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Compound Wants to Enable Cross-Chain Borrowing

Compound Finance has introduced a prototype blockchain which allows users to borrow on one chain against collateral on another chain.

When the blockchain, called Gateway, is live, users will be able to, for example, deposit Polkadot’s native DOT token, and borrow Ether against that collateral, freely using that ETH in the Ethereum ecosystem. This contrasts with Compound’s original implementation where users could only deposit and borrow Ethereum-based assets. 

Screenshot of Gateway’s Testnet Interface

The launch is a step towards fulfilling the “Compound Chain,” published in Dec. 2020, whitepaper’s goal of creating a distributed ledger which enables cross-chain lending and borrowing.

As Compound’s founder Robert Leshner tweeted “Gateway is an attempt to create a unified, interconnected interest rate market, instead of individual markets on each blockchain (which fracture liquidity).”

According to the whitepaper, “each blockchain” includes central bank digital currency ledgers.

Starports Needed

The Compound team is planning to build so-called Starports, which would function as various blockchains’ on and off-ramps to Gateway. In order to borrow or deposit an asset as collateral to Gateway, a user will need a blockchain-specific Starport.

“Starports are the ‘glue’ that connects a blockchain to Gateway — it adds support for that peer chain’s assets,” Leshner told The Defiant. “If you add a Solana Starport, you can upload, and borrow, Ethereum and Solana assets,” he continued, “you could mix and match however you want.”

The current implementation of Gateway, which runs on Ethereum’s Ropsten testnet, functions very similarly to the established version of Compound which only supports Ethereum-based assets.

But, “the community (whether that’s Compound, or the community of other blockchains) can build Starports on any chain they want (as long as they are then approved by governance),” Leshner said. “Each Starport should add tons of interoperability.”

Pay in CASH

All interest and transaction fees will be paid in CASH, Gateway’s unit of account.

If a user borrows ETH for example, they will progressively owe more CASH. Whereas if a user supplies ETH, they will earn their interest in CASH, which will be transferable to any blockchain which is linked to Gateway with a Starport.

Validators of the Gateway blockchain will also earn a portion of the CASH-based interest paid by borrowers.

The amount of CASH earned by suppliers and validators will always be equal to the amount of debt accrued by borrowers. 

Substrate Based

Gateway is built with Substrate, a framework for building blockchains which can easily be integrated with Polkadot and its security model, but it will be governed by the same governance process which oversees Compound’s Ethereum-exclusive product.

“There is already a governance process that secures $9B in Compound on Ethereum,” Leshner said, “this is a powerful starting point to launching Gateway, instead of relying on new governance models.”