Compound is a protocol on the ethereum network that allows anyone to lend and borrow cryptoassets directly from an ethereum wallet. Lenders supply funds into a smart contract pool of cryptoassets that form a market. Borrowers take loans against that cryptoasset market. The amount supplied, amount borrowed, and interest rates are transparent. Compound describes its protocol as a series of open-source smart contracts that algorithmically adjust the interest rates for each asset in real-time, as borrowing demand for the asset changes. Compound is backed by many of the most prominent investors in cryptoassets, including Coinbase.
Compound recently launched its first lending and borrowing platform allowing cryptoasset holders an easy way to earn interest. Users connect an ethereum wallet, “enable” the ethereum-based cryptoasset they want to supply for lending, and select the amount to supply for lending. It takes just a handful clicks for an experienced cryptoasset owner to start earning interest. Users can stop supplying cryptoassets at any time. Compound currently supports supplying and borrowing ETH, BAT, REP, and ZRX. This guide reviews how to lend a cryptoasset on Compound to earn interest.
Visit the Compound app to get started. The app will display a drop-down menu to select a cryptoasset, your wallet balance, the amount you supplied to the market, and amount of interest you earned. At the top of the screen are buttons to choose whether to supply or borrow a cryptoasset. In this guide, we selected to supply Wrapped Ether (WETH) because we will lend ETH to start earning interest on it. WETH is a version of ETH that is easier to transfer with other ethereum-based tokens in a smart contract. Therefore, to supply ETH on Compound we will “wrap” our ETH into WETH as described further below.
Lending on compound happens via a connected ethereum wallet. Our favorite way to use Compound is to connect an ordinary Metamask wallet, a Ledger hardware wallet connected through Metamask, or a Trezor hardware wallet connected through Metamask. For this guide we connected a Ledger hardware wallet to Metamask. To learn more about Metamask, check out our step-by-step guide to Metamask.
With an ethereum wallet connected, the next step is to “enable” the cryptoasset of your choice. Select the enable button.
A transaction on the ethereum network will enable the cryptoasset in your ethereum wallet. Confirm the enabling transaction from the Metamask pop-up.
All transactions on Compound are tracked via the recent activity section. Notice below that the recent activity section showed that we just started to enable WETH. Once our transaction is complete, a check-box will appear showing that WETH is enabled.
To supply ETH for lending on Compound, it is necessary to “wrap” ETH into WETH. This is accomplished from the wrap ether section where users enter the amount of ether to turn into WETH, select the wrap button, and confirm the wrapping transaction with Metamask.
We will lend 0.1 ETH to receive interest. Thus, we entered 0.1 ETH to wrap, selected the wrap button, and confirmed the wrapping transaction with Metamask.
The recent activity section reflected that we wrapped 0.1 ETH. In addition, the earn interest section reflected that we now had 0.1 ETH available to supply for lending.
It’s now time to officially supply our cryptoasset, WETH, to the market for lending at an interest rate. Simply click the supply button and confirm the transaction on the Metamask pop-up.
Again, the recent activity section reflected that we supplied 0.1 WETH for lending at an interest rate.
The top of the Compound app now displays that we supplied 0.1 WETH to the market at an interest rate of 0.10%. That’s all it takes to start lending a cryptoasset with Compound! It is very early days for Compound and we look forward to Compound expanding its functions and platforms in the future.