An overview of the Compound Project and cETH Token

Photo - An overview of the Compound Project and cETH Token
cETH, one of the tokens of the Compound Protocol platform, was devised to facilitate decentralized lending. Users receive cETH (short for Compound Ether) when they deposit ETH into the liquidity pool.

The genesis of the Compound lending Platform

The Compound project was spearheaded by Robert Leshner, a San Francisco-based entrepreneur and software engineer. In 2017, Leshner established Compound Labs, the company behind the Compound Protocol.

Leshner boasts a robust background in finance and has pioneered several financial ventures. He was drawn to blockchain and DeFi technologies as tools to democratize access to credit services. 

Under Leshner's guidance, the Compound platform has emerged as one of the most prevalent DeFi protocols in the crypto sphere. A team of 20 additional individuals contribute to the platform's development and marketing efforts.
The Compound network, deployed on the Ethereum blockchain, facilitates peer-to-peer digital lending and offers voting rights for its governance through the COMP token.

The protocol has successfully attracted considerable investments from venture capital firms and has been widely adopted by numerous decentralized applications (dApps) within the Ethereum ecosystem. Investors in the project include a16z crypto, Coinbase Ventures, Paradigm, and Dragonfly Capital.

Compound allows for the borrowing of several cryptocurrencies, including: 

  • Dai (DAI); 
  • Ether (ETH); 
  • USD Coin (USDC); 
  • Ox (ZRX); 
  • Tether (USDT); 
  • Wrapped BTC (WBTC); 
  • Basic Attention Token (BAT).

Nevertheless, the platform primarily sees demand for smart-contract-based lending collateralized by Ethereum.

Consequently, the cETH token has become an attractive investment for those wishing to earn interest on their ETH holdings or borrow other cryptocurrencies, using cETH as collateral. 

How to obtain the cETH token

cETH differs from traditional digital assets. Tokens prefixed with a 'c-' (like cBAT, cZRX, etc.) are automatically minted by the protocol when users replenish its liquidity pools. Users who deposit ETH into the Compound balance via a smart contract are rewarded with cETH in their wallet. This token serves as a certificate of the user's entitlement to a portion of the total ether stored in the platform's reserve.
The cETH token acts as a yield-bearing asset, and the interest rate is algorithmically determined by the supply and demand dynamics of ETH within the liquidity pool.

cETH offers users the opportunity to accrue interest on their ETH without the need for active management of their investments, making it a favorable option for passive income. This becomes particularly advantageous in an era where conventional staking practices face heightened scrutiny from regulatory bodies.

cETH can be procured on decentralized exchanges such as Uniswap or Sushiswap, and on centralized exchanges like Coinbase and Binance. Additionally, by depositing ETH into the Compound protocol, users can receive cETH as a remuneration.

Acting as a revenue-generating asset, the profitability of holding cETH is contingent upon several factors:

  • The interest rate offered by the Compound protocol;
  • The amount of cETH obtained;
  • The overall demand for borrowing and lending ETH on the project's platform.

Aside from the interest gained from cETH, potential profits can be obtained from the potential appreciation of the token's value. If the demand for cETH increases, its price may inflate, which can allow investors to profit by selling their holdings at a higher price than their initial purchase. Although the smart contract doesn't inhibit reselling the cETH token, the principal funds in Ether remain locked in as long as they are a part of the Compound protocol and are employed for lending to users.
However, it's essential to underline that cETH is not a highly liquid asset. Despite its market capitalization nearing half a billion dollars, its daily trading volume rarely exceeds $10,000.
Etherscan showcases limited interest in the cETH token.

Etherscan showcases limited interest in the cETH token.

It's crucial to bear in mind that any investment, including those in Compound tokens, comes with inherent risks. Factors such as market volatility, fluctuating interest rates, or security issues with the Compound protocol could potentially diminish the value of cETH. Therefore, performing comprehensive research is always advisable prior to making any investment decisions.