// GLOSSARY -- DEFI

What is Compound?

1 min read Updated

Compound is a pioneering DeFi lending protocol that established the algorithmic interest rate model — where supply and demand for each asset automatically determine borrowing and lending rates.

WHY IT MATTERS

Compound helped define DeFi lending. Its innovation: algorithmic interest rates that adjust in real-time based on pool utilization. No human sets rates — the protocol's math does. This model has been adopted by virtually every lending protocol since.

Compound also pioneered 'liquidity mining' — distributing COMP governance tokens to users as an incentive, sparking DeFi Summer 2020. The COMP token established the governance token model now standard across DeFi.

Compound III (Comet) simplified the model to single-asset markets with USDC as the base asset, optimizing for capital efficiency and reducing complexity.

FREQUENTLY ASKED QUESTIONS

How is Compound different from Aave?
Both are lending protocols with similar mechanics. Aave has broader multi-chain deployment and more features (flash loans, efficiency mode). Compound III's single-asset model is simpler.
What is COMP?
Compound's governance token. COMP holders vote on protocol changes, risk parameters, and treasury allocation. COMP was one of the first major governance token distributions.
Is Compound still relevant?
Yes. Compound III's simplified model is efficient and well-audited. It has meaningful TVL and continues to innovate. Aave is larger but Compound remains important infrastructure.

FURTHER READING

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