The Compound decentralized finance protocol was one of the very first DeFi protocols that I ever used and is an incredibly simple way to lend and earn interest on your cryptocurrency, take out a cryptocurrency loan, and earn the COMP governance token, all without having to complete KYC or give up

any of your personal information. Hey everyone and welcome, I'm Robert with All Coinbuzz, and in today's video we're talking about one of my favorite products, which is the Compound decentralized finance protocol. Compound was actually the very first decentralized financial lending service

that I used, so it's something that I really enjoy. It's something that I'm pretty familiar with, and it's something that I think has a lot of interesting features that I'm excited to share with you today. Now, before we get started, if you're new to DeFi, you're probably

worried about security, and one thing that I wanted to say is that I like Compound specifically because they have a lot of security audits that have been done. As you can see here, they've been audited by a vast number of different firms, and on

top of that, they're one of the most popular decentralized finance protocols, one of the top three with about 4.9 billion dollars worth of assets locked into the protocol, and again, like I said, top three right there beside Maker and Aave. So, a well-respected protocol, audited,

in my opinion, quite secure. So, with that being said, let's jump into seeing what Compound can actually do for you. The first thing you'll notice when you go to Compound, you will be taken to the dashboard, and you can get there by simply going to app.compound.finance.

and connecting your wallet now for the purposes of this video let's go ahead and I'm going to start out by showing you on mainnet and then when we transfer over to actually going through some executions I will show you on testnet so the first

thing I want to show you about Compound is that you will notice that it's a very simple dashboard on the left you have supply on the right you have borrow and this reflects your different positions so you can be both a lender of crypto and a borrower of cryptocurrency

within Compound depending on what you want to do it's totally up to you so on the left hand side you can see that you can earn interest on Compound DAI, Ether, Uniswap, USD, Tether and the amount of interest that you can earn your ROI from lending on Compound

will depend on what assets you want to lend some assets for example such as DAI have a higher interest rate than something such as uh Uniswap right in general and it's not 100% true every single time but in general stable coins tend to have a higher

interest rate than traditional cryptos right so DAI, USD, Tether going to be giving us a better interest rate than wrapped Bitcoin on the flip side you have the borrow market so this is your position as a lender if I want to borrow Basic Attention

Token I'm looking at about an 11% rate if I'm trying to borrow USD I'm looking at about an 18% rate so that's pretty cool it look it shows you a little bit of the different assets that you can borrow and lend and now what I'm going to do is I'm

going to flip over to testnet to show you how to actually go through and either lend crypto or take out a loan and I know some people get worried when I do these transactions on testnet but I want to assure you that everything we do on testnet the exact procedure is

the same for mainnet the only difference is that when I'm making 50 transactions in a single video I'm not having to pay a thousand dollars in gas fees so everything that you see you can follow along with on mainnet the only thing I want to point out is

that when I'm operating on testnet a lot of these interest rates will not exactly be realistic so just keep that in mind for the real interest rates flip back log in with mainnet and you can see the actual interest rates so with that being

said the starting point for any kind of interaction with Compound is supplying funds even if you want to ultimately take out a loan you have to start by locking collateral into the protocol so let's suppose that I have some Ether in my wallet that I want to lend

the first thing that I can do is simply go ahead and deposit that Ether and let's suppose that I want to use point zero five percent Ether actually point zero zero five and we're going to click supply and it's going to tell me the interest rate

I'm going to be earning and it's going to tell me the COMP token distribution APY and right now we don't have to worry about the borrow limit or the borrow limit use we're simply going to click supply we are going to confirm that transaction

on MetaMask now if you're doing this for the first time, you might have to unlock the asset. And that's simply a transaction where you unlock ETH and then you actually go through a separate transaction to actually deposit it. I've been playing around with the system

a lot so I've already unlocked my assets, but just keep in mind that's something you may have to do. So what we can see, we've deposited that ether and it's already earning interest. This is the thing that I really like about Compound so much. You can see here

it's actually showing our interest accruing in real time now. Obviously, we've only put in a dollar and 90 cents worth of crypto, um but even with that small amount we're earning the interest in real time, which is really cool. Now if we want to flip things around and

we actually want to take out a loan, the first thing we need to do is make sure that this is switched to collateral. Now sometimes it will be on collateral by default, but if for whatever reason you're not on collateral, we're simply going to select

use ETH as collateral. We will have to do an initialization transaction to unlock that. And again, this is why we're on test network because right now we would be chewing through the gas fees. So we've got it enabled as collateral. And then the cool thing about Compound is it

doesn't matter what asset we're using as collateral, we can take out a loan for whatever we want. So we could take out a loan for Basic Attention Token, for USDC, for Tether, for wrapped Bitcoin. It doesn't matter. Now just for this video to make things easy

we are going to take out a loan for ETH and let's suppose we want a very small 19 cent loan what you will see is that it's going to tell us the borrow rate now one thing I do want to point out about the borrow rate is it does

change according to supply and demand so this isn't like a mortgage rate where it stays constant that rate is going to change according to the supply and demand in the markets so we have the borrow balance is going to be 19 cents and it shows the borrow

limit used now when we're on Compound or DeFi in general we work through a principle known as loan over-collateralization so if we lock up a hundred dollars of ETH as collateral we can't take out a hundred dollar loan or a 90 dollar loan

