What is Compound (COMP)?

Deep Dive

1. Purpose & Value Proposition

Compound solves centralized intermediaries’ inefficiencies by automating lending markets. It matches lenders and borrowers algorithmically, adjusting interest rates in real time based on supply and demand. This creates open access to financial services like earning yield on idle crypto or securing loans without credit checks.

2. Technology & Architecture

The protocol uses cTokens – ERC-20 tokens minted when users deposit assets. These tokens accrue interest through exchange rate appreciation (e.g., 1 cETH becomes 1.05 cETH over time). Borrowers must over-collateralize loans, with assets automatically liquidated if collateral ratios fall below thresholds. Rates are calculated per-block using utilization-based formulas.

3. Tokenomics & Governance

COMP’s 10 million max supply is allocated to users (42.3%), team (22.3%), shareholders (24%), and community reserves. Holders delegate voting power to propose changes (e.g., adding new assets) or adjust parameters like collateral factors. Decisions execute via onchain votes, decentralizing control since 2020.

Conclusion

Compound is a foundational DeFi protocol enabling permissionless financial services through algorithmic markets and community governance. Its cToken system and COMP-driven governance set standards for decentralized finance. As DeFi evolves, will Compound’s focus on simplicity and decentralization keep it competitive against newer, more flexible lending models?