When users deposit into the pool, the input coins would change into cTokens, a medium currency on the Compound Protocol. If users deposit Ethereum and DAI, they would receive cETH and cDAI, respectively. These coins help yield interest fees for the coins’ lender, in accordance with the previously-agreed interest rate, the size of the pool, the amount of users lending funds within the said pool, or even the coin’s value.
Lending funds involves the use of Software Wallets, like Metamask, to sign off fund loans. By doing so, users are able to receive interest fees from the borrower. As for the borrower, they must first lay down collateral, which, in return, provides Borrowing Power, essentially the power to borrow assets, which is also dependent on the coins being borrowed. However, an over-collateralization is required in order to justly provide the borrower trustworthiness.
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