the Compound Finance DeFi platform, so you can now earn interest on your Dai tokens. ► Want to fi…


How to Earn Interest on Compound using Coinbase Wallet?

You can easily connect to coinbase through compound app and start lending your chosen coin and earn interest.Coinbase compound finance

Compound coinbase

Coinbase compound finance

Source: Coinbase

How to Earn Interest on Compound using MetaMask?

Compound Finance – How to Lend Dai & Eth Tokens | Passive Income

A short video guide explaining the basics of how to lend on the Compound Finance platform. In this guide I’ll take you step by step through every process and…

How to Earn Interest on Compound using Ledger?

Using Compound Finance with a Ledger Nano S | DeFi Security

If you have over $1,000 worth of value in your Compound Finance or other DeFi accounts, you need to add another layer of protection with a Ledger Nano S hard…

Conclusion

Compound is an interesting project.  We are not fully convinced about its future sustainability and for that reason we are sticking with Celsius Network for now until this hype cycle dies down with Compound and then we will come back to test it out for ourselves. 

Many Compound fans might think that we are missing out on an awesome project and they may be right, however, we have decided not to FOMO a long time back even if it means missing out on a few good opportunities.

You do what is right for you.

Thank you for reading and sharing this article. We appreciate you.

Resources:

Compound Whitepaper

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Thank you for reading and sharing this article. Stay safe and healthy!

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IMPORTANT DISCLAIMER

We have used referral codes where available.

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Crypto Roundup: All Your YouTube Influencers in One Place

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Crypto Roundup

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place.    

Worried about missing updates from your favorite YouTube crypto influencers?  

Welcome to the Crypto Roundup.  

On this page, we will post a quick summary of the videos from some of the most popular YouTube crypto influencers.

Ivan on Tech  Altcoin Daily

Crypto Zombie Box Mining

Ellio Trades Lark Davis

Data Dash Bitboy Crypto

MMCrypto Chico Crypto

Altcoin Daily

Video title: Bitcoin Will Be OVER $20,000 By Christmas 2020! BIGGEST WEALTH SHIFT OF OUR LIFETIME! Cryptocurrency

Date: 19-Nov-20

  • World’s biggest wealth shift of our lifetime is happening right now and no mainstream media is talking about it, except CNBC.

  • Preston Pysh predicted on August 26th that: “Bitcoin should be reaching its all time high by Christmas.”

  • If you are looking to buy a dip, there may not be one.
  • Ricardo Salinas Pliego, a mexican billionaire, has just revealed that 10% of his liquid assets are into bitcoin.

Lark Davis

Video Title: STOCKS HIT NEW HIGHS! WILL COVID VACCINES LEAD TO MEGA PUMP IN 2021? [Are You Ready?]

Date: 19-Nov-2020

  • Stock markets and bitcoin pumps higher on the news of the second successful covid vaccine.
  • There could be more chances for the new stimulus. Means more inflation, more debt and simultaneously pumps stocks, gold and bitcoin.

Crypto Zombie

Video Title: BITCOIN $18.5k TOP!!?! DON’T BE FOOLED!! HODL FOMO BEGINS!!! $TRILLIONS FLOOD!!

Date: 18-Nov-2020

  • Overall sentiment of Bitcoin has changed drastically from ICO craze in 2017 to a time where people are FOMOing to own more bitcoin.

Ivan on tech 

Video Title: BIG WARNING TO ALL HODLERS!!!!!!!!! DO NOT GET REKT!!! BITCOIN $18,500 REJECTED – NOW WHAT?

Date: 18-Nov-2020

  • Ivan expects bitcoin to shoot past $20K resistance before end of this year, giving it 85% probability

Chico Crypto

Video Title: World’s Most Powerful Turn BULLISH on BITCOIN

Date: 19-Nov-2020

  • All those who hold big bags of Bitcoin will come out of the shadows to talk up the Bitcoin rally, a $20K bitcoin could be on the cards before the end of this year
  • Ethereum mining could act as a big catalyst for Ethereum’s price
  • Big companies like google could play a bigger role in mass adoption of crypto

Let the FOMO begin…

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Lessons from the Veteran HODLERS to the Newbies!

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Lessons in Crypto

For all those who entered the crypto market after the 2017 bull run – here are few lessons from the HODLERS from the last bull run(s).

This is our attempt at making all you newbies aware of the mistakes veteran cryptoers did.

Let’s get started…

Don’t FOMO in to all the hype

FomoIt’s hard not to FOMO in crypto.  The trick is to make sure you don’t lose your shirt in crazy bets.  Always limit your bets to what you are comfortable losing.

The common ways you can become victim of FOMO are:

  • Following your favorite YouTuber without actually doing your own research on the project.
  • Investing into projects at the top.
  • Believing in promises of 100x or 1000x without any substance behind those claims.

HODLing far too long

Remember why you are into crypto – to make the money.

Never fall in love with your crypto, and HODL the tokens even when they are 10x and more.

Have a strategy to take your capital out before you become a HODLer.  

If you believe the project really has what it takes to go beyond 100x and more, just sell in instalments so as to not miss the ride.

