Compound Finance is one of the oldest lending protocols in DeFi but it is also one of the simplest ones to use. If you are on Ethereum and need to take out a loan, Compound Finance is probably the most straightforward way to do so, and here is why.
How To Use Compound Finance #
To get started with Compound simply go to the homepage and connect your wallet by clicking on the “connect” button in the top right corner of your screen. Here you will have an option to select the wallet you are using so simply select the correct option and finalize the process.
Before you can take out a loan on Compound, a deposit will need to be made using a cryptocurrency that the platform supports. To know which currencies are accepted at Compound Finance simply click on the “dashboard” tab at the top of your screen.
This page will give you a clear overview of both the supply markets and borrow markets
If you are not familiar with these terms, the supply market represents currencies that can earn passive income by being deposited in the protocol. When you deposit a cryptocurrency, it will be lended out to borrowers and your deposit will be earning fees according to the supply/demand ratio.
The borrow markets represent the cryptocurrencies that users can borrow using their deposits as collateral.
If, for example, you want to deposit ETH, simply click on it on the supply markets list and enter the amount you want to deposit. On this page you will also see the expected returns based on the current supply APY. You can find a more detailed explanation of the APY rates here.
Enter the amount of ETH you want to supply and click on “deposit”. If this is the first time you are interacting with Compound you will need to confirm two transactions before the deposit is finalized.
After the second transaction is confirmed, the dashboard will show your deposited ETH amount which will start earning rewards as soon as it gets deposited into the protocol.
To take out a loan you will first need to allow the protocol to use your deposited Ethereum as collateral. This can be done by clicking on the slider next to your deposited Ethereum and confirming the transaction once again.
When this step is completed, the right side or borrow markets will be available to you. Taking out a loan is exactly the same as supplying crypto to Compound Finance.
Select the currency you want to borrow enter the amount you want to borrow and confirm the transaction.
As soon as the transaction is confirmed, the borrowed crypto will be available in your wallet.
How To Repay a Loan On Compound Finance? #
To repay a loan, simply select your borrowed cryptocurrency from the borrow markets list and select the “repay” option.
This process will include two transactions when performed for the first time. Click on “enable” to allow Compound to use your DAI (or any other cryptocurrency you may have borrowed) and then initiate the second transaction by clicking on the “Repay” button.
Loans do not need to be repaid fully and if you want you can repay a fraction of the loan to lower the cumulative yearly borrow fees.
Ethereum network users will hardly find a more straightforward lending experience than with Compound finance. The platform is designed so that complete beginners can understand the lending and borrowing process while both parties are rewarded for their interactions with the protocol.
Compound is one of very few lending protocols that rewards borrowers as well so every loan will come with slightly lower fees thanks to the COMP rewards that are paid out to borrowers and lenders equally.