BCGAME - Free 5BTC Daily Bonus!The Compound Protocol ( COMP ) is one of the leading decentralized finance (DeFi) projects with a focus on loans and loans. The platform allows users to borrow their cryptographic funds to earn interest.
The overall functionality of the protocol is enabled through a multi-token model where the main token, COMP, acts as a governance and incentive token, while a series of “cTokens” are used to denote investment property rights. . One such cToken is cETH, the token used to enable lending through the Ether-based pool on the Compound. cETH has a total supply of nearly 90 million tokens priced at $66 per token with a market cap of nearly $6 billion.
What is ceTH?
When users lend cryptography to the Composite protocol, they can choose one of several loan pools depending on the currency / token they wish to lend their funds to. The largest pool is based on Ether loans. When you deposit your funds into Ether, you receive a certain amount of cETH (the pool token based on Ether).
Although your original investment is still in Ether, it is guaranteed by ceTH and you earn interest in ceTH. Your CETH funds can be traded freely, although it may be advisable not to use the token for active trading as it represents your bet on the protocol.
Your original Ether funds cannot be traded or transferred while your funds are held in protocol and earn interest. When you decide to redeem your investment and exit the protocol, the ceTH you own is converted to Ether and your funds are returned to you in the original currency – Ether coins.
cETH is not pegged to ETH by smart contract rules, but the cETH/ETH exchange rate has remained very stable since the token was introduced in mid-2020. at a rate of about 1 / 0,02 cETH / ETH.
cETH is based on the ERC20 token standard. ERC20 tokens are the default fungible tokens in blockchain Ethereum.
cETH is not the only cToken in the Composite. Loans and loans are possible in multiple pools. At the moment, the second largest pool after Ethereum is based on DAI , the Maker protocol's stablecoin. When you lend DAI cryptography to this pool, you get cDAI tokens and accumulate interest in this cToken. Likewise, borrowing in other currencies gives you tokens with a cCurrencyOfThePool naming convention, eg cLNK, cUSDT, etc.
How does ceTH differ from the COMP token?
COMP is the main platform-wide token in Compound. It is used as a governance token, that is, it allows token holders to vote on important issues regarding the platform's operations and its future direction.
COMP is also used as a marketing tool to encourage more active participation on the platform. For example, users who borrow from Compound are rewarded with some amount of COMP.
On the other hand, the cETH acts as a token representing your investment held in the loan pool. Your interest also accrues to cETH.
While COMP, like most cryptocurrencies, has a clearly defined maximum supply and a relatively stable circulating supply, both at 10 million tokens, cETH has a supply that dynamically changes based on borrowing activity in the Ether Composite pool. . As funds are borrowed and withdrawn from this pool, cETH tokens are created and destroyed.
Should I trade with my ceTH?
Composite cTokens, including cETH, can be freely traded by their owners. There is nothing in the protocol's smart contract that prevents you from selling your cETH on exchanges.
However, it is not recommended to use your cETH for active cryptographic transactions. The nature of the token makes it more suitable for holding it as collateral for your loan funds and for accumulating interest on your investment.
Since cETH is not a widely traded crypto-asset, gas/transaction fees for cETH transfers may also be higher than for more commonly traded crypto's such as ETH or COMP.
Is it worth getting ceTH?
Interest rates for loans to Compound cToken-based pools constantly fluctuate and differ between pools. These interest rates will be an important factor in determining whether it is worthwhile (for you) to lend your ETH to Compound and acquire cETH in the process.
Currently, the cETH pool offers an uninspiring 0,13% annual interest rate. The highest rates are currently offered by the USDC pool (3,13%) and the DAI pool (2,81%), but these rates change constantly with lending activity.
Despite the low interest rate, the cETH pool is currently the largest in Composite, measured by borrowed funds. A total of nearly $6 billion is currently loaned to the pool. The fact that Ether is the underlying currency of the Ethereum platform and holds a huge market share in the cryptocurrency world is probably the main reason for the popularity of cETH pool loans.
The specific cToken / pool interest rate on the Composite largely depends on the total amount borrowed and the total amount borrowed in that currency. Currencies with lesser supply from lenders and greater demand from borrowers offer better rates.
ETH is the top cryptocurrency being borrowed on the platform. At the same time, it is not even in the top three borrowed cryptocurrencies. While almost $6 billion of ETH is borrowed in Compound, only around $330 million is borrowed. In other words, the demand for borrowing on ETH is relatively very low compared to the supply. The top 3 currencies currently borrowed are USDC, DAI and USDT . All three are stablecoins.
Greater supply and lesser demand from ETH borrowers are the main reasons for the meager 0,13% interest rate in the cETH pool. Given ETH's gigantic market supply numbers, this situation is unlikely to change drastically in the foreseeable future.
Furthermore, unlike the main currencies borrowed from the Composite, the ETH is not a stable currency and, therefore, is not the cryptocurrency most desired by the platform's borrowers.
These factors ensure that the interest rates offered by the cETH pool are unlikely to match those offered by the stablecoin pools. However, the overall offer of cETH will remain strong given the number of investors willing to lend in ETH.
ceTH price history
Since cETH is linked to ETH by the Composite algorithm, the price trajectory of cETH largely reflected that of ETH. Given that 2021 was positive for ETH, cETH also had consistent growth this year.
First launched in mid-2020, CETH was trading within the narrow range of $6 to $8 by the end of the year. By early 2021, it had risen dramatically to over $30. It has steadily gained ground throughout the year and is now trading at $66.
What is the future of ceTH?
The future price of cETH will be directly linked to the performance of ETH. Although the token is not officially tied to the ETH, the nature of the algorithm in Composite ensures that the cETH / ETH ratio is unlikely to deviate more than a small amount.
Independent trading with cETH away from Composite should also remain very low. The token's purpose of securing loanable funds in the protocol makes it an unsatisfactory candidate for active encryption exchange.
It is likely that cETH will remain the cToken with the largest offering of compounds simply because there are many individual and institutional investors willing to lend the entire ETH in their hands. Unless there is a big change in the market leading to a sharp increase in demand for ETH loans, the cETH loan pool on the Compound will offer lower interest rates compared to some other pools on the platform.
Unless there is a complete overhaul of the Compound loan and loan system, cETH will remain in the market to support the largest Compound loan pool.
Conclusion
cETH is an ERC20 token used to represent your loan participation in the Compound platform. Although it is not restricted to the platform environment, meaning you can transfer your Compound cETH and trade it freely, it is widely used to guarantee the loan amount and accrue interest.
Although the COMP is the platform-wide governance and incentive token in Compound, the role of cETH is restricted to the protocol's ETH loan pool. Along with cETH, there are about 20 other cTokens in the composite, each one allowing loans within its respective pool.
Due to the intended functionality of cETH, active negotiation with this token outside of Composite is very limited.
CeTH price movements largely reflect changes in ETH prices, although cETH is not officially tied to ETH. The cETH/ETH ratio has never deviated much from a very narrow range around 1/0,02. This rate is likely to continue in the future.
Unless there is a substantial change in the business model at Compound, or a very drastic market development that affects the protocol, cETH will be actively used in Compound for ETH loans, but will have limited use outside the platform.
