Compound v3 (codenamed “Comet”) is the third major protocol version of Compound Finance, one of DeFi’s founding lending protocols originally launched in 2018. Compound v3, deployed on Ethereum in August 2022 and subsequently on Polygon, Arbitrum, Base, and other chains, represents a fundamental architectural departure from Compound v1/v2’s shared pool model. In v1/v2, users could deposit any supported asset as collateral and borrow any other supported asset from a single shared pool — a design that created contagion risk (a bad debt event in one collateral type could drain value from all suppliers). In v3/Comet, each market has a single designated “base asset” (initially USDC, later ETH) that can be borrowed, and a set of approved collateral assets that borrowers must post. Collateral in Comet does not earn interest — a trade-off meaning v3 is less capital-efficient for collateral providers but significantly safer systemically. The borrowable base asset (USDC) does earn interest for suppliers. This design is broadly similar to MakerDAO’s CDP model and inspired by the trend toward isolated markets (Euler Finance’s isolated pools, Aave v3’s isolation mode). COMP remains the governance token, with COMP holders controlling: base asset selection for each Comet market, collateral factors, risk parameters, and cross-chain deployment decisions. Compound has deployed Comet on multiple chains (Ethereum, Polygon, Arbitrum, Base, Optimism, Scroll) in pursuit of the “Compound Everywhere” vision — extending the protocol’s reach to where users and liquidity are.
Key Facts
- Protocol: Compound Finance
- Version: v3 (Comet)
- Launched: August 2022 (Ethereum USDC market)
- Governance token: COMP
- Architecture: Single base asset per market
- Base assets: USDC (primary), ETH (secondary)
- Chains: Ethereum, Polygon, Arbitrum, Base, Optimism, Scroll
V2 vs. V3 Architecture
| Feature | Compound v2 | Compound v3 (Comet) |
|---|---|---|
| Pool model | Shared pool | Single base asset |
| Collateral earns interest | Yes | No |
| Borrow any asset | Yes | Only the base asset |
| Contagion risk | High (shared pool) | Low (isolated base asset) |
| Collateral types | All in same pool | Per-Comet collateral set |
| Capital efficiency (supplier) | Higher | Lower (collateral earns nothing) |
| Risk profile | More complex | Simpler, more conservative |
Comet Market Structure
Each Comet deployment has:
- Base asset: The only borrowable asset (e.g., USDC)
- Collateral assets: List of assets accepted as collateral (e.g., ETH, WBTC, LINK)
- Collateral factors: Max LTV for each collateral
- Base supply APR: Interest rate for USDC suppliers
- Borrow APR: Interest rate for USDC borrowers
- Collateral factor: Loan-to-value ratio per asset
Related Terms
Sources
- “Compound v3 Comet: Why DeFi is Rethinking Shared Lending Pools” — Messari / Compound v3 Analysis (2022). Analysis of Compound’s decision to abandon the shared pool model in v3 — examining the systemic risk of shared pools (illustrated by the November 2022 COMP price manipulation that created $80M+ in bad debt for Compound v2), why single base asset markets are structurally safer, and the capital efficiency trade-offs of removing yield on collateral.
- “Multi-Chain Expansion: Compound Everywhere Strategy” — Blockworks / Compound v3 Deployment (2023-2024). Analysis of Compound’s multi-chain deployment strategy — examining which chains received Comet deployments (Polygon, Arbitrum, Base, Optimism, Scroll), why multi-chain expansion is essential for DeFi protocols in the L2-fragmented landscape, and whether Compound’s governance can effectively manage risk parameters across 8+ separate chain deployments simultaneously.
- “COMP Token: Governance Challenges and the Past/Future of Compound’s DAO” — Tally / Compound Governance Research (2023). Analysis of COMP token governance — examining voter participation rates (historically very low, often <5% of COMP supply voting), the concentration of COMP in VC hands (a16z, Polychain, Paradigm led original raise), the impact on governance legitimacy, and specific governance decisions that have shaped Compound's evolution (adding new collateral types, the bad debt resolution, v3 deployment decisions).
- “Compound vs. Aave: The DeFi Lending Duopoly’s Competitive Dynamics” — DeFi Llama / Competitive Analysis (2023-2024). Comparative analysis of Compound and Aave — examining how Aave captured Compound’s market share lead (held by Compound in 2020, lost to Aave by 2021), the key product differences enabling Aave’s growth (interest rate stability, E-Mode, isolation mode, GHO), whether Compound v3 can recover market position, and what niches each protocol is best suited for.
- “Interest Rate Curves: How DeFi Lending Protocols Price Risk” — Gauntlet / DeFi Rate Research (2023). Technical analysis of how Compound v3 and competing protocols determine interest rates — examining the utilization-based rate model (rates rise as utilization approaches 100%), the kink point (rate acceleration), and how Compound v3’s Comet rate model differs from v2 and Aave’s approach, with implications for protocol stability and capital efficiency.