Credit · Lending · COMP
Compound is one of the original DeFi lending protocols. Compound III simplifies each market to a single borrowable base asset with other assets posted purely as collateral.
Simple, battle-tested money markets (Compound III).
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Compound is the original algorithmic money market: users supply assets to a pool, interest rates adjust in real time with , and borrowers post collateral to draw funds. Compound III, codenamed Comet, replaced the pooled-risk model of v2 with a one-base-asset-per-market design in which each deployment supports a single borrowable base asset and a list of collateral assets that cannot themselves be borrowed and earn no interest (Compound docs). Borrowing capacity comes from a per-collateral `borrowCollateralFactor`, capped by a per-asset `supplyCap`, with a `baseBorrowMin` floor on position size and signed base-token balances where positive means supplied and negative means borrowed (Compound docs). Loans are perpetual and liquidation is via `absorb()`, which transfers collateral to protocol reserves at a discount (Eco). Users are mostly stablecoin borrowers seeking leverage on blue-chip collateral, plus COMP-incentivised suppliers.
Compound III is simpler than Aave: one base borrowable asset per market makes risk easier to understand, at the cost of multi-asset flexibility.
Single base borrowable asset per market with separate collateral assets posted as collateral only.
Token holders propose and vote on new markets, collateral factors, and protocol upgrades.
Compound Labs Inc incorporated 28 August 2017 in San Francisco by Robert Leshner and Geoffrey Hayes; Compound v2 cToken protocol launched May 2019; COMP distribution began June 2020
Medium profileCompound III (Comet), shipped 26 August 2022 following a successful COMP governance proposal
CryptoSlateCompound Labs Inc, a Delaware company since August 2017, headquartered in San Francisco. A Compound Foundation was proposed in May 2025 as a non-stock 501(c)(4) Delaware non-profit
ByteTreeDelaware incorporation, San Francisco headquarters; the Foundation is a US non-profit
ByteTreeCOMP. All instances of Compound III are governed by COMP holders and delegates and controlled by the mainnet Timelock, the same administrator as Compound v2
Compound governance docsForum at comp.xyz; on-chain voting at Tally, showing 21.15K delegates, 220.32K token holders and 548 proposals
comp.xyzEthereum, Base, Arbitrum, Optimism, Polygon, Scroll, Mantle, Unichain, Ronin
DefiLlama protocol APICompound V3 $1.139B and Compound Finance overall $1.231B as of 26 July 2026; Ethereum $1.037B; $556.5M borrowed
DefiLlama V3Trail of Bits and OpenZeppelin, with formal verification by Certora using Certora ASA integrated into CI. The Comet contracts specifically were audited by OpenZeppelin and ChainSecurity
Compound securityImmunefi programme, up to $1,000,000, paid in COMP by the Compound DAO, live since December 2024
Immunefihttps://docs.compound.finance/
Compound docshttps://github.com/compound-finance, 77 public repositories including `comet` (Compound III), `compound-protocol` and `compound-governance`
GitHubClosest analogue
a single-currency secured lending facility at a clearing bank, where the bank funds one currency against a defined pledge list and the pledged assets sit idle as security.
