At Digifox, we talk about Celsius and their services frequently (because it’s a great company and we love working with them). However, you may notice in the Digifox wallet there is something called “Compound” listed alongside Celsius under the “Earn” tab.
It’s fairly clear at a glance that Compound offers much lower rates than Celsius. Why is that? And why would you ever choose Compound over Celsius?
Compound is decentralized, and comes with all the benefits of the decentralized blockchain.
Compound is what is called a decentralized finance (DeFi) ”project” or “protocol”, commonly referred to as decentralized app, or “dapp” for short. It lives on the Ethereum blockchain, and unlike Celsius, which is an actual company, Compound is completely decentralized. It’s basically a bunch of code known as a “contract” deployed on the blockchain so anyone is able to interact with and use it, or examine the code themselves to look for bugs.
The whole point of cryptocurrency is to mitigate trust, so for those who truly want to remove the need for a traditionally “trusted” third party (such as a bank) from their personal financial system, it’s an ideal situation.
How often are payouts?
Since Compound is decentralized, payouts are given every time a new block is created on the network, which is about every 15 seconds.
Why would I deposit with Compound instead of Celsius?
If you are a fan of the benefits of the decentralized blockchain and the safety aspects that come with it, Compound provides that security. Celsius is a very secure company and is highly trusted, but it’s centralized. Some people prefer the fact that Compound is autonomous, and liquidations are automated if the value of the borrower’s collateral drops below a certain threshold, covering the depositor.
What if I want to get my crypto assets out of Compound and use them again?
When users deposit into Compound, they are automatically given cTokens which are redeemable for their principal (the original amount deposited) as well as their accrued interest. As they grow in value from this collected interest, the number of cTokens in your wallet won’t change, but their underlying value will increase. cTokens can also be used as collateral to borrow from the Compound protocol. Since these tokens represent other forms of crypto, they can also be exchanged with other users. However, if you do this, you are essentially sending them your assets in Compound, which means they will receive tokens that are already earning interest, and your Compound balance will decrease.
Are depositors safe?
The decentralization of Compound means that anyone who deposits with the protocol is protected by the power of the Ethereum blockchain, which is one of the safest computer networks in the world. Not only is this blockchain technology protecting you, Compound itself is a smart-contract which “sits on top” of the blockchain code. The code of this smart contract is open-source and available for anyone to review and examine for bugs. Essentially, it’s two pieces of very secure code sitting on top of each other.
On top of this, payments are automatically paid out with every new Etherereum block. Your assets are secured by the borrower’s collateral, which is automatically sold to cover you if the value of their collateral drops too far.
Can I take a loan out with Compound?
Yes, we’ll be offering this feature soon within Digifox! 🦊
All you need to do to take out a loan is deposit ‘collateral’. Simply put, this is your crypto that you’ll lock up in order to access crypto loans. Every crypto collateral has a different borrow limit, or “collateral factor,” which determines how much a borrower is allowed to take out with the collateral they have supplied. These factors can fluctuate as certain crypto’s values increase or decrease. If the crypto you’ve put up as collateral drops too low in value, it will be sold to pay off your loan to protect the loanees, or depositors. Since this is a decentralized protocol (essentially a lot of code) and not a company managing this, like Celsius, this process happens automatically.
Essentially, the benefits of Compound primarily have to do with the benefits of decentralization and the blockchain, specifically when it comes to security. While they don’t offer as high of a return as a centralized company like Celsius does, they do provide significantly increased rates over a traditional savings account in a bank. We provide the option to use either (or both) to our users so you have greater control over your personal finances