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Compound (COMP)


Compound is a DeFi lending protocol that allows users to earn interest on their crypto by depositing it into the pools supported by the platform.

Compound, one of the pioneering lending and borrowing protocols in the DeFi space, initially adopted a straightforward lending pool model. In this model, lenders contribute their assets to specific pools, and borrowers can then withdraw these assets as loans, provided they provide sufficient collateral in the platform. Each asset had its own dedicated pool.

The inherent design ensures that borrowers cannot withdraw an amount exceeding their collateral deposits. Consequently, the loans obtained are considered overcollateralized, mitigating the risk of default. Overcollateralization serves as a vital element in the DeFi ecosystem, enabling decentralized lending and borrowing to operate in a trustless manner. This approach protects lenders from potential default scenarios, where borrowers may be unable or unwilling to fulfill their debt repayment obligations.

The utilization of overcollateralization contributes to the foundation of trust and reliability within DeFi, fostering a secure environment for participants to engage in lending and borrowing activities autonomously.
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