Should You Buy Compound?
Will Compound Become A Millionaire-Maker for Traders and Investors?
Compound is not only one of the most popular DeFi coins powering a decentralized lending platform. Currently, COMP is the 69th largest digital asset in the world.
This article takes an overview of Compound, its core areas of business, and - most importantly for prospective investors - the pros and cons which can help answer the question: Should You Buy Compound?
Compound gained traction in the online trading world when it hit cryptocurrency exchanges in June 2020. COMP may be the digital asset you may have been searching for as a blockchain enthusiast, cryptocurrency trader, or day trader.
Some of the questions that may be on your mind are, is investing in Compound a good idea, can Compound make me rich, and will Compound continue to soar. The answer to the three questions is YES. Investing in Compound is likely to be a great idea and Compound can make you rich depending on the level of risk you are willing to take with your hard-earned money. Compound could continue to soar in the months leading up to the end of 2021 due to continuous innovation on its protocol.
Unlike Dogecoin, Litecoin, Bitcoin, Dash, and Bitcoin Cash that serve a primary purpose of a transactional currency, COMP is a unique token that governs the Compound protocol. Unlike Binance Coin, Ether, Cardano, and Tronix that add up the scaling of decentralized applications to its transactional digital currency status, COMP provides an avenue for its users to stake huge sums of money and receive interest when other users borrow the funds.
This is the main reason why several crypto analysts and traditional finance experts believe Compound and other decentralized lending platforms will compete with mainstream financial institutions primarily commercial banks for a share of the consumer market.
With the potential of the cryptocurrency in such a saturated market, is it worth investing in Compound? As a cryptocurrency that has returned huge gains for investors in 2021, will Compound explode? Will all the hype around DeFi and DAPPS, will Compound surpass Bitcoin’s value in the future?
Most importantly, for novice traders and investors - what are the pros and cons which can help answer the question; should I buy Compound?
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- Compound at a Glance
- COMP Price Performance in 2020
- COMP Price Predictions in 2021
- PROS of Buying Compound
- CONS of Buying Compound
- What is the Safest Way to Buy Compound?
- Compound Price Prediction: What Are Analysts Saying About Compound?
- The Bottom Line - Should You Buy Compound?
Compound at a Glance
This section gives an overview of Compound, the beginnings of the crypto, its founders, and why it was created. Additionally, an extensive look at the price performance of COMP will be analyzed thoroughly.
Robert Leshner and Geoffrey Hayes are the founders of Compound. In 2017, Compound was created to make up for the huge sums of money that became dormant in the wallets of cryptocurrency account holders.
Because of his involvement in the development of the protocol and cryptocurrency coupled with answering emails and questions during interviews about the project, Robert Leshner is widely credited as the founder of Compound.
Due to the small interest rates being offered by commercial banks that prevent people from holding a significant amount of money in their bank accounts, decentralized lending and borrowing were created.
In November 2018, the mainnet was released to the general public. Overall, Compound Labs, Incorporation, Compound Network, and COMP make up the project.
Compound Labs comprises the software developers, cryptographers, and computer engineers who ensure the efficiency of the platform and make necessary upgrades when token holders make recommendations.
As an open lending protocol, Compound Network allows depositors of nine Ethereum-supported tokens such as Basic Attention Token, (BAT), SAI, DAI, Ether, REP, USDC, Wrapped Bitcoin (WBTC), USDT, and ZRX earn interest on their balance. Others can also take a secured loan.
COMP is the token that governs the network in terms of changes, the adjustment of collateralization, and which cryptocurrencies to support.
What is Compound?
Compound can be referred to as a protocol that enables users to rent and lend ERC20 tokens through a decentralized market. To put it simply, lenders deposit money into a pool and earn interest through borrowers.
Compound is a decentralized finance lending protocol that enables users to earn interest on their cryptocurrencies. This happens when users deposit COMP tokens into several pools supported by the platform.
Compound is an algorithmic money market protocol that runs on the blockchain of Ethereum. Compound is normally credited as the first decentralized finance application that started the craze associated with decentralized applications (DAPPS).
Its ticker symbol is COMP and this is what it trades by on hundreds of cryptocurrency exchanges and brokerages worldwide.
Why Was Compound Created?
