Coin columns · Ethereum City (Capital)
Compound (COMP): The Algorithmic Lending Pioneer of DeFi
The lending protocol that sparked 2020’s yield-farming boom
Compound is a lending protocol on Ethereum where people can deposit crypto to earn interest or borrow against collateral. COMP is its governance token, used to vote on the rules, and it helped set off the 2020 DeFi (decentralized finance) boom.
1. A lending market that runs without a bank
Compound was first released in 2018 by Compound Labs, founded by Robert Leshner and Geoffrey Hayes. Smart contracts (self-running programs) pool the money and lend it out without a bank or broker, and interest rates are set automatically by supply and demand rather than by people. It became a model for later DeFi lenders.
COMP has a total supply of 10 million, with the largest share set aside as rewards for users. On the Crypto Nation map, COMP stands in Ethereum City (the capital), because Ethereum is where the coin was first issued.
2. Deposit, borrow, and liquidation if collateral runs short
Users deposit assets to earn interest, or lock them as collateral to borrow other assets. They must deposit far more value than they borrow, and if the collateral falls below a threshold, other participants buy it at a discount in a ‘liquidation’ that settles the loan. Collateral prices come from oracles (feeds of outside price data).
The early version (v2) gave depositors interest-bearing ‘cTokens’. Compound III, released in 2022 under the codename Comet, allows only one borrowable asset per market, at first USDC, and treats the rest as collateral only, which reduces risk. COMP holders vote, directly or through delegation, on new markets, risk settings and upgrades.
3. Where it is used, and what happened
COMP is used for governance votes and is not itself a token that pays out profits. Besides Ethereum, Compound has opened markets on layer-2s and chains such as Base, Arbitrum and Polygon, and serves to earn interest on stablecoins or borrow dollar coins against crypto.
When COMP distribution began in June 2020, rewarding users with tokens set off ‘yield farming’ and lit the fuse of that year’s DeFi boom. In July 2024 large holders pushed through Proposal 289, which would have moved about $24 million of COMP to a product run by an outside group, sparking accusations of a governance attack; it was withdrawn and replaced by a COMP staking product.
4. Things to know
Smart-contract bugs can cause big losses. In September 2021 a flaw in upgrade Proposal 62 caused a large amount of COMP to be paid out by mistake, and in November 2020 a brief oracle price spike triggered mass liquidations. Falling collateral or shaky linked stablecoins can set off chains of liquidations, a risk shared by DeFi lenders.
Voting power tends to concentrate in large holders and delegates while turnout is low, a weakness exposed by the 2024 dispute. Compound also competes with rivals such as Aave and Morpho, and regulators have not settled how lending protocols should be treated.
Written from information public up to October 2026. It does not recommend or rate any coin and is not investment advice. If something is wrong, please tell us through the contact page.