Discover more from Chloe's Newsletter
september 23, 2022
a lot of this is copy pasted from online articles, not my own words! just notes/clippings i find useful
an LP provider gives Token A and Token B to form a liquidity pool. In return, they get a LP token that represents partial ownership of the pool
when a LP provider wants to receive their assets back, they burn the pool tokens and receive back Token A and Token B, including their share of the rewards
learnings from the last governance meeting
snapshot is offchain voting, (no code is executed if it passes, no smart contract) but it simulates what would happen based on the existing individual user power
particularly for hodlers, cryptocurrency has had one function — i.e., to sit in their wallets. While some may argue that serves a purpose by limiting supply on the market, we can generally agree that it is not a particularly productive use of a capital asset.
Decentralized lending platforms, including projects like Compound, Maker and dYdX,
these decentralized platforms have variable interest rates determined by supply and demand for an asset on the platform.
Compound: 0.05 + 0.15R
if few people are borrowing then interest rate is lower. if a lot of people are borrowing, then interest rate is higher.
how compound works:
Instead of depositing your money into the bank, you are sending your crypto to the Compound wallet.
immediately start earning interest on the same token they deposited (if you sent DAI you earn DAI)
the crypto you deposited is added into giant pool of same token in a smart contract
compound doesnt require redit check so anyone can borrow
if you sent 1000 BAT worth $500 and Compound has set the borrowing limit (aka collateral factor) for BAT at 50%, you can borrow $250 worth of any other crypto that the Compound protocol supports (see list above).
When there is a large pool of crypto locked in Compound, interest rates are low because there’s plenty there to be borrowed so you’re not getting paid a lot to add to that large pool. If the pool is small, interest rates are higher and you earn more.
Fluctuating (aka floating) interest rates incentivizes lending new crypto to small pools (to earn higher interest), and repaying borrowed crypto into small pools and borrowing from large pools (to pay less interest).
COMP is the governance token of the Compound protocol and a predetermined amount is distributed to all lenders and borrowers on the Compound protocol every day.
everytime an ethereum block is mined (every 15 sec)