Compound was created to ease the process of becoming a lender as well as a borrower. In the banking system, commercial banks play several roles. One of these roles is to give demand and term loans to all types of clients against proper security.
As a borrower, you have to go through a bureaucratic process that involves loads of documentation. At the end of the day, your security may not be strong enough and your proposal for a loan could be rejected.
This normally sees people waste time and makes finding loans one of the most difficult decisions for the unbanked. Compound as a decentralized finance asset allows people with huge sums of money to provide liquidity.
Borrowers then pick up these loans by using other digital assets as collateral. This has helped create a consistent stream of income for thousands of people. Overall, the creation of Compound has been invaluable to many people, primarily the unbanked.
How Many COMP coins are in Supply?
Currently, COMP has a circulating supply of 6,018,895.26 from a total and a maximum supply of 10,000,000. This means 60% of COMP has been taken up with 40% left up for grabs.
COMP Price Performance in 2020
As per data retrieved from CoinMarketCap, COMP began trading on 16th June 2020 at an opening price of $101.65. It reached a day high of $102.15 and eventually settled at $93.20 to close out the day. There was a trading volume of $25,790. Buoyed by the first round of stimulus checks in April, unsophisticated traders decided to take advantage of the craze in decentralized finance. In two days, the trading volume of COMP increased by 5,496.45% to $1,443,325. This signaled a rising investor interest in Compound.
COMP crossed the $150 and $200 price milestone on 19th June 2020. With trading volume reaching a new high of $5.2 million on 21st June, COMP tested $250 and $300 marks and closed June with a trading price of $216. On the last day of June, the trading volume had increased to $132,851,148. This means that in two weeks, volume increased by as much as 515,027%. In the process, COMP returned 112.494%.
With consistency in investor interest, COMP began the 3rd quarter of the year on 1st July 2020 at $217.66. With a huge sell-off by investors who had reached their investment goals, Compound dropped to $163.86 on 15th July 2020. By the end of the quarter, COMP could not recover after correcting in price. The novel token which governs the Compound protocol succumbed to bears and closed September at $133.44.
Everything that has a beginning surely has an end as the craze for decentralized finance (DeFi) assets died in the 4th quarter. As mainstream cryptocurrencies Bitcoin and Ether started gaining momentum due to the mileage it has and the billions of dollars it recorded in volumes, COMP dropped further to new high lows. Compound began the last quarter of 2020 with a trading price of $133.79 with a decreasing volume of $80 million. Struggling for consistency in price, another sell-off engulfed the novel token that powers the decentralized lending platform. As of the close of 31st October 2020, COMP had a trading price of $91.26. Compound opened at $91.26 on 1st November and closed the month at $111.91. With Bitcoin and Ether rallying to new all-time highs to close out 2020, Compound decided to do what altcoins do best. It followed in the price patterns of BTC by opening December at $111.92 and closed on 31st December 2020 at $149.89.
In its first year of trading, COMP returned 47.457% for investors.
COMP Price Predictions in 2021
What has happened so far in 2021 could not be forecasted by any crypto analysts or crypto finance experts. COMP opened at $149.92 on 1st January 2021 and crossed the $200 million milestones in volume for the first time on 4th January which stood at $211.4 million. With increased investor interest which saw $573 million in liquidity poured into COMP in the last days of the month, COMP rallied to $347.42 to see out January.
As volume went north, the price of COMP decided to follow suit. COMP opened at $347.11 on 1st February. With numerous announcements in terms of institutional investors pouring money into cryptocurrencies, new exchange listings of DeFi assets and new companies accepting crypto as payments saw a rallying of the whole decentralized finance space. COMP crossed $400 for the first time on 4th February and $500 on 6th February. Profit-taking ensued and COMP corrected back to $402.33 to close out February.
In March, there was a huge announcement from Elon Musk and Tesla accepting BTC as an option of payment for Tesla cars. The largest digital asset management firm, Grayscale announced the purchase of cryptocurrencies and set up trusts for them. This helped maintain the momentum in COMPs price as it opened at $402.68 on 1st March and closed at $398.39 on 31st March.
Compound tested $600 for the first time in April. On 30th April, Compound reached $700 for the first time in its price history and settled at $742.86 to end the month.
