How to do your Compound Finance (COMP) taxes with Koinly

How to do your Compound Finance taxes with Koinly

Whatever your Compound Finance transactions, you'll need to figure out if you owe tax on them. Koinly can help. It's this simple:

1. Sign up to Koinly and choose your country and currency.
2. Connect the wallets you use to interact with Compound Finance to Koinly to import all your trades safely and securely
3. Koinly identifies the cost basis of all your coins and tokens (including ERC-20 tokens), as well as your taxable transactions.
4. Koinly calculates any capital gains, losses, and income from your taxable transactions.
5. Koinly generates your crypto tax report - ready to help you file with your tax office, or hand it over to your accountant.

How to import Compound Finance transactions to Koinly automatically

To import your Compound Finance transactions, you'll need to connect each wallet you use with Compound Finance to Koinly. This is easy to do, you just need your public address - and we have steps on how to get your public address for all the most popular wallets on our integration pages.

As Compound Finance supports three different blockchains, this may mean getting multiple public addresses from each wallet to ensure you're importing your transactions from all blockchains. Here’s an example of how it generally works.

On wallet

1. Open or log in to your wallet
2. Select the blockchain you’d like to connect to - for example, Ethereum or Arbitrum
3. Copy your public address

On Koinly

1. Sign up or log in to your Koinly account and go to the wallets page
2. Search for and select the blockchain you’d like to connect to - for example, Ethereum or Arbitrum
3. Give your wallet a name - for example - MetaMask or Coinbase Wallet
4. Paste your public address
5. Select import

How do I troubleshoot my Compound Finance integration to Koinly?

We’ve got plenty of help at hand if you’re having any trouble connecting to Koinly:

• Head over to our help center
• Hit up our discussion boards - we might have already answered your question
• Ask us on social media - we're on Reddit
• Contact us by email or live chat
• Got a feature request? Give us feedback on Canny

What is Compound?

Compound.Finance, also known as just Compound or even COMP, is an Ethereum based DeFi lending protocol. It allows investors to deposit crypto for loans and earn interest in return, as well as borrow crypto with collateral.

Like all DeFi protocols, Compound achieves this with no third party - like a crypto exchange. Instead, it utilizes liquidity pools, also known as lending pools in this context.

How does Compound work?

There are two main transactions you can make using the Compound protocol - lending or borrowing. We’ll look at both.

When you lend crypto on Compound, you deposit your crypto to a given lending pool. Compound has quite a few pools you can pick from, including:

• COMP
• ETH
• LINK
• UNI
• WBTC

So you’ll pick the crypto you want to deposit and the corresponding supply pool to deposit it to. Once you’ve done this, you’ll be awarded a new cToken that represents your deposit - i.e. cETH.

Your cToken(s) will accrue interest over time. But instead of being paid out more cTokens, your cTokens will increase in value relative to the underlying asset. So say you deposited 1000 COMP, you’d get cToken(s) representing that 1000 DAI. Then let’s say you earned 25 COMP over the course of a week in interest, your cToken(s) would now represent your 1025 COMP in the lending pool. 

When you want to withdraw your asset and interest from the lending pool, you simply trade your cTokens back. 

When it comes to borrowing - it’s a very similar process. To borrow on Compound, you need collateral. So you’ll still need to deposit your asset to Compound and you’ll get cTokens to represent that asset. You can then use your cTokens as collateral and borrow certain cryptocurrencies against that collateral.

That’s not all though because Compound has what’s known as a dual-token system. This means as well as accruing interest in the crypto you’re lending, you’ll also earn COMP tokens. Similarly, you’ll earn COMP tokens for borrowing on Compound too. 

COMP is Compound’s native governance token. At the time of writing COMP is worth around $78, but has had historical highs of more than $900. You can buy, sell and trade COMP tokens, but they also give you voting rights on Compound protocol proposals.

How to use Compound

Compound is really user friendly compared to other DeFi protocols thanks to its simple product offering.

To get started, you’ll need a wallet. Compound supports:

• MetaMask
• Coinbase Wallet
• Wallet Connect
• Ledger

Once you’ve connected your wallet, you’ll be able to pick whether you want to supply or borrow and follow the simple steps for both. 

What can you do on Compound?

Compound lets investors:

• Loan crypto through lending pools and earn interest and COMP tokens for doing so.
• Borrow crypto from lending pools using their current assets as collateral and earn COMP tokens.
• Vote on proposals for the Compound protocol using COMP tokens.