Underwriting
Compound
Per-collateral `borrowCollateralFactor` (WBTC 85% in the docs example) and per-asset `supplyCap`, with a `baseBorrowMin` minimum position size
TradFi analogue
Advance rates by pledge category with a facility minimum drawdown
Collateral
Compound
Collateral-only assets that cannot be borrowed and earn no interest; pure backing
TradFi analogue
Pledged securities held in a charged account, not rehypothecated
Settlement
Compound
Per-chain independent Comet deployments; each chain runs its own markets with no shared liquidity
TradFi analogue
A facility booked in one branch or entity, not netted across the group
Rate setting
Compound
Algorithmic supply and borrow indices accruing per block, with market parameters set by COMP governance through a single Configurator contract
TradFi analogue
Facility priced off a reference rate plus a spread reset by credit committee
Recourse on default
Compound
None. `absorb()` moves collateral into protocol reserves at a discount and credits the protocol with base asset
TradFi analogue
Bank enforces the charge and sells the pledge; no further recourse in a non-recourse facility
Regulation
Compound
Unlicensed protocol governed by COMP holders through the Timelock; a proposed 501(c)(4) Delaware non-profit provides the off-chain legal wrapper
TradFi analogue
Licensed bank under prudential capital and large-exposure rules
Jayson Hobby
Took over as CEO of Compound Labs after Leshner's departure, having started as head of design
SourceCompound Foundation
Proposed non-stock 501(c)(4) Delaware non-profit, budget $6M per year ($9M for the proposal duration, 1 July 2025 to 31 December 2026), funded in COMP
SourceGauntlet
Market risk manager; 2024 renewal at $2.3M per year covering 25 Comets, extended into a Year 5 partnership in 2025
SourceTimelock contract
Administrator of all community-sanctioned Compound III instances and of Compound v2
SourceSeed
May 2018$8.2M
Series A
14 November 2019$25M
COMP token distribution begins
June 2020No public sale proceeds reported in the fetched sources
DAO-funded Foundation budget
2025 to 2026$6M per year, $9M for the 1 July 2025 to 31 December 2026 period, funded in COMP
No further equity rounds appear in the fetched sources; ByteTree states Compound had carried out two funding rounds since inception as of its 2021 review (ByteTree).
Key milestones: launches, upgrades, exploits and governance events.
Compound Labs Inc incorporated in Delaware by Leshner and Hayes
StatedOrigin of the algorithmic money market category
SourceCompound v2 launches with cTokens
StatedIntroduces the interest-bearing receipt token that the sector standardises on
SourceCompound III (Comet) goes live after a governance vote
StatedReplaces pooled risk with isolated single-base-asset markets
SourceComet deploys to Arbitrum, its third chain after Ethereum and Polygon
StatedStarts the multi-chain expansion
SourceRobert Leshner leaves to found Superstate; Jayson Hobby becomes CEO of Compound Labs
StatedFounder exit; the protocol becomes DAO-led in practice as well as in form
SourceThe Golden Boys group led by whale Humpy passes a proposal to move $24M of treasury tokens; the community calls it a governance attack and a truce follows
StatedDemonstrates concrete governance-capture risk in a token-weighted DAO
Source$1M Immunefi bug bounty goes live, funded in COMP by the DAO
StatedCloses a long-standing gap in Compound's security posture
SourceProposal to create the Compound Foundation as a 501(c)(4) Delaware non-profit with a $6M annual budget
StatedGives the DAO a legal wrapper and a funded operating team
SourceCompound and Gauntlet Year 5 partnership proposed, after an August 2025 forum thread arguing against re-hiring Gauntlet
StatedRisk-manager dependency debated in public
SourceCompound Governance Working Group renewed for 2026
StatedInstitutionalises DAO operations
SourceCompound governance liquidates the KelpDAO hacker's collateral on Compound
StatedShows governance used as an active credit-workout tool
SourceNo aggregate bad-debt figure is published in the fetched sources, so `n.a.` for a protocol-level number. What is documented is that Comet's `absorb()` function moves underwater collateral into protocol reserves and credits the protocol with base asset, meaning shortfalls land on the reserve rather than on individual suppliers (Eco). Compound also used governance in May 2026 to liquidate a hacker's collateral position directly (Santiment).
COMP holders and delegates, executing through the mainnet Timelock which administers every community-sanctioned Compound III instance (Compound governance docs). Parameter recommendations come from Gauntlet, whose 2024 renewal covered 25 Comets at $2.3M per year (comp.xyz). The DAO has debated the concentration this creates, including a March 2025 thread on the pressing need for a secondary risk manager (comp.xyz).