In May, cryptocurrencies reached new all-time highs. Thanks to Elon Musk and a strong stand by China on the use of digital assets plunged all tokens to new high lows. COMP opened at $741.50 on 1st May and reached an all-time high of $911.20 on Wednesday, 12th March 2021. Compound (COMP) gained a new milestone by being listed on the top cryptocurrency exchange eToro on 26th May. Due to uncertainty in the use of crypto, COMP followed BTC and other altcoins and plummeted to $437 to end May.
Billed as the month of recovery, COMP is struggling for consistency in price but remains a bullish asset in the eyes of crypto analysts and experts. COMP dropped to $221 in July but then climbed to $510 in September. At the time of writing, COMP is trading at around $382, with a capitalization of $2.3 billion.
With impressive statistics under perspective, several analysts believe COMP will have a price above its all-time high in 2021 and beyond.
What are the pros and cons behind such predictions?
PROS of Buying Compound
What are the benefits of investing in Compound?
Several reasons make investing in Compound a great idea. Let us take a look at the pros of investing in Compound that will guide you to make a great decision on the fortunes of the cryptocurrency.
✅ Compound Has Embraced Multi-Chain Future with Gateway Testnet
On Monday, 1st March 2021, it was announced that the Gateway Testnet is now live. Gateway was designed for a multi-chain future where several assets will reside on multiple blockchains. With this, logic and decentralized finance applications will live on multiple blockchains.
It is a known fact that Vitalik Buterin and his team have created a highly sophisticated smart contract chain where most decentralized applications will live. With that said, there are going to be several popular DeFi applications and other assets that would be running on other blockchains.
Gateway is a prototype that came three months after a whitepaper was published for a new distributed ledger that is capable of transferring value and liquidity between peer ledgers called Compound Chain.
As per an exchange on a phone interview with Coindesk which was highly monitored by Trading Education, founder Robert Leshner pointed out that “The substrate-based blockchain is fully embracing interoperability, where application developers build on every base layer and not just Ethereum.”
As a substrate blockchain, Gateway will be governed by COMP token holders. This means that Gateway is upgradable and holders through a collective decision can directly upgrade the blockchain by voting without downtime or forks.
Compound Finance can become the keystone on an envisioned multi-chain future where mainstream blockchain Ethereum does not have the necessary resources to handle a new financial system.
Gateway has a primary purpose of being used as a cross-chain tool and not a scaling tool.
At the time of the announcement, founder Robert Leshner pointed out that Gateway will launch in 2 months. This means that Gateway could launch in June or the months that lead to the end of 2021.
Running on Compound, Gateway is an interest-bearing stablecoin bridge between compatible DeFi blockchains. Aside from this, Gateway is going to allow Compound users to upload an asset of their choosing to be used as collateral. They can then borrow a different asset against the collateral. Simply put, as Timothy McCallum puts it, “Gateway is a stand-alone distributed ledger (blockchain) that provides an opportunity to borrow assets native to one chain i.e. Ethereum, with collateral from another i.e. Polkadot.”
After its launch, Compound Protocol is going to see an increased number of users on the platform. To be able to contribute to the future of Gateway and possibly other innovations, users need to hold more COMP. This will see more liquidity poured into the DeFi coin. This results in increased COMP transactions, investor interest in the cryptocurrency through trading volume, and an improved valuation of COMP in the market.
✅ Compound Has the Capability of Competing With Stellar and Ripple for CBDC Customers
Compound Labs released a white paper in December 2020 which culminated in the release of Compound Chain. Compound Chain can also be defined as an application-specific blockchain that can make provision for money-market services across multiple networks. In the paper, it was concluded that there were several pitfalls in the current version of Compound running on the Ethereum Network. Some of these pitfalls are supported assets aggregate the risk of each supported asset, gas costs, and the inability to serve assets on other chains.
The new upgrade is going to ensure that the new assets that it would be supporting will not only be limited to permissionless and trustless blockchains. Compound Chains will support digital assets from central banks as well as investment banks.
To put it simply, the whitepaper summarizes it as, “Compound Chain is a reimagination of the Compound Protocol as a stand-alone distributed ledger, capable of solving these limitations and proactively preparing for the rapid adoption & growth of digital assets on a variety of new blockchains, including Eth 2 and central bank digital currency ledgers.”
