Compound is an algorithmic, autonomous interest rate protocol— allowing users & applications to frictionlessly earn interest or borrow Ethereum assets.
If you have questions or to learn more, join the Compound Discord.
How do I use Compound?
How to Earn Interest and Borrow Ethereum Assets
Earn interest on ETH, USDC, DAI, REP, WBTC, BAT, and ZRX
Where else can I access the Compound protocol?
There are a number of community-built interfaces that you can use to access the Compound protocol & markets, including Zerion, InstaDapp, etc. You can find a larger list on the Compound homepage.
How does the Compound protocol work?
Compound is the first “liquidity pool” — instead of lending assets directly to another user, you supply liquidity to a market, and users borrow from that market.
In each market, interest rates are determined algorithmically (based on supply and demand), and interest accrues every Ethereum block.
There are no pre-defined durations or terms (such as “90 days”) — you can use the Compound protocol for as short as one block, or as long as you’d like; you’re free to withdraw or repay at any time.
I’ve heard of cTokens, what are those?
When you supply assets to the Compound protocol, your balance is represented as a cToken, which can be transferred, traded, or programmed by developers to create new experiences.
Think a cToken like a receipt — it’s used to show who owns a balance inside Compound. Please be careful — if you transfer a cToken, your balance inside Compound will decrease.
How are interest rates set?
Interest rates are a function of the liquidity available in each market, and fluctuate in real-time based on supply and demand. When liquidity is plentiful, interest rates are low. As liquidity becomes scarce, interest rates increase, incentivizing new supply and the repayment of borrowing.
You aren’t locked into an interest rate — expect it to change. On each market page, you can view the interest rate model, and graphs of interest rates (for suppliers, and borrowers) over the past two months.
Why is the supply rate lower than the borrow rate?
In each market there is excess liquidity (assets supplied > assets borrowed), which allows you to quickly withdraw or borrow funds from the protocol.
The interest paid by borrowers is earned by the suppliers of the asset. Because there are more suppliers, the interest rate they earn is proportionately lower; this measured by an asset’s Utilization Rate.
Second, a portion of the interest paid by borrowers is set aside as Reserves, which acts as insurance and is controlled by COMP token-holders.
On each market page, you can view the accumulated Reserves and Reserve Factor (the portion of interest set aside).
How is interest calculated?
The interest rates you see in the Interface are quoted as annual interest rates. Interest accrues each Ethereum block; every ~15 seconds, your balance will increase by
(1/2102400) of the quoted interest rate. Really!
Security & Risks
Is the Compound protocol safe? Has it been audited?
The security of the Compound protocol is the highest priority — documentation contains details on security audits, and the formal verification of the protocol.
All contract code and balances are publicly verifiable, and security researchers are eligible for a bug bounty for reporting undiscovered vulnerabilities.
In 2021, OpenZeppelin was selected by the community to manage protocol security on an ongoing basis.
How does the protocol’s price feed work?
Compound uses the Open Price Feed, in which Reporters (Chainlink) sign price data using a known public key, that Posters (any Ethereum address) can submit on-chain, to create a transparent, decentralized, resilient, and tamper-proof price feed.
The protocol uses Chainlink price data, which is sanity-checked against Uniswap TWAP price data.
What is the market risk of the protocol?
In order to borrow from the Compound protocol, a borrower must first supply collateral, with a value greater than the amount being borrowed (“excess collateralization”).
If the value of that collateral declines below the amount borrowed (before liquidators can close the position), the borrower is not incentivized to repay their position, and the Compound protocol may be saddled with ‘bad debt’. If the total amount of bad debt is less than the reserves of the protocol, some users may not be able to withdraw assets from the protocol.
The risk of bad debt is managed by the collateral requirements (and other risk parameters) of the protocol. In 2021, Gauntlet was selected by the community to manage Compound risk parameters on an ongoing basis.
How do reserves work?
Reserves by default backstop the protocol; they act as liquidity in each market which can cover bad debt if it were to exist. Reserves are stored in each market (cToken contract), and viewable on each market page.
Help! I can’t access Compound!
The Compound protocol lives on the Ethereum blockchain, and is “always-on”. In the event that MetaMask or the Compound Interface are malfunctioning, you can always access the Compound protocol manually.
Who controls the Compound protocol?
Compound is managed by a decentralized community of COMP token-holders and their delegates, who propose and vote on upgrades to the protocol.
How does Governance work?
Any address with 100 COMP can propose governance actions, which are executable code (like changes to the parameters of a market). When a proposal has gathered 25,000 COMP in support, voting begins, and lasts for 3 days. If a majority, and at least 400,000 votes are cast for the proposal, it is queued in a Timelock contract, and can be implemented after a 2 day waiting period.
Governance has complete control over the protocol, and all COMP tokens held by the protocol — the community manages the protocol as it sees fit.
How do I get involved in Compound Governance?
The community has created a Forum to discuss governance proposals, and share ideas.