The Compound Protocol is one iteration of how technology is eating finance. Founders of the Compound Protocol made waves in the cryptocurrency sector when they announced that they would deploy a testnet of their governance platform. Yes, there will be a governance token, and they will call it COMP.
This governance effort is vital as one component of cryptocurrency and blockchain is to decentralize control.
For the uninitiated, the Compound Protocol is a part of the decentralized finance segment of the Etherum ecosystem and facilitates lending and earning. Holders of digital assets such as BAT, ETH, USDC, ZRX, in addition to other tokens, can deposit tokens and earn APY at varying market rates.
Users can not only lend but borrow on the DeFi platform allowing for seamless movement of collateralized finance.
How Does Governance Affect You?
Governance is a critical component for users of the Compound Protocol because it can let them participate in the direction of application. Specifically, it is essential because it allows for voting on the addition of tokens to compound markets. Further, COMP may provide holders with more rights as well and help to pave the way for other applications to follow suit.
If the experiment goes well, it will show that regular and progressive decentralization is possible and can be valuable for a protocol.
Will users wreak havoc as they’re allowed to make decisions on the protocol? Not rational actors. They must purchase the tokens and have skin in the game to participate. It won’t make sense to buy tokens and vote in a manner that can harm your initial investment.
Still, it is only test mode right now and will only be available to the initial team. We’ll know that it is making progress when it goes to the mainnet or the live version.
Robert Leshner notes “COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.”
The founders of the protocol will expect to tokenize the decentralized application and distribute tokens to the initial team and the general ethereum community. This indicates that the founders and initial team may have a more considerable influence on the decisions at first, then decentralizing more over time.
Compound is a fairly DeFi decentralized application as it came about in the latter half of 2018. Since then, it’s been through quite a few changes and has seen steady progress and adoption. The decentralized application is still a favorite among many in the general ethereum community.
The entity wishes to “create an infrastructure that applications and developers can rely on, forever.” They aim to create an indestructible, open protocol that can evolve in entirely new ways.
Compound participated in a funding round led by a prominent Silicon Valley venture capital firm Andreessen Horowitz. It raised more than $20 million from A16z and other capital providers such as Polychain Capital and Bain Capital Ventures.
Learn more about Compound through their website or interact with them on Compound discord.