With China and the Bahamas as the two leading countries that have started using CBDCs, several countries may follow. As a trader and investor, you should know that CBDCs are a threat to the existence of commercial banks and so is Compound Finance. This is because the two would cater to the needs of both banked and unbanked if the interest rate on savings is relatively higher than infinitesimal rates being provided by commercial banks.
In January 2021, the announcement of Ukraine choosing Stellar as the protocol of choice to build the country’s digital currency propelled its crypto trading asset XLM into new gains within a short period. In March 2021, Ripple announced that it is testing a version of its distributed ledger for central bank digital currencies. This brought huge liquidity to XRP which has since reached new all-time highs and has been included in the portfolio of several blockchain enthusiasts, cryptocurrency traders, and day traders.
With Compound’s first-mover advantage in decentralized lending, if one country in the developed world decides to opt for Compound Finance to build its nation’s digital currency, COMP could soar and cross most of the milestones predicted by analysts.
✅ Compound acts as Collateral on MakerDAO
In the fall of 2020, the MakerDAO Community voted to add support for new tokens, and COMP was included. Collaterals play an essential role in crypto loans. A Crypto Loan is a way for many online traders to acquire liquid funds without selling their digital assets. Instead, they use their cryptocurrencies as collateral for a stablecoin or cash loan. This means in addition to the activity on the protocol of Compound, users of MakerDAO are exposed to COMP. But how does this work? Online traders on the Maker Protocol who may hold a certain number of COMP could use them as collateral for a loan.
✅ Compound Is a Major Player in Decentralized Finance
COMP is among the top DeFi coins on the market. Currently, there are more than 10,000 crypto coins. Fortunately, COMP is a top 50 digital asset. New users of decentralized finance (DeFi) have a greater chance of experimenting with Compound than other DAPPS. To give you the extent of power Compound holds in the decentralized finance space, Compound was part of a consortium to promote decentralized finance. In 2020, one of the largest cryptocurrency exchanges globally, Huobi Global, which sees billions of dollars in daily volumes, launched a consortium that included MakerDAO, Nest, and dYdX. This alliance helped with the promotion of research and development of DeFi. Additionally, it helped establish a single protocol standard and facilitate cross-border collaboration between the United States, Europe, and Asia.
The aim of this project has seen COMP play an invaluable role in filling the gap between centralized financial institutions and several unbanked people through the provision of decentralized lending.
Buying COMP is not a surety to making gains. But with the status it holds in decentralized finance, it would be seeing more liquidity through its protocol diversification and soar to new price highs in the future.
Check Out: Could Compound Be A Millionaire-Maker Coin?
✅ COMP Trades on High Volume Exchanges
COMP had the backing of major players in the decentralized finance space right from the start. Coinbase has more than 56 million users. Huobi Global has more than 5 million users. There are more than 17 million users on eToro; Binance, OKEx and Coin Tiger receive billions in volume due to the millions of users patronizing their platforms. These exchanges provide several benefits to traders such as the potential for high returns, protection from payment fraud, and immediate settlement in terms of international transactions. This makes COMP one of the highly accessible cryptocurrencies in the market.
This explains the millions of dollars that sometimes reach billions being thrown into the cryptocurrency daily. More traders and investors can therefore access COMP on an exchange such as eToro and make purchases. Higher demand for the asset will result in soaring the asset’s price in the future.
✅ COMP is Limited in Supply
COMP like other governance tokens is limited in supply. Because of the role it plays in helping upgrade the protocol; more users will want to hold a substantial amount of COMP to have a vote in the progression of the protocol into becoming the top decentralized lending platform.
This could trigger the laws of demand and supply when long-term holders of the cryptocurrency begin to see a spike in the price of the asset while its supply has reached the barest minimum. Automatically, the cryptocurrency gains more in value. In the future, such forces could see the crypto token trade for more than 10 times its current price.
✅ Compound Is Legit?
