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Lending platforms shake things up! "Compound Chain" to launch in 2021 bridging assets like CBDC.

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Lending platforms shake things up! "Compound Chain" to launch in 2021 bridging assets like CBDC.

In the field of decentralized finance (DeFi), the OG DeFi project Compound released a new project whitepaper today, titled "Compound Chain." The development team stated that the project aims to create a distributed ledger system that enables the transfer of value and liquidity between different blockchains, thereby introducing assets from various blockchains into Compound's money market ecosystem.

Compound Chain

The Compound development team stated in the whitepaper that the current protocol faces three main issues. Firstly, the protocol aggregates the risk of assets together, so if any one asset goes bad, it affects the others, limiting the breadth of acceptable collateral. Secondly, the high transaction fees on Ethereum push out small transactions from decentralized finance. Lastly, the Compound protocol itself lacks the ability to support high-quality assets that are not on the Ethereum chain.

The new project is designed to address these three issues. According to the whitepaper, Compound Chain is a distributed ledger system operated by nodes licensed by a decentralized governance organization. The consensus mechanism used is the Byzantine Fault Tolerant Proof of Authority (POA) network, where nodes can earn part of the interest and transaction fees generated on Compound Chain as rewards. It is worth noting that although the initial consensus mechanism is POA, the founder of Compound revealed in the community that the system can transition from a permissioned POA network to a POS network composed of COMP token holders in the future.

Compound Chain can bridge to any blockchain and ledger system, including Ethereum 2.0 and central bank digital currency (CBDC) ledger systems. Specifically, Compound Chain will deploy smart contracts called "Starport" in each blockchain. Users can lock digital assets such as ETH, UNI, DOT, DIEM into designated Starport contracts, and release the corresponding tokens on Compound Chain (similar to asset cross-chain protocols like Ren Protocol), thereby aggregating assets from different sources onto Compound Chain for lending and trading services.

CASH = Dai + ETH

Furthermore, Compound Chain will have its native token "CASH" for paying transaction fees in the system (similar to Ethereum's Gas). This token is not mined but generated by borrowing against the protocol. Initially, the price of CASH will tend towards the US dollar, similar to MakerDAO's Dai, but the main purpose of CASH is to pay transaction fees rather than being a stablecoin. According to the whitepaper, holding CASH tokens can also provide continuous cash flow returns to holders.

Source: compound.cash

The existing ERC20 token COMP will continue to exist as the governance token, controlling the development direction and governance of both Compound and Compound Chain. However, the whitepaper does not mention whether participation in COMP governance will receive CASH rewards.

Custom Infrastructure

Overall, Compound Chain is a lightweight network with cross-chain capabilities, sacrificing decentralization for better efficiency. With asset cross-chain functionality, it aims to elevate decentralized finance to a higher level.

However, Compound has always seemed reluctant to adopt products from others. For example, in the case of oracles, Compound chose to develop its Open Oracle instead of using existing solutions like Chainlink or Band. Now, Compound has once again chosen to develop its underlying network instead of opting for existing solutions like Optimistic Rollup or StarkWare. Not everyone is optimistic about this approach. Larry Cermak, Director of Research at The Block, publicly expressed his skepticism about the project, suggesting that Compound may regret this decision in the end.