Think about this:
When you put your money in a traditional savings account, you will earn some interest on it in the course of time. However, once you lock this money in your account, you won’t be able to access it whenever you want.
Bit, what if you could withdraw the interest your savings earn any time you wanted without actually spending your savings? Wouldn’t that be convenient?
Or even better, what if you didn’t need a bank to save your money but can still earn interest on it while bypassing the hefty bank fees?
That is exactly what Compound, an Ethereum-based DeFi project, is trying to achieve. In the simplest terms, Compound lets its users lend or borrow cryptocurrencies.
Here is why this is important:
In most cases, when people HODL or store cryptocurrencies in their wallets for long periods of time, it doesn’t generate any interest like mainstream saving accounts. But if you lock your investment in Compound and allow other users to borrow it, you earn some interest plus some other incentives.
So, if you think one of your investments is going to sink, you can easily short-sell it on Compound.
Compound is the brainchild of Robert Lensher and Geoffrey Hayes, who are well-known serial entrepreneurs. The company raised $8.2 million in 2018 from such firms as Bain Capital Ventures and Andreessen Horowitz. In 2019, it raised an additional $25 million to enable it to build its protocol further.
The COMP token currently sells at $451 per coin with a market cap of $2.63 billion, according to data from CoinMarketCap.
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Let’s quickly look at what exactly Compound is and how it works.
- What is Compound?
- How Does Compound Work?
- Compound Price History
- COMP Price Prediction for 2021
- Ways To Invest in Compound
- Is Compound a Good Investment?
- Conclusion: So, Should I Buy Compound?
What is Compound?
Compound is an Ethereum-based DeFi project that allows lenders to lock their assets in its protocol so that borrowers can borrow them.
In other words, Compound is like a traditional money market but without intermediaries like banks. The protocol uses several crypto assets to create a lending platform that runs entirely on smart contracts.
This means that terms and conditions of lending, including interest amount, are algorithmically created and automatically initiated when certain conditions are met.
So, for example, if you are a lender, your simply deposit your cryptocurrency into Compound’s lending pool so that borrowers can access it. When you do this, you earn interest on your assets as opposed to when they are shoved away in a wallet.
In addition, when you make a deposit, you will be awarded a cryptocurrency known as a cToken. You can then trade or even transfer this cToken to another user if you want to. However, you can only redeem it for the asset that you initially locked into the pool.
For example, if you had locked ETH, you can only redeem your cTokens for some ETH. And since the entire process is handled by smart contracts, you can withdraw your deposits at any time.
There are also other incentives in the form of Compound’s native cryptocurrency known as COMP. Every activity done on Compound (Such as borrowing, repaying or withdrawing an asset) is incentivized with additional COMP tokens.
How Does Compound Work?
Compound capitalizes on a combination of smart contracts on the Ethereum platform to connect crypto lenders and borrowers.
In this regard, there are two main users that are central to the functioning of the Compound protocol. These are:
- Lenders: These are users who deposit their cryptocurrencies into Compound’s lending pool. When they do this, they are awarded a generic token called cToken which merely represents their deposit or the value of their underlying assets. The tokens also generate passive interest for lenders allowing them to engage in yield farming. Holders can also convert their cTokens into the underlying asset.
- Borrowers: These are the people who borrow crypto from the Compound Network. Before borrowing, the borrower must first deposit some form of collateral that will cover their loan. This collateral should be more valuable than the loan amount. Borrowers with more collateral have higher borrowing capacity than those with lower collateral. This means that the higher your borrowing capacity, the more you can borrow. On the other hand, if the value of your collateral equals or comes close to equalling the value of your loan, the Compound protocol will automatically liquidate your collateral.
Both lenders and borrowers interact directly with the Compound protocol. This means that they don’t have to rely on a central authority to set and pay the accumulated interest rates. The interests are automatically paid out using pre-defined smart contract agreements so that the two parties don’t have to manually negotiate terms.
The interest rate usually depends on the supply and demand of the underlying asset. So, lower liquidity in the market means lower interest rates.
Apart from lending and borrowing, governance is also an important aspect of the Compound protocol.
In a nutshell, users who hold COMP tokens can take part in the governance of the Compound protocol. For instance, they can vote on new changes, including the addition of new collateral types, interest rate models, borrowing capacities and a series of other network proposals.
Generally, the more COMP tokens a user holds, the more governance power or influence they have over network changes. Every token represents a vote on any governance issues, and only users who have not less than %1 of the total COMP supply can propose network changes.
COMP can be traded like any other cryptocurrency; for example, Bitcoin or Dogecoin.
Compound Price History
The Compound network has been around since 2017. However, the COMP token started trading actively in June 2020 and was worth about $60 per token.
The token started at a relatively high price compared to other cryptos because when it started trading, the Compound protocol had already gained some following in the crypto space. So, when the native token was launched, there was already a demand for it.
