Compound

A decentralized finance (DeFi) protocol that enables lending and borrowing of digital assets through algorithmically managed interest rate markets.

What is Compound?

Compound is a decentralized protocol built on Ethereum, launched in 2018, that allows users to lend and borrow digital assets like ETH, USDC, and DAI directly from their wallets without intermediaries. It operates using smart contracts to create money markets—pools of assets where interest rates are determined algorithmically based on supply and demand. Lenders deposit assets to earn interest, while borrowers can access these assets by posting collateral, with rates typically ranging from 0.5% to 10% annually, depending on the asset and market conditions. As of September 2025, Compound’s total value locked (TVL) is approximately $1.93 billion, making it a significant player in DeFi, though it trails behind newer protocols like Aave in market share.

The protocol’s native digital asset, COMP, is a governance token that allows holders to vote on protocol upgrades, such as adding new markets or adjusting parameters. Compound’s third iteration, Compound III (deployed in 2022), introduced a more capital-efficient model with isolated markets, reducing systemic risk by limiting cross-asset liquidations. Users interact with Compound through its web interface or integrated platforms like MetaMask, and it supports over 20 digital assets, including stablecoins and wrapped tokens. Despite its innovation, Compound has faced challenges, including governance disputes and exploits like the 2020 “yield farming” frenzy, which highlighted vulnerabilities in its economic model. Its open-source nature has also inspired forks like Aave and Cream Finance.