Compound

Lending

Compound is a decentralized money market built on Ethereum that enables users to lend and borrow from a pool of whitelisted assets.

Risk Rating
Good
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Compound is one of the most established decentralized lending platforms. The protocol is user friendly and caters to more risk averse users given listings of only established crypto assets.
What we like less
Compound lists fewer assets than competitor platforms and is less capital efficient given a high liquidation threshold. The platform is also only limited to the Ethereum blockchain, which often incurs higher gas fees.
What it means for you
Compound offers a great way for you to earn interest on your crypto assets with an emphasis on security having undergone several qualified audits.
Information
Info
  • Website
  • Token: COMP
  • Tags: Lending
Key Metrics
  • TVL: $1B (Rank #26)
  • TVL Ranking by Lending: #7
  • Blockchain: Ethereum
  • Chain TVL
    • Ethereum: $1.01B
Risk Assessment
Good
Protocol Code Quality
  • Code reviewed by several experienced auditors including Trail of Bits and OpenZeppelin
  • Public team promotes accountability
  • One hack in a prior version of the protocol
Protocol Maturity
  • Core protocol launched in 2020; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 1% by total value locked reduces risk
  • Requires members of a DAO to vote on-chain for approving contract upgrades
  • Timelock is at least 48hrs, which provides users with sufficient time to exit if any malicious upgrades are approved
  • At least one moderate governance issue documented
  • Low voting power concentration reduces risk
Protocol Design
  • No death spiral concerns
  • Robust controls to mitigate oracle price manipulation
  • Cross-collateral markets are exposed to systemic risks as each asset creates incremental risks for the platform as a whole
  • Basic controls in place to prevent risky borrowing
  • Basic mechanisms in place to incentivize liquidations
  • Solid methods to accrue protocol reserves
  • Compound is one of the oldest lending protocols and well-respected by DeFi investors
Things to know about Compound

How Compound works

Compound consists of a decentralized system of lending pools. Users deposit assets they want to lend into a liquidity pool and borrowers draw from the pool when they want to take out a loan. Compound borrowers must first supply assets before they can borrow. Given the high volatility of crypto assets, borrowers must post more collateral than the value of the loan, or commonly referred to as overcollateralization. Interest rates on Compound are driven by market supply and demand. To facilitate this activity, Compound issues cTokens to lenders that reflect accruing interest on the underlying token.

How Compound makes money

Compound allocates a portion of the interest paid to borrowers to its reserve, which acts as insurance and is controlled by COMP token holders. Each supported asset has a reserve factor that determines how much goes into the reserve. Reserves (controlled by COMP holders) help backstop the system by acting as liquidity in each market to cover any bad debt in case of borrower default and liquidation malfunction.

How you make money on Compound

You earn lending fees on Compound by depositing their idle crypto assets to be used by borrowers looking for leverage. For certain assets, Compound also offers additional protocol incentives in its native COMP token to bootstrap demand.

Compound Pools
Compound v2 ETH Lending
0%
Yield
$457M
TVL
Risk
B
Protocol
Compound
Chain
Ethereum
Compound BTC Lending
0%
Yield
$372M
TVL
Risk
B
Protocol
Compound
Chain
Ethereum
Compound v2 USD Lending
6.8%
Yield
$70M
TVL
Risk
B
Protocol
Compound
Chain
Ethereum
Compound AAVE Lending
0.6%
Yield
$163K
TVL
Risk
B
Protocol
Compound
Chain
Ethereum
Compound SUSHI Lending
0.8%
Yield
$108K
TVL
Risk
B
Protocol
Compound
Chain
Ethereum