Overview
Compound is a decentralized finance protocol launched on May 12, 2020, that provides open and accessible lending markets. Users can supply assets to earn interest or borrow against collateral, with interest rates set algorithmically by supply and demand. Its native token is COMP, and it was one of the first protocols to pioneer liquidity mining incentives.
How It Works
Compound maintains pools of assets where lenders earn interest and borrowers pay it, with rates determined by pool utilization. Borrowers must maintain collateral above a liquidation threshold, and positions below it are liquidated by third parties. COMP rewards users for borrowing and lending, which bootstrapped liquidity when the protocol launched. Governance is managed by COMP holders.
Why It Matters
Compound introduced the "money market" model that became standard across DeFi lending, and its COMP distribution popularized yield farming. It demonstrated that borrowing and lending can operate entirely through transparent, algorithmic rules. Its older, simpler design also makes it a useful reference point for how lending protocols balance risk and incentives.
Related Concepts
Compound is a lending protocol in the same category as Aave, built on Smart Contracts and Oracles. Its COMP token and liquidity mining model connect it to Yield Farming and the broader DeFi governance ecosystem.