Compound Finance is an Ethereum-based algorithmic financial market protocol that has made borrowing and lending in decentralized finance easier than ever. Anyone may contribute securities to Compound’s liquidity reserve and start earning interest right away.Read on to learn everything you need to know about Compound Finance and how to trade, borrow crypto assets against collateral, and earn interest using it.Compound FinanceCompound Finance is an Ethereum based, decentralized lending protocol that allows users to borrow, deposit cryptocurrencies and earn interest by locking up their assets in smart contracts. Compound has been a vital actor in modernizing the old finance system through smart contract technology, one of the most user-friendly, secure, and open DeFi technologies available.Compound Finance is a permissionless protocol; anyone with an internet connection and a crypto wallet like the CoinStats Wallet or a Web 3.0 wallet, such as Metamask, can freely connect and earn interest on Compound.Compound lets anyone obtain an instant cryptocurrency loan with nothing but the borrower’s cryptocurrency assets as collateral. Getting a traditional financial loan is a complicated process, which involves KYC and employment, credit checks. Jumping through these hoops is cumbersome and expensive, with interest rates generally high. DeFi loans are straightforward and don’t involve any intermediary.The Compound protocol acts as a lending platform/lending pool that connects lenders with borrowers using a combination of powerful smart contracts on the Ethereum blockchain.BorrowersThese are users who borrow funds from the supply market. Borrowers can also deposit their supported cryptocurrency assets, then borrow more cryptocurrency, BTC and stablecoins, against their value. By depositing cryptocurrency and borrowing against it, a user maintains his existing position while squeezing more value out of them. Users can use their crypto loans to buy other cryptocurrencies or farm yield in other DeFi platforms. When a user deposits cryptocurrency as loan collateral into the Compound protocol, he becomes a lender; i.e., he earns annual percentage yield earnings that work to offset his loan’s interest rates. LendersThese users lend their funds to the Compound protocol to earn interest. Depositing your cryptocurrency into the Compound protocol is better than holding it in a crypto wallet that doesn’t generate interest, even if you don’t intend to take out a crypto loan. When cryptocurrencies are deposited into the Compound platform, they automatically begin accruing annual percentage yield interest, paid in COMP tokens and the deposited asset. In so doing, rather than sitting idle in your wallet, your crypto assets earn you passive income.Among Compound Finance’s advantages is that borrowers and lenders don’t have to negotiate the terms; instead, both parties interact directly with the protocol, which handles the interest rates and collateral. Smart contracts replace intermediaries in holding the assets. The interest rates for borrowing and lending on Compound Finance are adjusted algorithmically based on demand and supply. Additionally, COMP token holders have power over interest rates adjustments.Compound Finance Token COMPCompound Finance is powered by COMP, an ERC-20 token. Compound rewards lenders with its COMP tokens based on the amount of cTokens held in their wallets and a pre-determined rate. The more liquidity a particular token has, the lower the interest rate generated. Lenders can also take out a loan in any other cryptocurrency supported by the Compound protocol. The lending, borrowings, or repayments of debts on the platform are incentivized by rewarding users with the Compound tokens.COMP is also a governance token, and each holder of the Compound (COMP) tokens has voting rights in proportion to their holdings. This empowers the users to participate in the decision-making processes of the platform. COMP has a total supply of 10 million, of which 42.3% will be distributed to users letting them earn interest when they use Compound by borrowing or lending cryptocurrencies. For every Ethereum block, 0.5 $COMP is distributed across Compound’s nine markets in proportion to the accrued interest in the market. Within each of these markets, the amount of distributed COMP is divided equally between the lenders and borrowers of that particular cryptocurrency, which is why the interest rate constantly changes. Users can check Compound’s user distribution page to see the daily amount of interest paid and the COMP amount distributed to lenders and borrowers. They can also earn COMP by voting on various governance proposals.Supported Cryptocurrencies and Their Blockchain Lending Interest RateHere are some of the cryptocurrencies Compound currently supports and their interest rates: Ether (ETH) – 0.17sic Attention Token (BAT) – 1.21i (DAI) – 2.18%Ox Token (ZRX) – 0.84%Tether (USDT) – 1.58%Compound (COMP) – 0.99%Uniswap (UNI) – 0.38%Wrapped Bitcoin (WBTC) – 0.54%USD coin (USDC) – 1.63ditional tokens are likely to be added in the future.Compound Finance Pros and ConsProsHigher interest rates compared to traditional bankingNo KYC or credit score is required to use the platformNo constraints on multiple asset pool usageIncrease in total value lockedAccess to DeFi BitcoinImproved trading volumeSecure and trustedHighly interoperableConsCompetition with other DApps for market shareCollateral liquidation due to cryptocurrency unpredictabilityFew cryptocurrencies to borrow or lendYield farming can be extremely riskyTechnical errors due to the highly volatile algorithm-based smart contract systemQuestions raised about its decentralized statusCompound Crypto LoanGetting a crypto loan on Compound Finance is a beginner-friendly process. Users only need to supply the Compound platform with crypto, enable it as collateral, then borrow against it. With Compound crypto loans, you essentially borrow from yourself; therefore, if you choose not to repay the loan or the value of your deposited asset drops to the point that your loan to value ratio is exceeded, the same outcome is met. Knowing this lets lenders have peace of mind.Compound’s smart contracts are immutable, secure, and automatically respond to changes in crypto prices and market conditions.To get a loan on Compound, you only need a few requirements: Supported crypto-assets, i.e., ETH, BTC, DAISupported crypto wallet, i.e., Ledger, MetamaskETH to cover gas fees (transaction costs)Follow our step-by-step guide to secure a crypto loan on Compound:Access the Compound appConnect your walletSelect the crypto you want to deposit, enter the amount, and click supplySign two transactions – one to enable Compound to spend your crypto, the other to deposit itChoose the crypto you want to borrow, enter the amount, and click borrowSign two transactions – one to interact with compound SC, the other confirms txAfter the second transaction is confirmed, the borrowed amount will show in your crypto wallet; that’s it!How to Borrow on CompoundYou are also required to pay fees when borrowing cryptocurrencies on Compound. Users have first to deposit funds or collateral to cover their loan. In return, they earn “borrowing power”; this is required to borrow on Compound. Users borrow according to how much borrowing power they have, and every asset available for supply adds a different amount of borrowing power.The Compound platform works with the concept of over-collateralization, similar to several other DeFi projects; this means that to avoid liquidation, borrowers have to supply more value than they wish.How to Use Compound FinanceFollow the steps below to start using the Compound Finance platform:Step #1: Connect WalletThe platform currently supports three wallets: Metamask, Ledger, and Coinbase wallet. When you first visit your dashboard, you’ll be asked to connect your Ethereum wallet, which must contain at least 0.05 ETH required to make Ethereum transactions. The dashboard is roughly divided into three parts:Supply Market – Left-hand sideBorrow Market – Right-hand sideLending/Borrowing summary information