Each account's health is evaluated with `isBorrowCollateralized` and `isLiquidatable` against per-collateral liquidation factors (Compound docs). If the account is liquidatable, anyone can call `absorb()`, which transfers the collateral to protocol reserves at a discount and credits the protocol with the base asset (Eco).
Contract failure in a market where their base asset sits, or a governance action that changes parameters against them, since the Timelock can reconfigure any Comet (Compound governance docs). The July 2024 Golden Boys episode showed that a coordinated whale can pass a proposal moving $24M of DAO assets before a truce is negotiated (The Block). Mitigants are Trail of Bits and OpenZeppelin audits plus Certora formal verification wired into CI (Compound security).
By design: collateral assets do not earn interest and exist purely as backing, which is what allows higher borrowing capacity with lower liquidation risk and lower gas (Compound docs). Leshner framed the trade at launch as borrowing more, with less liquidation risk, lower penalties and less gas, at the cost of collateral yield (CryptoSlate).
Compound V3 held $1.139B TVL on 26 July 2026 (DefiLlama) against Aave's $14.35B (DefiLlama) and Morpho Blue's $7.52B (DefiLlama). The Defiant ran a February 2026 piece explicitly asking what happened to Compound's lending empire (The Defiant).
Bull case
The Comet architecture materially reduces contagion: each base-asset market is isolated so collateral held against a USDC loan cannot cross-contaminate a separate ETH market, with per-market collateral factors set through a single Configurator (Ancilar).
AncilarVerification depth is unusual: the protocol was developed against a specification of security principles and formally verified by Certora using Certora ASA, integrated into continuous integration rather than run once (Compound security).
Compound securityGovernance is deep and liquid: 21.15K delegates, 220.32K token holders and 548 proposals on Tally (Tally), now supported by a funded Foundation with a $6M annual budget (comp.xyz).
TallyDistribution is genuinely multi-chain: nine chains carry Comet deployments including Base, Arbitrum, Optimism, Polygon, Scroll, Mantle, Unichain and Ronin (DefiLlama).
DefiLlamaBear case
Compound is now a distant third: $1.14B TVL versus Aave's $14.35B and Morpho Blue's $7.52B on the same day (DefiLlama V3, DefiLlama Aave, DefiLlama Morpho Blue).
DefiLlama V3Governance capture has already been attempted successfully once: the Golden Boys passed a $24M treasury proposal in July 2024 before a truce, with COMP falling sharply in the aftermath (The Block, CoinDesk).
The BlockSingle-risk-manager dependency is acknowledged inside the DAO, with a March 2025 thread on the need for a secondary risk manager and an August 2025 thread arguing against re-hiring Gauntlet at all (comp.xyz, comp.xyz).
comp.xyzFounder and product-line attrition: Leshner left in 2023 to found Superstate and Compound Treasury was shut down, leaving the protocol without its original commercial engine (The Defiant, Axios).
The DefiantExternal publications on this protocol: risk assessments, analyst reports, audits and post mortems.
Simulation-based stress testing of Compound's economic security as it scales assets and volume, referenced from Compound's own security page
Loans fell 77% to $812M and deposits 70% to ~$3B in one quarter, the clearest picture of Compound's cyclical fragility
Walks through the COMP distribution bug that triggered ~$3B of closed loans and withdrawn deposits at the end of Q3
Post mortem of the Golden Boys proposal that moved $24M of COMP
Documents the negotiated resolution and what the DAO conceded
The DAO's own statement that single-provider risk coverage is a structural weakness
Panel regression over 2021 to 2024 finds v3 liquidations increase TVL and revenue while v2 liquidations do not, evidence that v3 risk management works
Finds existing liquidation designs over-reward liquidators and sell excessive discounted collateral at borrowers' expense across Aave, Compound, MakerDAO and dYdX
Traces the decline from default DeFi lender to third place, tied to the leadership change
Max supply
