Pls explain real benefit of compound other than spread trading

Coming from a finance background, done the initial due diligence on comp, while the process seems safe, i just cant see the real world benefit. Can someone please explain to me:

  1. In the traditional lending business (simplest use cases), borrower receives some type of liquid money and in return pays an interest, a fee, and put up illquid collateral (ie: real estate, mark to market type assets, certain type of thinly traded bonds)

  2. In compound, in order to borrow coin, borrower needs to put up liquid collateral of the same type of coins supported by compound. But if the borrower ALREADY has the liquid coins to put up collateral, why the hell would he/she ever wants to lock it as part of collateral, only to pay interest and borrow the coins again? Why not just use the coins they put up as collateral DIRECTLY for whatever purpose. It makes no sense to me, why borrow wants to trade 1 type of coin for another type of coin, pay interest, reduced amount due to collateral factor, and take on system risk in case something goes wrong with the compound framework.

What’s the point? why do all this to borrow some coin, when you already have very similar type of asset to start with?

I get the spread trading angle, to make some money off borrow/lender interest rates + paid out compound coins, so dont need to explain that. But for the use case where compound was designed for…to lend money/coin, how does it make sense as the collateral requirement ensures the only people who can borrow the coin already has the same type of coins. Ie joe sixpack - a small business owner / first time home buyer / insert any real use case…can never borrow from compound system, as they dont have the liquid coin/money needed to put up a collateral. And if they did, they will just use the money directly instead…

dont understand. thank you

Couple of the most common usecases is to use volatile price asset (usually with high price upside expectation) like ETH, WBTC as a collateral and borrow a stable price asset like USDC, DAI, etc. In reality you can hardly get similar iterest (like 4-6% APY) on something other than stupid mortage in most places around the world. But what if you don’t want to spend money on making somebody else more rich by bying house, but want to make some sort of small business for example, and without billion questions asked “why our amazing bank should give you loan, and why interest should be not high” . Good luck finding 4% APY financing. And what if you are somewhere like Argentina? Or Venezuela?

Of course, you can also use it for pure speculation, like for buying more of an asset you expect to appreciate, but you don’t have to.

Obviously, opposite also works. You can supply stable asset and borrow volatile asset, which you expect to go down. Like you believe bitcoin is worthless and going down to zero? No problem, you can supply USDC, borrow WBTC, sell it now, and when it drops to near zero just pay back that couple dollars :slight_smile: And all the mighty profit is yours. :slight_smile: (obviously not financial advice, just an example.)

Actually there are other usecases than these, if you don’t see them, than i guess it’s your loss, more opportunities for those, who can :slight_smile:

If you don’t realise how many people live in a countries where their currency is not at all stable and they have no chance to even preserve their wealth, set aside increasing it. And now they don’t really need anything other than smartphone and internet connection. Not even a permission from their government.

Crypto currency in general isn’t that much of a deal for first world, like it is for majority of world population living outside of wealthy nations.

And here is quistion: Why would someone, for example, holding bitcoin, scarce, limited supply asset, one of the fastest appreciating assets in the world whould want to sell it, when he can borrow USD against it, at a mere 5% APY, borrow an asset which supply is increasing at an unprecendent in history rate and spend THAT instead? :slight_smile:


Here is an example use-case I can think of:

You’ve mined Ethereum in 2016. Now, you want to buy the new RTX 3080, but you don’t have the money to buy it from Amazon in your bank account. So you can either save up money, or you can ask your bank for a loan (10%-25% interest) or you can buy it on credit for 40% interest + fees.

But there is a third option. While still holding onto your ETH (because you think the value will rise) you can lend it to someone and get USDC in return. You have lot’s of ETH, so it’s really not an issue to put up 1000 dollars worth - your not using them anyway. You take the USDC and transfer it into Coinbase, sell it, and transfer it to your bank account, and you pay for the graphics card using dollars on Amazon.

Now skip to a few months later: You have the money, or your remaining ETH has risen in value, so you buy USDC and swap some of your ETH into USDC, and deposit it back into the Compound contract.

And all you had to pay, was 5% APY and various fees for exchanging your crypto and pulling out money to your bank account.

Is it tidious as hell to do this? Yes.

Is that what Compound is being used for right now? Definitely not.

Is it risky to bet on ETH tokens rising in value? Yes.

To comment on @Sirokko; I don’t understand why you have to be passive aggressive. And if you know about any use-cases to get value from using Compound, why not share it with the community so we can all use blockchain-based services more in our everyday life? :surfing_man:

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Thanks guys, make sense now. The use case is you do not want to sell the crypto you holding - betting it will continue to go up, this let’s you borrow cash against it as collateral.


You should look at the project with an “out of the box” mentality first.

I suggest you to review projects like PoolTogether and Yearn Finance as good examples about this mentality.

Both of this protocols use compound finance in a brilliant and smart way.

After all, compound finance allows developers to create programable money that can be liquid, trust-less and free of corporate bureaucracy.

I was expand my crypto mining business with.Compound. I am able to keep mined cryptocurrencies and use them as collateral to provide funds (stablecoins) for the purchase and maintenance of mining equipment. A loan-to-value ratio of 75% on an Ehereum deposit is a very good offer.
I think your question is actually why keep crypto like ethereum in the long run. If you set aside complete control over your funds, transaction speed, project availability and cryptographic security - you just need to compare ETH as a bond with traditional bonds.
And of course it makes sense to trust the algorithm more than a board of people made up of people with no “skin in the game”.
Projects like Compound may be in their infancy and mistakes are encountered however solutions are quickly found and decisions are made at the meritocratic level with “SKIN IN THE GAME”.

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