What is Compound (COMP)?

Deep Dive

1. Purpose & Value Proposition

Compound automates crypto lending and borrowing through algorithmic money markets, eliminating intermediaries. Depositors earn interest by supplying assets like ETH or USDC to liquidity pools, while borrowers secure loans by overcollateralizing (typically 50–75% LTV). Interest rates adjust dynamically based on supply-demand (CoinMarketCap).

This model democratizes access to financial services, letting users earn yield or leverage positions without traditional banks.

2. Technology & Architecture

The protocol uses cTokens (e.g., cETH, cUSDC) as redeemable receipts for deposits. These tokens accrue value as interest compounds, reflected in their rising exchange rate against the underlying asset. For example, depositing 1 ETH might yield 1 cETH initially, but redeeming later could return 1.05 ETH as interest accumulates.

Compound operates on Ethereum, using smart contracts to enforce collateralization ratios and automate liquidations if collateral value drops below thresholds.

3. Tokenomics & Governance

COMP is a governance token distributed to users and stakeholders. Holders delegate voting power to propose changes (e.g., adding new assets, adjusting risk parameters) or vote on proposals. Since 2020, Compound has been fully community-governed, with no centralized admin (Medium).

The total supply is capped at 10 million COMP, with allocations to users, team, and investors.

Conclusion

Compound is a foundational DeFi protocol that reimagines lending through algorithmic markets and decentralized governance. Its cToken system and COMP-driven governance exemplify how blockchain can automate financial services. Will its community-led model adapt swiftly enough to compete with newer DeFi innovations?