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Compound: An Ethereum Money Market Protocol
Today, Zach sits down with Robert Leshner, the CEO and founder of Compound, a protocol that creates money markets on the Ethereum blockchain. Compound will allow users and distributed applications to systematically earn interest or borrow assets on-chain in a trustless, transparent, and predictable way.
Robert’s insights point to crypto’s increasing importance within the financial system:
Crypto is Transforming How Finance Works
Robert points out three major advantages to cryptographic assets over assets in the legacy financial system.
- First, asset owners are truly sovereign over what they own.
- Second, users have the ability to move large quantities of cryptographic assets anywhere in the world instantaneously and for free.
- And lastly, anyone can program assets without needing permission.
The Demand to Tokenize Assets
Assets from the existing financial system are trickling into crypto as these advantages become more apparent.
Robert hypothesizes that over time, there will be a larger quantity of tokenized real assets than assets that are crypto-native.
As interest and participation in cryptocurrency broadens, the need for a safe and secure protocol for lending and borrowing becomes more apparent.
The Compound Money Market Protocol
Compound is an open-source protocol for algorithmic, efficient money markets on the Ethereum blockchain.
It’s similar in many ways to a money market for any currency, but unlike traditional money markets, it’s frictionless (interest rates are algorithmically optimized), completely open source, and provides security to its users by requiring borrowers to provide collateral.
Users can keep their assets in the Compound protocol for any length of time, long-term or short-term, and earn a prevailing interest rate, which is set based on supply and demand, and which fluctuates over time.
- Crypto assets are awesome, according to Robert, because they are programmable, offer control, and are liquid.
- Every currency and security that exists today will eventually exist in cryptographic form.
- Compound is an easy to use and secure money market. Instead of requiring borrowers and suppliers to negotiate terms directly, the Compound protocol algorithmically optimizes interest rates based on supply and demand.