Glossary · C
Compound
A decentralised lending protocol on Ethereum that pioneered the concept of algorithmic interest rates set by supply and demand. Users supply assets to earn interest and borrow against deposited collateral. Compound's governance token COMP was the first major DeFi governance token, sparking the 'DeFi Summer' of 2020.
Last updated
How Compound works in practice
Compound pioneered algorithmic money markets: pooled lending with rates set by utilisation rather than negotiation, and interest accruing every block. Later versions moved to a simpler model where each market has one borrowable base asset and everything else serves purely as collateral.
Worked example
Supplying ETH lets you borrow the market's base asset against it. The ETH earns no interest in that design — it exists to secure the loan — which is a deliberate trade of yield for a much simpler risk model.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Assuming every lending market works identically. Whether your collateral also earns interest, and whether one position can borrow several assets at once, differs by protocol and by version.
Learn more
Compound: common questions
- What is Compound?
- A decentralised lending protocol on Ethereum that pioneered the concept of algorithmic interest rates set by supply and demand. Users supply assets to earn interest and borrow against deposited collateral. Compound's governance token COMP was the first major DeFi governance token, sparking the 'DeFi Summer' of 2020.
- How does Compound work in practice?
- Compound pioneered algorithmic money markets: pooled lending with rates set by utilisation rather than negotiation, and interest accruing every block. Later versions moved to a simpler model where each market has one borrowable base asset and everything else serves purely as collateral.
- Can you give an example of Compound?
- Supplying ETH lets you borrow the market's base asset against it. The ETH earns no interest in that design — it exists to secure the loan — which is a deliberate trade of yield for a much simpler risk model.
- What do people get wrong about Compound?
- Assuming every lending market works identically. Whether your collateral also earns interest, and whether one position can borrow several assets at once, differs by protocol and by version.