To participate in the Compound protocol, users can send a compatible Ethereum-based asset to a liquidity pool and receive cTokens in return. These cTokens represent the user's asset and earn interest while they are part of the liquidity pool. Users who redeem their cTokens receive their original asset plus any interest earned. For example, if a user lends Ether, they will receive cETH tokens and earn interest in Ether.
Borrowing on the Compound protocol involves providing Ethereum-based digital assets as collateral and receiving the asset of the borrower's choice, as long as the assets are compatible with the Compound protocol. Borrowers must provide more collateral than the value borrowed as a safety measure, and they pay interest on the borrowed amount. Interest rates for borrowers and lenders depend on the size of the liquidity pools with which they interact.
Compound also has its Ethereum-based ERC-20 token called COMP, which is used in the Compound ecosystem for governance and as a reward given to borrowers and lenders for using the protocol. COMP is traded on various digital asset exchanges.