Compound To Prepare DeFi for CBDCs With Innovative Compound Chain Network

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Compound To Prepare DeFi for CBDCs With Innovative Compound Chain Network

The creators of Compound Finance are set to introduce a new distributed ledger network that would serve various money markets such as Central Bank Digital Currencies (CBDC).

Called Compound Chain, the network aims to spread decentralized finance by providing interoperability between numerous ledgers. On December 17, the developers released the network’s whitepaper.

Are CBDCs here to replace cryptocurrencies or to stay and coexist with the market? For the Compound Labs team, the latter seems to be true. Within their new project’s white paper, the developers have stated that they seek to scale Compound over the next century. To do that, they will need to create an interoperable network that stretches beyond the current limits of Ethereum.

Co-written by Geoffrey Hayes, Jared Flatow, Max Wolff, and Leshner, the whitepaper notes Compound’s three main limitations on Ethereum. These obstacles include gas costs, lack of interoperability, and the problem of assets aggregating the risk of each supported asset.

To prosper, DeFi’s future assets must go beyond the limitations and frame of blockchain networks. In the near future, we may see the entrance of CBDCs to the market. This event will connect banks and decentralized tech together once and for all. One section of the whitepaper explains:

“Compound Chain is a reimagination of the Compound Protocol as a stand-alone distributed ledger, capable of solving these limitations and proactively preparing for the rapid adoption & growth of digital assets on a variety of new blockchains, including Eth2 and central bank digital currency ledgers.”

With that in mind, we now have a new addition to the world of interoperable blockchain networks that seek to solve the final equation. The question remains, will developers solve the problem just in time for widespread global adoption?

Will Compound Chain cause developers to leave Ethereum?

Beyond the scopes of decentralization, security, and scalability, the blockchain industry possesses one more problem: interoperability.

Without interoperability, each network represents a world of its own, disconnected from everything that surrounds it. In the end, a user may still interact with all of these worlds by going back and forth. But by lacking automatization, the process clearly lacks synergy and ruins the quality of user experience.

DeFi is no stranger to this problem. If we were to compare the situation to the real world, we’d have an environment in which banks could not communicate with each other and process transactions. Would you create a bank account if you had to withdraw your money and deposit it to another financial entity each time you wanted to create a transaction?

Clearly, interoperability is a far more important problem than anything else at the moment. Finance may be decentralized, but it is far from being capable of functioning in a greater whole. Therefore, projects like the Compound Chain may at least make some progress in this field, if they do not ultimately succeed.

But as developers pull away from Ethereum, what is the fate of Vitalik Buterin’s future upgraded network? Ethereum 2.0 may solve the blockchain trilemma, but will it solve the developer dilemma? Whether to stay with Ethereum or create a new smart contract environment is a question that will irk blockchain developers for the next few years.

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Marko Mihajlović

Marko is a content writer passionate about cryptocurrencies, blockchain technology, geopolitics, and information security. After an internship at Cointelegraph in 2018, he decided to pursue writing about the field of decentralized technology full-time.

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