Think Ethereum and other encryption currencies are overvalued? Now you can earn money when your prices fall through Compound, which is launching its money market protocol to shorten cryptocurrencies today. The startup funded by Coinbase and Andreessen Horowitz today opens its simple web interface that allows users to borrow and cut Ethereum, 0x's #ZRX, Brave & # 39; s BAT and Augur's REP token, or lend them to through Compound to gain interest.
The Compound protocol is not only useful for those who hate crypto, or HODLers who want to generate interest instead of simply having their coins accumulating dust in a wallet. "If / when Compound scale, this will lead to some really interesting improvements in the structure of the market, that is, fairer prices," composite CEO Roberto Leshner told me.
The startup spent the summer completing a security audit by Trail Of Bits and adding 26 hedge fund partners that will trade with Compound, offering liquidity to independent investors seeking to combine with borrowers or lenders. Next, the startup wants to offer a stable currency in its protocol, attract large financial institutions to add even more liquidity and partner with a wallet provider to make the registration faster.
Combined users visit your site through a Web3 browser such as MetaMask or Coinbase Wallet and enter your Ethereum price. Then, you can see the interest rates to borrow, short-circuit or lend, and earn interest for each of the compatible tokens. Compound's secret sauce is that these interest rates are set algorithmically according to the demand, although ultimately it wants a governing body of the community to supervise this process. "I t ranges between 5 percent and 45 percent of APR, depending on how low the liquidity … In general, we expect the supply to outnumber the loans by approximately 5-1, and Debt rates are around 10 percent. "
To make sure no one believes they are being scammed, Compound is also launching a transparency panel you can see to verify all the assets that move through the protocol and see what Compound earns. It charges 10 percent of what borrowers pay in interest, and the rest goes to the lender. That margin attracted the $ 8.2 seed round for Compound that also included Polychain Capital and Bain Capital Ventures.
It could also make encryption exchanges such as Coinbase or Robinhood less attractive to users because leaving their coins there comes with the opportunity cost of not lending them for profit. Meanwhile, shorts could blow up the volatile cryptographic bubble and take prices to more sensible and stable levels. That is the health of the market is a critical precursor for the big banks and traditional investors who are immersed in cryptography.
[Disclosure: The author owns small positions in Bitcoin and Ethereum, but has no financial motive for writing this article, did not make trades in the week prior to this article, and doesn not plan to make trades in the 72 hours following publication.]