As a result, COMP jumped from about $78 to as high as $336 in four days after it started trading. After this first surge, there was a decline in demand, and a marginal correction brought the price back to $100, where it stagnated for the most part of 2020.
In fact, by November of 2020, the price had plunged below $100 to $90. Some analysts predicted that the price would fall further following the long consolidation mode. However, it started rising again, and by the end of 2020, COMP was trading at $157.72 per token.
At the start of 2021, COMP was caught up in a market-wide bull run that saw most cryptocurrencies surge. While the bull run affected cryptos differently, COMP was among the few that took full advantage. In the first few weeks of 2021, the token skyrocketed to over $250. And just when experts expected another correction, COMP almost doubled in early February with a price of $535.
As the coin became more valuable, more investors began to notice, and soon the user base widened. While most people expected that the price would keep rising, they didn’t expect a wildly parabolic rise. First of all, March and April saw a dramatic price movement and then in mid-May, COMP reached its current all-time high of $910.54. This represented more than 450% growth since the start of 2021.
However, during the same month, there were reports that China was cracking down on cryptocurrencies. This caused most crypto prices to fall. For instance, Bitcoin dropped by almost 9%, while Dogecoin went down 11%.
COMP was not spared, and the price fell by more than half. On May 23rd 2021, it was trading at $303.6, according to data from CoinMarketCap. The price has since recovered, and at the time of writing, COMP is trading at around $451.
COMP Price Prediction for 2021
When COMP hit its all-time high of $910, most people expected that it would close the year at above $1000. However, now that the price has dropped by more than half, the predictions are less optimistic, with most analysts going for an end-year prediction that is less than the ATH.
In fact, some price analysts think that the token might finish the year at lower than its current price. For instance, Long Forecast predicts that COMP will be worth $292 by December 2021. According to the site, the token will only start rising again in 2022, where it will go as high as $500.
Wallet Investor is, as usual, more optimistic and believes that COMP will close the year at $851 or as high as $995. This is slightly higher than Digital Coin’s price prediction of $655 by the end of 2021.
The most optimistic of all is Coin Price Forecast which predicts that the Compound token might go as high as $911 by December 2021.
Initially, most price analysts predicted that COMP would end the year at over $1,000. While some believe that the predictions might still come true, the chances of that happening have reduced. So, for now, we can expect the token to be worth between $200 and $900 by the end of the year.
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2 Ways To Invest in Compound
After looking at the technical analysis and doing your own research, you should now know whether or not Compound will be a good investment for you.
If you decide that this token is a worthy addition to your portfolio, we recommend investing in it in one of two ways. These are:
If you plan on trading or holding for the long term, you will need to buy some COMP tokens. Buying COMP is as easy as buying any other crypto. Just follow the steps outlined in the section below.
How to Buy Compound (COMP)
Although Compound was launched in 2018, there are few exchanges that support it. If you are in Canada, UK, Singapore or Australia, you can use Binance or eToro. Some countries like the USA do not allow trading of some of the tokens on this platform Binance
So, if you are in the US, you can use Kraken or eToro instead of Binance.
Whichever exchange you use, the process of buying COMP is not too different. Here are some of the steps you will most likely have to follow when buying this token on an exchange.
Step 1: Create an Account
Every exchange will require that you create an account first before you can buy COMP. The process of signing up is fairly simple and will only take a few minutes. Depending on the exchange you are using, you will be required to provide different pieces of information.
After signing up, you will need to verify your account just to make sure that someone else is not using your details.
Step 2: Deposit some funds into your Account
After creating and verifying your account, you will need to deposit some funds, which you will use to buy COMP. Most exchanges like eToro will allow you to buy the token with fiat currencies. However, you might be required to provide additional financial details to help verify your identity.
There are several ways to fund your account, so you can choose one that is the most convenient for you.
Step 3: Buy Some Compound Tokens
When you have deposited enough funds, you can now go ahead and buy some COMP. If you are using a brokerage, you will need to place a buy order. You have several options when buying the tokens. For instance, you can use a bank transfer, PayPal or credit card depending on the exchange you are using.
If you are planning to hold, you can then transfer your tokens to an off-exchange wallet. Otherwise, if you just want to trade, there is no need for that.
Now that you have some Compound tokens, you can choose which investment method you want to go with. If you want, you can even do a combination of both.
Method 1: HODLing
HODLing is an investment strategy where you buy some crypto tokens then store them in an external wallet for many years. Hodling is common with novice traders who don’t want to engage in complex day-trading.
To HODL, you simply need to store your tokens in an off-exchange wallet then wait until the price is insanely higher than the purchase price. For instance, if you buy now for $450, you can hodl it until the price reaches $10,000 before selling.
To do that, you will need to store the tokens in a secure wallet.
