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Compound is an Ethereum-based decentralized finance protocol that enables the lending, borrowing and farming of cryptocurrencies.

When users deposit a particular token in the Compound pool, they receive an equivalent amount in cTokens in return. The value of these cTokens increases over time through adjusting exchange rates, and you can redeem them for the underlying token at market rates. Smart contracts algorithmically calculate the interest rates of the cToken pool depositors and borrowers can transact in.

For lending, the pool is overcollateralized, so borrowers must provide collateral above what they need to borrow.

The platform’s native token, COMP, incentivizes participation in the Compound protocol through token rewards and governance. COMP token holders can propose and vote on changes to the protocol, including adding other cryptocurrency pools, adjusting collateralization, or token distribution.