What is Compound?
Compound is a pioneering decentralized lending protocol that established many of the patterns used throughout DeFi today. Launched in 2018 by Robert Leshner, Compound introduced algorithmic interest rates and interest-bearing tokens (cTokens), innovations that became industry standards.
The protocol allows users to supply crypto assets to earn interest or borrow against their collateral. Interest rates adjust automatically based on supply and demand, with no intermediaries, fixed terms, or credit checks required. Compound has processed billions in lending volume and currently manages over $2 billion in total value locked.
Compound pioneered decentralized governance through the COMP token, giving users direct control over protocol parameters. This governance model influenced countless subsequent DeFi protocols and established the DAO as a standard organizational structure in crypto.
Key Metrics
- Total Value Locked: $2B+ across deployments
- Networks: Ethereum, Arbitrum, Polygon, Base
- Supported Assets: 15+ tokens per network
- All-Time Supply Volume: Tens of billions of dollars
- Security Audits: Multiple audits from OpenZeppelin, Trail of Bits
- Governance: COMP token holders control all protocol parameters
How Compound Works
Supplying Assets
When you supply assets to Compound, you receive cTokens (e.g., cUSDC for USDC). These tokens:
- Represent your deposit plus accrued interest
- Continuously accrue value as interest accumulates
- Can be redeemed for the underlying asset plus interest
- Are transferable and usable as collateral
The Interest Rate Model
Compound uses algorithmic rates based on utilization (borrowed / supplied):
- Low Utilization: Low rates to encourage borrowing
- High Utilization: High rates to attract suppliers and discourage borrowing
- Optimal Range: Rates designed to maintain healthy utilization (typically 80%)
Borrowing
To borrow, you must first supply collateral. Each asset has:
- Collateral Factor: How much you can borrow against it (e.g., 80% for ETH)
- Borrow Cap: Maximum borrowable amount per asset
- Liquidation Threshold: Point at which positions become liquidatable
How to Use Compound
Supplying (Earning Interest)
- Visit app.compound.finance and connect your wallet
- Select your preferred network
- Click Supply on your chosen asset
- Enter amount and approve the transaction
- Receive cTokens representing your deposit
- Interest accrues automatically as cToken value increases
Borrowing
- First supply collateral (see above)
- Click Borrow on the asset you want
- Enter the amount (stay within safe limits)
- Confirm the transaction
- Monitor your borrow position regularly
With lending rates varying across networks and protocols, finding the best yield requires research. Fensory aggregates rates across Compound deployments and competing protocols, helping you maximize returns.
Compound Fees
| Fee Type | Amount | Description |
|---|---|---|
| . . . . . | . . . . | . . . . . . - |
| Supply | 0% | No fee to deposit |
| Withdraw | 0% | No fee to withdraw |
| Borrow | Interest rate | Varies by utilization |
| Liquidation | Varies | Penalty for liquidated positions |
Current Supply APYs (Examples)
| Asset | Supply APY | Borrow APY |
|---|---|---|
| . . . - | . . . . . . | . . . . . . |
| USDC | 3-7% | 4-9% |
| ETH | 1-3% | 2-5% |
| WBTC | 0.5-2% | 1-4% |
Risks and Considerations
- Smart Contract Risk: Despite extensive audits, vulnerabilities are possible
- Liquidation Risk: Borrowers can lose collateral if prices drop
- Interest Rate Volatility: Rates can change significantly based on utilization
- Governance Risk: COMP holders control protocol parameters
- Oracle Risk: Price feeds could potentially be manipulated
Compound vs Alternatives
| Feature | Compound | Aave | Morpho |
|---|---|---|---|
| . . . . - | . . . . . | . . . | . . . . |
| TVL | $2B+ | $10B+ | $2B+ |
| Rate Type | Variable only | Variable + Stable | Optimized |
| Chains | 4 | 7+ | 2 |
| Token Model | cTokens | aTokens | None |
Frequently Asked Questions
How do cTokens work?cTokens represent your deposit and continuously increase in value as interest accrues. When you redeem, you receive more of the underlying asset than you deposited. The exchange rate only goes up over time.
What happens if Im liquidated?If your borrowed amount exceeds your collateral factor, liquidators can repay part of your debt and claim collateral at a discount. You keep the borrowed assets but lose collateral. Maintain a buffer below max borrow to avoid this.
Is Compound safe?Compound is one of the most battle-tested DeFi protocols with years of operation and extensive audits. However, all smart contracts carry risk. Never deposit more than you can afford to lose.
How do I maximize my yields?Compare rates across Compound deployments on different chains, monitor utilization levels, and consider using Layer 2s to reduce gas costs. Fensory shows real-time rates across all Compound markets.
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