Compound is an algorithmic, autonomous interest rate protocol— allowing users & applications to frictionlessly earn interest or borrow Ethereum assets.

How does the Compound protocol work?

Compound is the first “liquidity pool” — instead of lending assets directly to another user, you supply liquidity to a market, and users borrow from that market.

In each market, interest rates are determined algorithmically (based on supply and demand), and interest accrues every Ethereum block.

There are no pre-defined durations or terms (such as “90 days”) — you can use the Compound protocol for as short as one block, or as long as you’d like; you’re free to withdraw or repay at any time.

How to Earn Interest

The Compound protocol lives on the Ethereum blockchain — it’s open-source, immutable, and accessible by any Ethereum account, forever. But for most people, decentralized protocols are hard to use.

In this guide, we’ll walk through how to use the Compound Dashboard with a Web3-compatible Ethereum wallet — a visual, intuitive way to access Compound’s interest rate markets for the first time. If you’d like to try other interfaces and products built on Compound, you can find a selection of alternatives on their home page.

For a more technical understanding of what’s happening under the hood, please see the protocol Documentation.

Connect your Wallet

When you first visit the interface, a pop-up modal will ask you to connect your Web3 wallet. I recomend some wallets here
These wallets secure the private keys to your crypto and enable you to authorize transactions, view balances, and perform other essential functions on the Ethereum blockchain.

When you first visit the Compound app, a pop-up window will ask you to connect your Web3 wallet. Find the correct one here

The Compound Interface

After connecting your wallet, you’ll see the main components of the interface: Supply markets on the left, Borrow markets on the right, and Summary Information on top.

Supply Assets to Earn Interest

To begin the supply process, click on an asset in the Supply panel on the left to bring up a modal with more details.
In order to use Compound, you must first enable each asset you plan to supply. Your wallet will ask you to confirm this transaction, and there will be a small gas fee.

You’ll have to enable each asset before you can supply it.

After an asset has been enabled, you can enter the quantity of the asset you’d like to Supply, and submit the transaction. Assets are supplied directly from your Ethereum wallet into Compound, and once supplied, immediately begin earning the prevailing interest rate.
Interest accrues directly to your Supply Balance; you won’t see Ethereum transactions, or distributions — but your balance and Interest Earned will slowly increase over time.
At any time, you can Withdraw any portion of your balance back to your Ethereum wallet.

After you “*Supply“*— you’re now earning interest on your crypto!

Borrow Assets, For any Duration

Borrowing is instant, and assets are transferred from the protocol directly into your wallet.

To begin the borrow process, click on an asset in the Borrow panel on the right to bring up a modal with more details.
Enter the quantity of the asset you’d like to Borrow, and submit the transaction.
For convenience, the SAFE MAX button will borrow up to 80% of your Borrow Limit

Use supplied assets as collateral and borrow other assets on-demand.

Example Borrowing Use Cases

Hannes wants increased long exposure to ZRX.He supplies 10,000 ZRX to Compound, and uses it as collateral to borrow 30 ETH. Hannes sends the ETH to her favorite exchange to purchase 6,000 more ZRX. Hannes now has long exposure to 16,000 ZRX, and owes Compound 30 ETH. He is long ZRX/ETH. If ZRX/ETH increases in value, Hannes will be able to repurchase the 30 ETH he owes Compound for less than 6,000 ZRX. He can then repay his debt, and keep the excess ZRX as profit.
Hannes wants short exposure to ZRX.He supplies 100 ETH to Compound, and uses it as collateral to borrow 12,000 ZRX. Hannes sends the ZRX to his favorite exchange, and sells it for 60 ETH. Hannes now has long exposure to 160 ETH, and owes Compound 12,000 ZRX. He is short ZRX/ETH. If ZRX/ETH decreases in value, Hannes will be able to repurchase the 12,000 ZRX he owes Compound for less than 60 ETH. He can then repay his debt, and keep the excess ETH as profit.

Liquidation

If your Borrow Balance exceeds your Borrow Limit, your account will be partially liquidated. This can occur when collateral declines in value, or borrowed assets increase in value.

If your account is in liquidation, a member of the community can repay up to 50% of your outstanding borrowed assets; the liquidating user receives a proportionate amount of your collateral, at a 8.0% discount, as a reward.

Carefully monitor your Borrow Limit, and what portion you’re using.