The legitimacy of a protocol is extremely important for users. If a protocol is not legit, users are going to opt-out and choose another protocol. In the decentralized lending space, several capable protocols offer a relatively better interest rate than Compound. But the authenticity and the number of users who have earned great returns through the protocol places Compound in the top 10 decentralized platforms globally. Coinbase backs Compound. Coinbase listed Dogecoin in June.
eToro has also listed Compound and Dogecoin. Dogecoin was failing to meet the standard of Coinbase and eToro due to the pump and dumb patterns found in the use of the meme-inspired currency. Fortunately, COMP has so far not been associated with any shady schemes or scams. This is the reason why more than $7 billion has been locked in Compound to help provide liquidity to borrowers and in turn result in impressive returns for lenders.
With COMP certified as legit, more people can invest in COMP with a view of its stability and consistent investor interest through its trading volume. This bodes well for the future of the DeFi coin.
✅ Compound Is Safe and Secure
No trader or investor will include an asset whose issuing authority does not run on a safe and secured network. Gauntlet helps make blockchain protocols and smart contracts more safe and trustworthy for users.
Gauntlet performed a market risk assessment on Compound and concluded it’s a protocol that is safe for users to trust with their hard-earned money. The formal verification of the network was conducted by Certora. Using its PROVER TOOL, Certora was able to formally verify the security properties of Compound’s Money Market smart contracts. In terms of Security Audits, Trail of Bits and Open Zeppelin are reputable online security agencies that did not find pitfalls in the protocol of COMP.
Millions of people can therefore use Compound without watching out for security breaches. In the same way, COMP investors can buy the coins and forget about going down because of a malfunction in its technology.
✅ Decentralized Applications Potential In the Future
With $132 billion as total value locked in decentralized finance (DeFi) as of the time of writing, there is huge potential in buying DeFi coins.
Total Value Locked has increased significantly. Aside from this, all DeFi coins have returned at 50% for investors. With the rising popularity of the use of decentralized lending, exchange, insurance, and yield aggregation, the total amount locked in will only increase substantially in the future. This could likely make Compound (COMP) a good investment and an asset you should consider making an investment decision on in the future.
CONS of Buying Compound
What are the disadvantages of investing in Compound?
There are several pros of investing in COMP. Unfortunately; there aren’t many CONS of investing in Compound. This does not mean the cryptocurrency is perfect. A few of the pitfalls associated with investing in COMP are briefly highlighted below.
❌ Unbalanced Lender and Borrower Case on Compound
Like novice traders and investors searching for news on a digital asset to invest their hard-earned money. They are flooded with only the positives, gains, and returns without the losses.
There are several instances where most lenders do not earn any significant amount due to a relatively smaller number of borrowers during a specific period. Although decentralized lending is helping, many people still believe they are better off investing in bonds and bills since they are regulated.
Aside from that, they have people they can hold accountable in case something wrong happens. This does not help the user rate of Compound. This could lead to reduced investor interest through trade volume and a further decrease in the market capitalization of the cryptocurrency.
❌ Competition from Lending Platforms
Aside from competition from trusted centralized financial institutions, there is competition from other DeFi applications. Although Compounds runs on Ethereum, it does not have an exclusive hosting right.
There are other lending platforms such as Aave, Maker, and a host of others running on the Ethereum Network. Aside from its competitors on Ethereum, there are lending platforms on EOSIO and TRON striving for a fair share of the lending space. To make matters worse, Internet Computer aims to decentralize everything on the internet and has the backing of major players in the space to make this happen. Who knows, DeFi may be on the agenda.
What’s more, Charles Hoskinson’s Cardano finally looks set to complete all the milestones and finally enable smart contracts so that users can see the difference in its DAPPS and others already on the market. Once Cardano and other upcoming platforms reach full functionality, Compound will lose some of its users to these platforms. In the long term, if that should happen, the price of the governance token may plummet to new high lows which may take months or years to recover from.
❌ Uncertainty on the Future Supply of COMP
Due to how COMP was distributed, it is extremely difficult to know if more people are buying the coins or the distribution is affecting its supply. This is because a new COMP is awarded daily to users of the protocol due to their usage rates. This means that 2800 COMP are released to users daily.
More than 4.5 million COMP coins are still in the market. This could take a long time for the crypto trading asset to become scarce. Once there are more coins up for grabs, assets normally trade below their all-time highs for a long time and this could happen to COMP. In the long term, this may not help COMPs price unless institutional investors buy a substantial amount of COMP.
