Robert Leshner, the full-stack founder of Compound, notes that transparent, fair, autonomous interest rate markets should be available for all consumers.
Compound launched in September 2018, and was reportedly “the first instance of user-to-protocol (rather than peer-to-peer) collateralized borrowing.” The ideas and innovations from this first version “powered the growth of DeFi that followed.”
In May 2019, the second version of Compound “introduced portable collateral (cTokens), and progressive decentralization that transformed Compound into a community-governed protocol, with over $100 Billion of transactions.”
Now, following a successful COMP Governance proposal, Compound III is live.
Leshner added that Compound III is “a streamlined version of the protocol, with an emphasis on security, capital efficiency, and user experience.” Complexity wasn’t added — “it was removed. What remains is the most effective tool for borrowers in DeFi.”
Leshner also mentioned that the most profound change was “to move away from a pooled-risk model, where users can borrow any asset.” In this model (which Compound pioneered) collateral is “constantly rehypothecated.” A single bad asset (or oracle update) can “drain all assets from the protocol.”
Instead, each deployment of Compound III “features a single borrowable asset.” When you supply collateral, it “remains your property.” It can “never be withdrawn by other users (except during liquidation).” Capital efficiency increases too — “collateral is more ‘useful’ when you know which asset is being borrowed ahead of time.”
The first deployment of Compound III “allows you to borrow USDC using ETH, WBTC, LINK, UNI, and COMP as collateral.”
While you won’t earn interest on collateral anymore, you’ll be able “to borrow more; with less risk of liquidation and lower liquidation penalties; while spending less on gas.”
New Features
- An entirely redesigned risk management / liquidation engine to increase the safety of funds while simultaneously being more borrower-friendly.
- Market-wide limits on the size of individual collateral assets to limit risk.
- Decoupled earn & borrow interest rate models; governance has full control over economic policy.
- Advanced account management tools, which enable new UX patterns and applications on top of the protocol.
- Chainlink is the exclusive price feed, which is portable to EVM chains beyond Ethereum.
- Governance is simple & easy to manage; the protocol is a monolith, with parameters set through a single Configurator contract.
Security
Compound III was “audited by OpenZeppelin and ChainSecurity, and formally verified in partnership with Certora.”
The protocol “depends on new technology which might contain undiscovered vulnerabilities.”
In order to protect users, the first market “was initialized with modest collateral limits.” The community is “encouraged to observe the protocol before scaling across assets & blockchains.”
Launching this next-generation protocol has been “a massive effort bringing together all stakeholders in the Compound ecosystem; thank you to everyone that contributed, reviewed, tested, audited, debated, and voted to bring the protocol to life.”
Out of the gate, Compound III is controlled & owned by the community:
- COMP Governance “has exclusive control over the deployed Compound III market and all future deployments.”
- The codebase uses “a business source license which COMP Governance can modify & grant usage to, as it sees fit, by making changes to compound-community-licenses.eth, an ENS domain owned by the community.”