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How To Use Compound: A Step-by-step Guide

Publish by Quang Phan at 05 October 2021

Compound is one of the best lending protocols on DeFi at the moment. With more than $10.7B worth of assets deposited into the protocol, Compound is well known for its efficient yet easy-to-use application.

This article will guide you on how to use Compound, including its main features of lending and borrowing.

Compound Overview

Compound is an algorithmic lending and borrowing protocol that facilitates money markets by incentivizing liquidity.

What do I mean here by “algorithmic”? It means that the interest rates are adjusted according to the demand and supply of the underlying asset. No counterparties or compromises are required in the process, making Compound decentralized.

Some notable points before using Compound

  • Compound is currently only available on Ethereum. Compound is building a Compound Chain (Gateway) on Polkadot to potentially widen its operating range.
  • When you supply your assets in Compound, you will receive a corresponding cToken by an exchange rate. This exchange rate will increase over time, so you can earn interest by simply holding the cToken on any wallet.
  • Check all the details such as APY or Collateral Ratio carefully so as not to be liquidated. It is compulsory when you borrow assets in DeFi.

Preparation for trading on Compound

What are the prerequisites for trading on Compound?

First, users need to download and create an account (optional) on Coin98 Wallet.

Coin98 Mobile Wallet version X is available for download at:

Read the detailed instruction on how to use Coin98 Wallet or watch the tutorial video below to install the Coin98 Mobile Wallet:

Coin98 Extension: Follow these steps to install the Coin98 Extension Wallet on Chrome:

Step 1: Find and select Coin98 Extension Wallet on Chrome Web Store;

Step 2: Click Add to Chrome;

Step 3: A pop-up notification will be displayed on the screen, please read it carefully. To approve, click Add extension.

Step 4: To use the extension, click the extension icon to the right of the address bar. If the Coin98 Extension Wallet shows up in the drop-down menu, it has been installed and enabled successfully.

How to create an Ethereum wallet on Coin98 Wallet?

Before using Compound, users need to create an Ethereum wallet. Users can create a new Ethereum wallet on Coin98 Wallet or import an existing Ethereum wallet from other wallets to Coin98 Wallet. Creating a Multi-chain wallet on Coin98 Wallet will also include an Ethereum sub-wallet.

For you: How to create Multichain wallet

Preparing ETH as gas fee

Compound uses ETH for gas fee. Therefore, in order to trade on Compound, users must have ETH in their wallets. Users can buy ETH on a centralized exchange such as Binance, FTX, Gate,... and send it to the Ethereum wallet address on Coin98 Wallet.

How to use Compound with Coin98 Extension Wallet

Connect the Coin98 Extension Wallet to Compound

Step 1: Go to the Compound website here: https://app.compound.finance/

Step 2: Click “Connect Wallet” at the top-right corner to connect to the Coin98 Extension Wallet.

Step 3: Choose “Metamask”. Enter your Coin98 Extension Wallet password if needed.

Step 4: Click “Connect”.

Ensure that your wallet prioritizes Ethereum. Open the Coin98 Extension Wallet and change the Web3 Priority if needed.

Supply

Step 1: Find the asset you want to supply. I’ll take ETH as an example.

Step 2: Enter the amount that you would like to deposit. Check all the details and then click “Supply”.

Step 3: Check the gas fee and confirm in your wallet.

You have successfully supplied your assets to Compound.

Collateralize

You can use the asset that you just supplied as collateral to borrow other assets by following these steps:

Step 1: Toggle the switch.

Step 2: Check all the details, then click “Use ETH as Collateral”.

You have successfully collateralized your assets on Compound.

Now that you have deposited your collateral, you can borrow every available token on Compound.

How to use Compound on Coin98 Wallet dApp browser

Step 1: Open the Coin98 Mobile Wallet. Select “Browser”.

Step 2: Search “Compound”.

Step 3: Choose an asset to supply. I’ll take ETH as an example.

Step 4: Enter the amount that you would like to deposit. Check all the details and then click “Supply”.

Step 5: You can use the asset that you just supplied as collateral to borrow other assets. Toggle the switch.

Step 6: Check all the details, then click “Use ETH as Collateral”.

FAQ about Compound

How much should I borrow?

To avoid liquidation, you should borrow only a reasonable amount. Depending on the assets that you are borrowing, there will be different Liquidation Ratios and Collateral Ratios. I recommend that you keep the Liquidation Price at about 50% (for normal tokens) and 60-65% (for stablecoins) of that asset’s market value. This is a pretty safe threshold to borrow assets.

For example: If I borrow Aave (a normal token) at $280, I will adjust the amount of Aave I borrow so that its Liquidation Price will be around $140 (50%).

However, remember that this number should only be treated as an advisable standard. You should adjust the amount based on the assets you are borrowing and the assets you are collateralizing, considering its price fluctuation and price spread.

How much can I earn by lending/supplying?

Depending on the protocol you are using and the asset you are depositing, the APY will be different.

Do remember that the APR (APY) you earn by lending is usually much lower than that by farming/staking. Conventionally, the APR on lending protocols ranges from 1% to 3%.

You should check all possible yields on different platforms and protocols to make the most profitable decision.

Do I have to lock my assets when lending/supplying?

No, you don’t. You can withdraw your assets anytime you want, given that you are not borrowing any assets and/or having any debt.

How much do I have to pay after borrowing?

The borrowing fee varies depending on the assets you are borrowing, and the application you are using. Although some assets are supported with a 0 borrowing fee, the number usually ranges from 5-7%.

You can pay this fee in multiple assets based on the list that the protocol supports.

Conclusion

And that is all you need to know in order to use Compound. Hopefully, this article can effectively support users in using Compound with the Coin98 Mobile Wallet and the Coin98 Extension Wallet.

If there are any questions, please feel free to comment below or join Coin98 Community for further discussions about Crypto!

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Quang Phan

Quang Phan

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