How to Store Compound (COMP)
If you plan on hodling, we recommend storing your Compound tokens in an off-exchange wallet. For instance, if you buy on Binance, you will need to transfer your tokens to an external software or hardware wallet.
Usually, we recommend using a hardware wallet since it is more secure. These wallets are called ‘cold wallets’ and are offline-based. This means that they cannot be accessed through the internet, thus reducing the risks of hacking. The Ledger Nano X and the Ledger Nano S are examples of secure hardware wallets that support Compound.
While they are less secure than hardware wallets, software wallets are much more convenient since you can access them anywhere from your phone or computer. Software wallets are basically installable mobile applications or desktop software. What we like about software wallets is that most are free to use, unlike their hardware counterparts which usually come at a hefty price.
They also offer more customization options, so you get access to more features.
For software wallets, we recommend the MyEtherWallet, which supports all Ethereum-based DeFi tokens. Basically, you can store COMP in any other Ethereum wallet since most of them support it.
Generally, if you plan on storing your COMP for a long time and need a secure wallet, go with a hardware one. Otherwise, if you need to access your tokens from time to time, need more convenience or customization, you will be better off with a mobile or desktop wallet.
Method 2: Trading
This is where you take advantage of short-term price movements to make some profit. While HODLing only allows you to profit from a price uptrend, trading allows you to gain from either price direction.
eToro is our favourite brokerage to trade COMP. To start trading, just follow these steps.
How to Trade COMP on eToro
- Open an eToro account if you don’t already have one
- Verify your identity
- Fund your account
- Search for COMP
- Click ‘Trade’
- Enter the amount you would like to spend
- Click on Open ‘Trade’
If you don’t know how to trade but still want to invest in this way, you can work with an expert who will show you the ropes before you can start on your own.
Is Compound a Good Investment?
One of the primary benefits of buying Compound now is that you get early access to governance rights on the network. You also earn interest on your investment instead of simply shoving it away in a wallet.
However, these are just some basic benefits you get as a Compound investor. From a deeper point of view, Compound presents a priceless network for cryptocurrency investors who would like to earn some interest on their stash.
While there are several other blockchain-based money markets, Compound solves a problem that most investors didn’t even know they had. The fact that it is so beneficial to crypto hodlers will see it through a quick mainstream adoption. When this happens, the COMP token will become highly valuable as it is used more to complete transactions on the Compound network.
So, people who hold COMP now are likely to see massive gains as the protocol records increased use cases.
Apart from your tokens increasing in value as the price goes higher, you can also earn passive income by lending out some idle assets. This way, you will be able to make money without relinquishing ownership of your cryptos.
Compound also gives you an opportunity to take advantage of Bitcoin in a decentralized finance environment such as Ethereum. This is accomplished through the use of Wrapped Bitcoin (WBTC), which is an ERC-20 version of locked Bitcoin. So, if you are a Bitcoin HODLer, you can get rare access to the DeFi sector and take advantage of its enormous possibilities.
Compound is also one of the most secure cryptocurrency platforms. The network has gone through several security audits to ensure that its investors do not fall victim to cybercrimes.
In terms of monetary gains, Compound doesn’t disappoint either. While it is subject to the usual crypto volatility, you can make enviable profits if the market plays out in your favour
For instance, if you had bought COMP back in October 2020 when it was selling for as low as $95, you would make good profits by selling at the current price.
Let’s do the math:
Say you invested $1,000 on 20th October 2020 when the price was around $94. That would be around 11 COMP tokens. Now, if you sell these tokens now for $451 you make close to $5,000. That is almost $4,000 profit in just seven months. But if you locked those tokens in Compound’s lending pool, you would earn some additional income in terms of interest rates and cTokens.
Check Out: Could Compound Be A Millionaire-Maker Coin?
Conclusion: So, Should I Buy Compound?
Whether or not you are going to buy Compound depends on your investment goals. Are you looking to profit off COMP’s price uptrend, or do you want to invest in Compound’s underlying technology?
Definitely, you should do some research and work with an expert before adding COMP to your portfolio.
Most price analysts predict that COMP will end 2021 at above $700 per token. So, if you want to buy while the price is still low, this might be a good time. Otherwise, if you feel that you need to do more research, take your time until your completely sure that you are ready to buy.
eToro – The Best Platform to Buy Compound
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.
Here are some frequently asked questions about investing in Compound.
Will Compound Reach $1,000
When COMP went above $900 in May, most price analysts were positive that it would reach $1,000 by the end of the year. However, after the recent correction that dropped the price by more than half, we might have to wait a little longer before COMP can reach $1,000.
How much will Compound be worth in 2025?
According to most analysts, COMP will be worth between $1,000 and $3,000 by 2025.
Is Compound a good investment?
If you are looking to taste DeFi waters as an existing crypto investor, Compound might be a good investment to start with. However, don’ forget that being crypto, COMP is still very volatile and, therefore, a risky investment.