we can only take out up to a certain limit and Compound has set us at 80% it's not something you really have to worry about because if we tried to take out too much of a loan it's not going to let us do that anyway

it's going to say that we're over our borrowed limit so as long as we stay within that it's going to help us and it's going to show us that we're not over that limit we'll go ahead and click borrow confirm the transaction

and once that process is through we will now see that we also have a borrowing side under our dashboard so we are both supplying ETH and earning interest as well as borrowing and paying interest now let's suppose that we took out our loan we used it for whatever we need to do we

are ready to pay back that loan we're simply going to click on either click repay select the max amount and click repay obviously we will need to confirm that transaction through our wallet and what you'll see is once that goes through it's going to

disappear from our borrow column and now we are back to just simply earning interest through compounding now one more thing I want to talk about is the COMP token so in addition to earning interest from lending your crypto you can actually earn the COMP token itself which is the governance token

of the Compound protocol so Compound is not a company it's a decentralized financial protocol that is actually governed and you can see that the different changes so interest rate changes things like that not so much the interest rates because they're set based on the market algorithms but for example a reserve

ratio are all decided by community proposals and the way that they vote on those is through the COMP token so COMP token is a governance token but it also has value in its own right so right now the COMP token is about 450 and you earn that COMP token through

supplying liquidity to the protocol or taking out loans so even if you are a borrower on Compound you're still earning those COMP tokens which is something that I think is really cool and one other thing that people obviously are going to want to know especially from the lending side is

how much can I make and again I have to say this every time it's not financial advice at all but I do want to give you a general overview of what you can expect to earn on Compound so if you go to Compound Finance you want

to click on the markets tab and you will see all the different assets that can be lent in this one. Let's suppose that we want to lend the DAI stable coin, that's my personal preference, I like lending stable coins, um, you can lend whatever you want but

in general stable coins have the highest interest rate and I know that I'm not going to lose money if the value of the crypto goes up or down. So right now DAI is 11.51, now that's the net rate, the simple rate for supplying DAI.

So the amount of interest that I get from lending my DAI is 8.3 percent. However, remember when I told you that you also earned the COMP token. When they're talking about this net rate, they're talking about the APY that you're earning from DAI but

they're also calculating in that interest that you are earning or that additional crypto that you're earning in the form of the COMP token. So all together, COMP token plus supply APY is 11.51. So again, that's kind of another incentive, a thing that Compound kind of

does to provide governance tokens and decentralized governance of the protocol, but also to reward people that are providing liquidity as well as people that are borrowing. I just wanted to dig a little bit deeper into how loan over-collateralization and liquidation and things like that

work on the Compound protocol. So when I started in DeFi, this kind of took me a minute to wrap my head around. When you take a loan on decentralized finance, you are basically insuring your own loan through a process known as over-collateralization. So if I want a hundred

and a hundred dollar loan I might have to deposit a hundred and forty dollars worth of collateral. Now, the good thing about this is it means that I can get a loan without having to do KYC, without a credit check at the same time. It also protects the

people that are lending me the money because if I don't pay my loan back, they can simply sell off some of my collateral to pay for that loan. So that's what I want to explain here. When we're in Compound, I've taken out a small loan of Ether already, and you can

see I'm at 26% of my borrowing limit. Different coins and different protocols, even in general, can have a different limit on this testnet Ethereum Compound protocol. Our limit is 80%, so if we deposit a hundred dollars of Ethereum, we can take out a max of eighty dollars.

However, it's not prudent to borrow right up to the limit because as we know, loans accrue interest. The value of my loan, let's say I take out a loan in Basic Attention Token, and Basic Attention Token goes up in value whereas my collateral drops in value,

then my balance of the loan outstanding could be more than 80%, which would trigger a liquidation. That means they would sell off some of my collateral to repay that loan. So it's always prudent to take out a little bit of a safety margin, right? So don't take out 80

percent. Take out 60, 50, 65, something like that. And what I'll show you is that Compound makes this really easy because if I try to take out too much of a loan, it's going to tell me that I'm over my percentage. So let's suppose that I just

want to add a little bit here we're going to take my borrowing limit up to about 50% of my max and then once this transaction goes through what you're going to see is that my little slider bar has moved and it shows me that I am at

53% of my borrowing limit and it says liquidation occurs if the borrow balance meets or exceeds the borrow limit so right now I have a liquidity cushion of 67 cents so again that's why I like Compound it's great for someone just getting started because it has a lot of

graphical aids to help you understand where you are remember you do not want to hit that borrow limit and you're going to start getting liquidated with liquidation depending on the protocol there can be penalties imposed again so they're not just if you owe ten

dollars they're not just going to sell ten dollars worth of your collateral they might sell ten dollars and then charge you an extra fee of five percent that's going to be taken out of your collateral so in general there's an incentive for you to always stay below

that limit so in summary the Compound protocol is exceptionally easy to use and offers a great gateway to decentralized finance it allows you to take loans borrow loans and earn the COMP token all in a decentralized fashion so as always I want to say thank you for

watching the video I hope you found it useful if there's any topics you want us to cover be sure to leave a comment below so that we can take a look at it thanks for watching and I'll see you next time [Music]

How To Use Compound Finance - Earn Interest on Crypto!

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