Compound (COMP)

Compound (COMP) is the governance token of Compound, one of the oldest lending protocols in decentralized finance. The protocol lets users deposit crypto assets to earn interest and borrow against them, with rates set automatically by supply and demand rather than by a loan officer. COMP holders vote on which assets can be used, how interest rates are calculated and how the protocol's treasury is spent.

Compound runs on the Ethereum Blockchain and on several layer-2 networks; it has no blockchain of its own. It is often compared with Aave, its larger rival. Its decision in 2020 to hand out COMP to the people using it popularised "liquidity mining" and set off the boom known as DeFi summer.

Imagine a shared savings jar in an office. Anyone can put money in, and anyone can borrow from it, as long as they leave something more valuable on the table as a pledge. Borrowers pay a fee for the money they take, and that fee is shared among everyone who filled the jar. When the jar is nearly empty, the fee rises sharply, which encourages people to add money and borrowers to pay back.

Compound is that jar, run by computer code instead of an office manager. If a borrower's pledge loses too much value, the code sells part of it to repay the jar, so savers are protected. COMP is the token that gives its holders a say in the rules, for example which pledges the jar accepts and how quickly the fee climbs.

Robert Leshner and Geoffrey Hayes founded Compound Labs in 2017, and the first version of the protocol went live in September 2018. Version 2, launched in 2019, introduced cTokens, interest-bearing receipts that grow in value as interest accrues. On 15 June 2020 the protocol began distributing COMP to its lenders and borrowers each day. The rewards briefly made borrowing profitable, deposits surged, and dozens of projects copied the model through yield farming schemes.

In September 2021 a bug in an upgrade known as Proposal 62 caused the protocol to release far more COMP than intended, worth tens of millions of dollars, to some users. Compound III, also called Comet, launched in August 2022 with a simpler design in which each market lends a single base asset, first USDC, against a list of collateral assets. Leshner stepped back in 2023 to found another company, and the protocol has since been run largely by the DAO and independent contributors.

Every Compound market tracks its utilization, the share of deposited funds that is currently on loan. The borrowing rate rises slowly with utilization up to a threshold, called the kink, and steeply beyond it. Below the kink the model is:

• $R_{\text{borrow}}$ is the annual borrowing rate.
• $R_{\text{base}}$ is the rate charged when nothing is borrowed.
• $s$ is the slope, how much the rate climbs per unit of utilization.
• $U$ is utilization: funds lent out divided by the market's total supplied funds.

Suppose a market holds 600 tokens of idle cash, 400 tokens on loan and no reserves, so $U = 400 \div 1{,}000 = 0.4$. With a base rate of 2 percent and a slope of 10 percent, the borrowing rate is $2\% + 10\% \times 0.4 = 6\%$. Lenders earn less than this, because only part of the pool is lent out and the protocol keeps a slice, the reserve factor, as a buffer. Rates are quoted as an annual percentage rate that changes with every block.

COMP has a fixed maximum supply of 10 million tokens, spread between users, the founding team and investors, the treasury and future community programs; see tokenomics. Holders, or delegates they appoint, submit and vote on proposals through on-chain governance, and approved changes are applied after a timelock delay. Uses of the token include:

• Voting. COMP decides interest-rate models, collateral factors and new markets.
• Delegation. Holders can lend their voting power to a representative without transferring tokens.
• Incentives. The DAO can direct COMP rewards to particular markets, or reduce them where they no longer attract lasting deposits.

Loans on Compound are over-collateralized: borrowers must post more value than they take, and if prices fall the position can be liquidated, the code-driven version of a margin call. Lenders rely on the smart contracts, on price oracles and on liquidators acting quickly, and the 2021 distribution bug showed that a single faulty upgrade can be costly.

The token-voting model has also been tested. In July 2024 a group led by a whale known as Humpy, calling itself the Golden Boys, narrowly passed Proposal 289, which moved 499,000 COMP, worth about $24 million at the time, from the treasury into a vault the group would manage. Delegates called it a governance attack, and the group agreed days later to withdraw the proposal in exchange for a COMP staking product controlled by the DAO.

Compound's deposits fell from a peak of about $12 billion in 2021 to roughly $1.2 billion by 2026, as rivals such as Aave and Morpho grew. In August 2026 the DAO approved its largest budget, about $52 million, and a new leadership team at the Compound Foundation, headed by Aaron Schnarch, a former chief executive of Coinbase Custody, to target institutional borrowers and tokenized real-world assets.

• Compound
• Compound III documentation
• Compound community forum