What is Compound (COMP)?

Deep Dive

1. Purpose & Value Proposition

Compound is a pioneering DeFi protocol that creates automated money markets. It solves the problem of accessing credit and earning yield in a decentralized, permissionless way—without traditional banks. Users can supply assets like ETH or USDC to earn interest, or borrow assets by locking up collateral. Interest rates are set algorithmically based on real-time supply and demand within each asset pool.

2. Technology & Architecture

Built on Ethereum, the protocol uses smart contracts to manage pools of assets. When a user deposits funds, they receive cTokens (e.g., cETH, cUSDC) which represent their share and accrue interest. The exchange rate of cTokens increases over time, allowing users to redeem them for more of the underlying asset than they deposited. This mechanism automatically compounds interest.

3. Tokenomics & Governance

COMP is an ERC-20 token with a fixed supply of 10 million. Its primary utility is governance: token holders propose, debate, and vote on all protocol changes, from adjusting interest rate models to adding new assets. Furthermore, the protocol distributes COMP daily to users who supply or borrow assets, incentivizing participation and decentralizing control (Compound).

Conclusion

Fundamentally, Compound is a community-governed system for decentralized lending, where the COMP token serves as both the tool for democratic decision-making and the reward for ecosystem participation. How will its governance model evolve to meet the challenges of a multi-chain DeFi landscape?