Compound is a decentralized lending protocol where users can supply supported crypto assets to markets and borrow other supported assets against collateral. The name covers several protocol generations. The older Compound v2 design uses separate lending markets and cTokens; Compound III, also called Comet, uses a different single-base-asset market design and has its own glossary entry.
Key Features
| Feature | Description |
|---|---|
| Scope | A family of decentralized lending markets |
| Supply and borrowing | Market-specific assets and collateral rules |
| Compound v2 | Separate cToken markets |
| Compound III | One borrowable base asset per market |
| Governance token | COMP; separate from deposited assets |
How Compound Lending Works
A supplier deposits an asset into a market. Borrowers draw from available liquidity and pay interest under that market’s rules, generally with collateral worth more than the debt. Liquidation differs by version: v2 liquidators repay debt for collateral, while Comet absorbs the position and can later sell the seized collateral. Market parameters and supported assets vary; a name or token ticker alone does not identify the exact configuration.
Rates are not fixed promises. They can change as market utilization and the relevant interest-rate model change. A displayed supply rate can also be affected by incentives, fees, transaction costs, and the asset itself.
Compound v2 and cTokens
In Compound v2, each market uses a cToken to represent a supplied balance. The cToken’s exchange rate against its underlying asset can rise as interest accrues, so interest is reflected in the value redeemable for the cToken rather than paid as a separate cash distribution. cTokens can also be used as collateral where the market permits it. This is the v2 model; it should not be assumed to describe every Compound product.
Compound III and the COMP Token
Compound III, known in its code and documentation as Comet, is a separate design. Each deployment has one base asset that may be supplied or borrowed, while other supported assets serve as collateral. See the separate Compound v3 entry for how this structure differs from v2.
COMP is associated with Compound governance. Governance processes can change protocol parameters and other supported actions, so token governance is one part of the protocol’s risk model; holding COMP does not guarantee income or control over every deployment.
Supported Assets, Rates and Costs
Each market defines its supported assets, collateral factors, interest-rate models and available liquidity. Check the exact version, network and contract address in the current documentation. Borrowing interest, network gas and any interface or integration costs affect a position; a headline supply rate is variable and is not a guarantee of the net result. Withdrawing also depends on the market’s available liquidity.
Security and Audits
OpenZeppelin’s 2022 Compound III audit reviewed a specified Comet code revision. It is useful evidence about that reviewed implementation, rather than a certification of every later deployment or of Compound v2. Check the current contracts and the scope of applicable reviews. Smart-contract, governance, oracle, asset and liquidity risks remain even when code has been audited.
History
The v2 documentation identifies the 2019 money-market whitepaper as the protocol’s foundation. Compound III launched in August 2022 following a governance proposal, adding a different market structure to the protocol family. For analysis of the original document, see the Compound whitepaper page.
Criticisms and Risks
Using a lending protocol can expose a user to smart-contract and governance risks, oracle or market-data failures, changing liquidity, liquidation, network costs, and risks in the supplied assets or stablecoins. Collateral can be liquidated when a position no longer meets its market’s requirements. Audits and a protocol’s history do not guarantee that funds can always be withdrawn or that losses cannot occur. Check the exact market, collateral rules, liquidity, and withdrawal conditions before interacting.
Social Media Sentiment
A discussion in r/defi reviewed in October 2026 asked whether Aave and Compound were suitable places to hold stablecoins and compared DeFi lending risk with cash-like products. Replies raised contract, oracle, governance, liquidation, stablecoin, and withdrawal-liquidity risks. This is one small discussion about lending risk, not a survey of users or a technical assessment of every Compound market.
Last updated: 2026-10
Related Terms
See Also
- Swap crypto with ChangeNOW (affiliate link).
Sources
- Compound Docs. Compound v2: cTokens — Explains how v2 cTokens represent supplied balances, how interest accrues through the exchange rate, and how cTokens may be used as collateral.
- Compound Docs. Compound v2: Governance — Describes the COMP-based governance process and the kinds of protocol actions that governance can support.
- Compound Docs. Compound III — Introduces Compound III/Comet as a distinct design for supplying collateral and borrowing or supplying a base asset. Deployment details vary.
- r/defi (reviewed 2026-10-17). Are AAVE and Compound at risk right now? — A small community discussion about lending-protocol risk and stablecoin deposits. It is included as a limited example of user concerns, not as evidence about protocol safety or representative sentiment.
- Compound III Liquidation — documents Comet absorption and reserves.
- The Compound Digest: Compound III Is Live — records the August 2022 launch and the first Ethereum USDC market.
- OpenZeppelin: Compound III Audit (2022) — reports the scope and findings of a specific Comet code review.
- DeFiLlama: Compound V2 — tracks activity and liquidity for this protocol version.