- Venture Capitalist backed trading platform
- The focus of the platform is to make it easy to short projects
- Users can earn interest by lending out tokens to shorters
As the 2018 bear market drags on, many even among the most enthusiastic crypto supporters are starting to fear a multi year bear market. It wouldn’t be the first time – although the space has grown explosively since earlier bottoms, crashes like we have had this year have so far been followed by at least a year of sideways movement.
There are also very legitimate concerns that, at this point in crypto’s early development, many of the largest projects may be significantly overvalued relative to what they have delivered so far. And if that’s a concern you share, Compound may have something just for you.
Shorting made easy
Backed by venture capitalist firms Andreessen Horowitz, Polychain Capital, and Bain Capital Ventures, Compound raised some $8 million in May of this year.
Their business model is simple – on the one hand, users may deposit their own Ethereum (ETH) on the platform, and earn a modest interest by loaning their ETH out to shorters. If you hold ETH and don’t want to risk selling in case the market recovers, this is almost risk free for you. Probably. If you trust Compound.
For those who believe the market is due for at least one more downturn, however, Compound offers you the opportunity to short ETH. That is, you can borrow ETH for a short time, sell it at today’s prices, and at some point in the near future you have to buy back the same amount of ETH and return it to Compound.
If prices go down – profit. You can buy back the ETH and keep the difference. If prices go up… Well, you might get liquidated. Lenders get a small but virtually guaranteed interest rate on their ETH, while shorters take a greater risk but stand to potentially earn a lot more money.
More currencies to come
ETH is not the only currency Compound offers a shorting market for. From launch they are offering contracts for 0x Protocol (ZRX), Basic Attention Token (BAT) and Augur (REP), with more to come in the future.
Nor are they the only platform to offer shorting contracts – Bitmex CEO Arthur Hayes stirred the ire of the crypto community the other week when he called Ethereum a ‘shitcoin’ and urged his users to short it on Bitmex.
Compound has so far taken a much more diplomatic position, however. They are simply offering a market. If users wish to short a variety of projects, they may. If they want to make a modest interest providing tokens for the shorters to loan, they can instead do that.