Compound

Compound is a lending protocol: smart contracts that take deposits, lend them to borrowers who post collateral, and set interest rates from supply and demand. It was built by Compound Labs, whose founder, Robert Leshner, was the project's public voice during the 2021 rewards bug, The Register reported. The project's GitHub organization dates from October 2017.

Since 2025 that role belongs to the Compound Foundation, a Delaware non-stock corporation organized as a 501(c)(4) social welfare organization. It was proposed on the community forum in May 2025, with Aaron Schnarch named as executive director, and asked for $9 million over 18 months. The Foundation operates the compound.xyz website and app and coordinates contributors, but its own proposal said the DAO keeps control of upgrades and grants. In August 2026 it announced a new leadership team and a $52 million programme to build Compound V4 and court institutional borrowers, which COMP holders approved in May 2026.

Ownership of the protocol rests with COMP holders. They vote on Tally, and passed proposals execute through a Timelock contract that is the administrator of every Compound III market, as the governance docs state. Paid service providers sit around that process: Gauntlet recommends risk parameters, and outside firms including OpenZeppelin and ChainSecurity have audited the code.

The current version, Compound III, is a set of separate markets called Comets. Each Comet has one base asset, for example USDC on Ethereum. Only the base asset can be supplied to earn interest and borrowed. Other assets such as ETH, wstETH or wrapped bitcoin can be posted only as collateral to borrow the base asset. If a listed collateral collapses, the damage stays in the one Comet that accepted it.

When a borrower's position crosses its liquidation factor, the protocol absorbs it and later sells the seized collateral at a discount; the governance docs list 'absorptions' and 'collateral sales' among the actions the pause guardian can halt. Suppliers are exposed if collateral sells for less than the debt and reserves do not cover the gap, which is what the 2025 deUSD episode tested.

DefiLlama lists Compound III on Ethereum, Arbitrum, Base, Optimism, Polygon, Scroll, Linea, Ronin, Unichain and Mantle. The older Compound V2, which used one shared pool with cTokens such as cUSDT, still holds about $0.10 billion on Ethereum, and the Foundation keeps a separate interface for it. Compound V4, in design in 2026, has no published launch date; the Foundation's September 2026 update listed specification work and an engineering offsite.

In October 2026 the Foundation published a Compound Institutional Market, a USDC Comet for firms that want to lend or borrow at size. Collateral is limited to ETH, wstETH, wBTC and cbBTC, each capped at $10 million. Access starts with an early-access form and deposits above 100,000 USDC, with a $20 million supply cap for the three-month programme. The page does not say whether identity checks apply beyond that approval step.

Compound charges no deposit, withdrawal or interface fee. The Foundation's terms, updated 11 August 2026, say it does not currently charge for use of the interface; users pay only network gas. The protocol earns by setting borrow rates above supply rates in each Comet. The gap accumulates as reserves, which governance can withdraw and which also absorb liquidation shortfalls.

Rates float with utilization and are shown per market in the app. The Foundation does not publish a single reserve factor table for Compound III, and the parameters differ by market. Borrowers should treat the liquidation penalty as the main fee: between 5% and 10% of the liquidated collateral in the Institutional Market, and set per asset elsewhere.

Anyone with a self-custody wallet can call the contracts. The compound.xyz terms prohibit use from places under comprehensive sanctions administered by the US Treasury's OFAC, the UN, the UK or the EU, and let the Foundation add others. Unlike many front ends, they do not exclude the United States, which fits the Foundation being a US entity. There is no identity check on the public markets.

Compound is non-custodial, and the contracts are open source. The Compound III code was audited by OpenZeppelin and ChainSecurity, according to its docs, and the website advertises a bug bounty of up to $1 million on Immunefi. The pause guardian, a Community Multisig appointed by COMP holders, can halt supply, withdrawals and transfers in an emergency, as it did in November 2025 and again after the April 2026 rsETH exploit, when Compound paused markets holding rsETH. Compound's liquidations later recovered 17,426 rsETH from the attacker's positions, an Aave governance post recorded.

The weakest point has been governance itself. In September 2021 Proposal 62 shipped a bug that let users claim far more COMP than intended; Compound's own October 2021 update put 163,000 COMP returned and about 200,000 outstanding. In July 2024 Proposal 289, moving $24 million of COMP to a vault controlled by the holder known as Humpy and associates, passed narrowly before a truce cancelled it. In October 2026 the Foundation published a record linking that holder to five defeated proposals in 2025 and to September 2026 proposals carried by a single address with 1.77 million COMP. Whatever view one takes, a large enough holder can pass or block changes to contracts that hold user money.

Collateral listings are the other risk. Elixir's deUSD and sdeUSD were accepted as collateral on three Ethereum Comets in 2025. When they lost liquidity in November 2025, Gauntlet paused withdrawals and borrowing, noting that the oracle still priced sdeUSD at $1.06 while it traded near $0.86. The Foundation later agreed a payment of about $11.65 million from Elixir, which it put, with an insurance payout, at roughly 78% recovery; Elixir did not pay and entered liquidation in the British Virgin Islands on 16 April 2026. The Foundation is pursuing legal remedies. It has not said how much of the shortfall falls on suppliers rather than reserves. For a comparison with other lenders, see how Compound compares with other lending platforms; its record as a protocol is set against other DeFi systems in how Compound compares with other DeFi protocols.

To start, connect a wallet at app.compound.xyz, choose the network and market, then supply the base asset to earn interest or supply collateral and borrow the base asset. Each action is a transaction you sign. The app's Bulker contract can combine steps, such as wrapping ETH, supplying it and borrowing USDC, in one transaction.

Withdrawals have no lock-up and settle immediately when the market has idle base asset. They stop if the market is fully borrowed or if the pause guardian has paused withdrawals, as happened on three Ethereum stablecoin markets in November 2025. Collateral can be withdrawn only while the remaining loan stays inside its collateral limits. COMP rewards, where offered, moved to the Merkl distribution platform after a vote on 2 September 2026.

Compound helped define on-chain lending and has spent recent years rebuilding its organization.

• 2017: Compound Labs begins work; GitHub organization created in October.
• 29 September 2021: Proposal 62 ships a bug in COMP reward distribution.
• November 2021: public work on Compound III (Comet) begins; its first market lends USDC on Ethereum.
• July 2024: Proposal 289 passes and is withdrawn two days later.
• 2025: Compound Foundation proposed and set up as the protocol's operating steward.
• November 2025: Ethereum stablecoin markets paused over deUSD collateral.
• April 2026: Elixir rescinds its settlement and enters liquidation; rsETH markets paused after the Kelp exploit.
• May 2026: $52 million V4 programme approved.
• October 2026: Institutional Market published.