One of the best ways to HODL is to take your capital in full and profit in tranches.

This rekt story will give you a right perspective of what it looks like, it’s one of many:

Don’t put all your eggs in one basket

Never go all in on one project. No matter how strong the project may look, even the projects with strong fundamentals don’t do well sometimes. 

And, you will be kicking yourself watching other projects go up and your portfolio just doesn’t seem to make a move.

And don’t over do it and have a portfolio with over 100 projects either. It is very difficult not to have invested in more than 15 projects but anything less than 20 is a good way to go, in our opinion. 

Put aside the share of Profits for Taxes.

One way you can get a good night’s sleep is by paying taxes. 

Always keep a habit of putting aside a % of your profits in USDT or other stable coins, as a reserve to take advantage of market volatility and also to meet your tax obligations. 

Exchanges are more evil during bull run

Foreign ExchangesDon’t trust exchanges. Yes we already know that, but they play more games during bullrun, some intentional and some technical. 

Many exchanges tend to go under maintenance when the prices shoot up too high too soon (Coinbase?), and you can’t sell. 

And the shady exchanges scam out before you know.

Regulators seem interested when the market cap of these projects goes through the roof, which then adds FUD around the project crashing the prices.  

Exchange may freeze funds pending investigations when such issues arise.

Take for example OKEx. Users are unable to withdraw their assets from the exchange for almost a month now, not certain if they ever will, and all that started with the legal dispute.

Never fall for Arbitrage gains

Arbitrage is when you buy in one exchange at a lower rate and sell on the other for a higher rate to take some profits. 

Some shady exchanges show a lot higher prices than the other genuine exchanges and when you deposit your assets to sell at those prices there won’t be actual volume to execute the trade. You may be stuck with either a high fee for withdrawal or other funky rules to take your own money out. 

Remember, there is no free Giveaway

Free CryptoScammers rise with the rising market.  

When the crypto market buzzes with all time highs – scammers cash in big time on newbies.

The most lucrative scam in crypto is ‘Free Giveaway’. Whether it be through YouYube ads or discussion groups and wherever they can get your attention.  Read this article on various sophisticated scams that are being deployed.

We hope these lessons help you through your trades and crypto life.  Stay safe and always DYOR.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

Continue Reading

CryptoSpace

Crypto Roundup: All Your YouTube Influencers in One Place

Published

on

crypto news

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place.    

Worried about missing updates from your favorite YouTube crypto influencers?  

Welcome to the Crypto Roundup.  

On this page, we will post a quick summary of the videos from some of the most popular YouTube crypto influencers.

Ivan on Tech  Altcoin Daily

Crypto Zombie Box Mining

Ellio Trades Lark Davis

Data Dash Bitboy Crypto

MMCrypto Chico Crypto

Altcoin Daily

Video title: The United States Just Brought Bitcoin into the National Conversation!! | Cryptocurrency in 2021

Date: 16-Nov-20

  • Former National Treasurer and the new US Senator Elected, Cynthia Lummis, said Bitcoin fits the bill as a good store of value as it is finite and limited, unlike the inflationary fiat currency.

  • Grayscale adds over 7000 more bitcoin in just the last 24 hours.
  • Just over 16% ETH staked for ETH 2.0 launch on Dec 2 2020.
  • Bitcoin Cash hard fork takes place tomorrow.

Crypto Zombie

Video Title: WARNING!!! BITCOIN 2017 BEAR FRACTAL RETURNS!!! BTC WORST CASE SCENARIO…

Date: 14-Nov-2020

  • Institutional money starts flowing into bitcoin.

  • Paypal goes live with its crypto trading platform for eligible customers. They have also raised the buying limits from the initially set $10,000 to $20,000 per week.
  • DIA, an DeFI Oracle provider, integrates with Polkadot.

Ivan on tech 

Video Title: BITCOIN WILL DO SOMETHING INSANE THIS WEEK!!!! -30% DUMP AHEAD vs $20,000 PARTY – Programmer

Date: 16-Nov-2020

  • Bitcoin could make a big move this week, either hit 20K or we may see a 20% to 30% drop
  • Chainlink partners with Etherisc to deliver agricultural insurance in Kenya.

Ellio Trades

Video Title: UNLOCKING $100 TRILLION? This low cap gem seeks to bridge CeFi and DeFi

Date: 15-Nov-2020

  • DeFI could be similar to the ICO craze in 2017
  • Low cap gem: AllianceBlock
  • AllianceBlock is bridging the gap between DeFi and CeFi
  • AllianceBlock Partnership with Orion Protocol and Chainlink.

Chico Crypto

Video Title: WARNING! An “EVIL” Entity Wants Control of BITCOIN…

Date: 15-Nov-2020

https://www.youtube.com/watch?v=45Ac-5y2ofg

  • 90% of Bitcoin’s mining pools are controlled by China based mining pools
  • As the value of bitcoin goes up – there is a threat of push to ‘control’ the network from China
  • Binance is looking to push through the 50% mining share and Chico believes this could be dangerous

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place. 

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Continue Reading

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