❌ Vulnerability to Negative Market Sentiment
The cryptocurrency has its good and bad seasons. The year 2017 was billed as a bullish year where Bitcoin surpassed $20,000 for the first time. Unfavorable market sentiment cannot be overlooked. Assets can reach new price milestones but corrections will always take place.
News that revolves around delisting major crypto from an exchange and removing an asset as an option of payment can take down COMP. Central Bank Digital Currencies can also affect COMP and decentralized lending platforms if it ever hits the market. This is because it would be playing the role of commercial banks but in a much better way that will result in citizens losing faith in DeFi.
Editor's Note: Trading and investing in Compound and other cryptocurrencies are extremely risky. There are hundreds of people who have lost millions of dollars due to scams and other shady schemes.
At Trading Education, we delve deep into the digital market and provide you information based on possibilities and not certainties. Set up a budget aside for cryptocurrencies and diversify your portfolio in order not to record huge losses in the future.
Read Also: Is It Worth Investing in Compound?
What is the Safest Way to Buy Compound?
eToro is the safest way to buy Compound. eToro serves millions of customers and aside from COMP has 90+ cryptocurrencies you can invest in and make gains. You can invest in COMP by signing up for an account, verify your account, deposit funds, and then head to the COMP Page and buy your first COMP.
Compound Price Prediction: What Are Analysts Saying About Compound?
Here are predictions and forecasts that answer questions such as how much will Compound be worth in 2021, how much will Compound be worth in 2025 and how much will Compound be worth by 2030?
According to Digital Coin Price, COMP could command a price of $512 by the end of 2021. The experts estimate Compound to have a trading price of $663 by the year’s end of 2022, $848 (2023), and $824 (2024). In the long term, the crypto news and prediction portal forecasts COMP to trade for a coin at $982 by the end of 2025, $1,246 (2026), $1,246 (2027) and $1,682 (2028).
According to Coin Price Forecast, Compound could command a price of $412 by the close of 2022, $532 (2023), $691 (2024) and $815 to end 2025. In the long term, COMP is projected to trade at $889 (2026), $894 (2027), $849 (2028), $944 (2029), $898 (2030), $978 (2031), and $910 (2032).
According to CoinPedia, Compound could reach highs in the range of $1,800 and $2,200 by the year’s end of 2022. “By the end of 5 years, Compound may be traded at the $3,000 to $3,500 mark.”
Skerdian Meta at FX Leaders believes COMP could reach $375 to $650 in one year and $650 to $2,500 in the next three years.
Don't Miss: Compound Price Predictions
The Bottom Line - Should You Buy Compound?
Compound is a digital asset you should consider buying due to the potential it presents. You should know that there are certain factors you cannot ignore as an investor. This is because every investment comes with risks and rewards. Do the potential risks of investing in Compound outweigh the possible consequences of buying Compound?
Compound has risk factors such as competition from decentralized lending platforms and the possible introduction of central bank digital currencies which could provide the same functions. With that said, Compound can be involved in the creation of CBDCs through its Compound Chain. It gets huge mileage through its usage as collateral on DAO; it’s among the major players in DeFi and has embraced a multi-chain future.
Compound's price is relatively lower than Ether (ETH), Bitcoin (BTC), and Yearn Finance and Maker and this is a good starting point for all novice investors. For investors with huge budgets set up for digital asset investment, COMPs low price presents a great opportunity to add to an already thriving portfolio.
So, should I invest in Compound? Compound is worth a buy. It would be extremely great to conduct some research in your free time about the possibilities of COMP in the market. For those who earlier believed in the potency of the cryptocurrency, COMP is one of the greatest decisions they ever made. If it worked for them, then who knows, it may work for you too.
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How Much Will Compound Be Worth?
Based on predictions across Digital Coin Price, Wallet Investor, Trading Beasts, FX Leaders, Coin Price Forecasts, and CoinPedia, Compound COMP could trade for at least $400 by the end of 2021 and two to three times that beyond 2021.
Is Compound Crypto A Good Investment?
YES! Compound is a great investment in 2021 and beyond. Gov. Capital believes Compound (COMP) will have the best possible price of $551 by the end of 2021. Based on the popularity of DeFi, the continuous development of COMP, investor interest, and improved market value, COMP can trade above the forecasted price in the future. Therefore Compound is a good investment.