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Loans in kryptowalutach have been granted more and more frequently recently. Therefore, various types of solutions are developed to improve this process and make it safe. One of them is based on blockchainie software Compound.

What is Compound?

Compound is software based on the blockchain network Ethereum destined for decentralized financial ecosystems. It is used to handle loans granted in cryptocurrencies, while ensuring the possibility of their implementation, excluding the involvement of intermediaries.

Compound also allows users to earn a fixed interest rate, determined by an algorithm based on the criterion of supply and demand. The software is dedicated to a specific group of cryptocurrencies, which include: Dai (DAI), Ether (ETH), USD Coin (USDC), Ox (ZRX), Tether (USDT), Wrapped BTC (WBTC), Basic Attention Token (BAT), Augur (REP), Sai (SAI).

Compound protocol mechanism of action

Using the Compound software, the lender deposits his funds in cryptocurrencies, which then become available to people interested in a loan.

After the deposit is made, the protocol assigns the loan user a new cryptocurrency representing the deposit - cToken. Such a token can be freely rotated, but it can only be exchanged for a cryptocurrency blocked in the protocol. In addition, for performing activities within the platform, lenders are rewarded by the system with their own native COMP token. Interest on the amount borrowed is charged in the same cryptocurrency that was deposited.

Matters to be refined

Compound software provides benefits to both lenders and borrowers while setting loan limits. The system is currently very popular - over 500 million assets have already been blocked in the Compound protocol.

However, it is important to know that this program, despite its many advantages, is not yet fully reliable, as evidenced by an incident that took place in October this year. Due to a compound protocol error, users were mistakenly given $ 90 million in tokens COMP.

Founder of Compound Labs, robert leshnerthen, via social media, asked users for a refund of incorrectly paid funds. It can therefore be concluded that some safety issues still require further development in the case of Compound.

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Investments in OTC market instruments, including currency exchange rate (CFD) contracts, due to the use of the leverage mechanism, entail the possibility of incurring losses exceeding the value of the deposit. It is not possible to make a profit on transactions on OTC instruments, including currency exchange contracts (CFDs) without risking a loss, therefore contracts for exchange differences (CFDs) may not be suitable for all investors.

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