Compound Protocol - Lend & Borrow in DeFi

Introduction

Compound Protocol, launched in 2018 by Robert Leshner, pioneered the algorithmic money market model that most DeFi lending protocols now follow. With V3 (Comet), it shifted to single-borrowable-asset markets: each Comet lets you borrow one asset against multiple collateral types. That simplifies risk modelling and eliminates cross-asset contagion, but it has not kept Compound at the front of the field — on DeFiLlama's lending table in August 2026 it ranks sixth by TVL, behind Aave, Morpho, Spark, JustLend and Maple.

This guide covers how Compound actually works in 2026, including current supply and borrow rates, the V3 Comet architecture, COMP governance, and honest limitations you should weigh before depositing. Compare DeFi lending platforms or read our DeFi guide.

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What Is Compound Protocol?

Compound is a decentralised lending protocol on Ethereum where you supply crypto to earn interest or borrow against collateral — all governed by smart contracts with no intermediaries. In V3 interest accrues every second off the block timestamp, so even a single day of supply generates measurable yield. Its all-version total value locked peaked at roughly $12.3 billion on 9 November 2021 and runs at about $1.2 billion in August 2026 (DeFiLlama).

Current Market Snapshot (2026)

• TVL: around $1.1B in V3 Comet markets, ~$1.2B including the legacy V2 pool (DeFiLlama, August 2026)
• Largest market: the Ethereum USDC Comet, roughly 343 million USDC supplied
• USDC: ~3.2% supply APR, ~4.0% borrow APR at 89% utilisation (read on-chain, August 4, 2026)
• ETH: ~1.3% supply APR, ~1.7% borrow APR in the WETH Comet
• USDC Comet collateral: WETH, wstETH, weETH, WBTC, cbBTC, tBTC, LINK, UNI, COMP
• Risk modelling: managed by Gauntlet and Chaos Labs (collateral factor tuning, liquidation parameters)

V3 Comet Architecture

Compound V3 replaced the original multi-asset pool model with isolated Comet markets. Each Comet instance has exactly one borrowable asset (e.g. USDC or ETH) and accepts multiple collateral types. This design means a problem in one collateral asset cannot cascade into other borrowing markets — a direct response to the risk management lessons of 2022. You no longer receive cTokens; instead, your supplied base asset earns interest directly in your Comet balance.

In Compound V2, every supplied asset generated a corresponding cToken (cUSDC, cETH, cDAI) representing your deposit plus accrued interest. That was composable, but it spread risk across a single shared pool: if one asset suffered a bad debt event, all suppliers shared the loss. Gauntlet gave exactly that as the reason for winding V2 down. V3 separates collateral assets (which earn no interest) from the base asset (which does). Collateral is locked and cannot be lent out — it exists solely to back your debt, which makes the risk boundary explicit: a sharp drop in WBTC price affects only WBTC collateral positions, not USDC suppliers.

V2 is not merely older — it is closed. Governance proposal 512, executed on December 8, 2025, paused new deposits and borrows across every V2 market and raised the reserve factor to 100%, so suppliers now earn nothing. Only repayment and withdrawal still work. The roughly $89 million still showing in V2 is stranded collateral, not active lending. If you hold a V2 position, the only move available is to close it and reopen on a Comet.

COMP token holders govern the protocol through on-chain proposals — adjusting collateral factors, adding markets, and tuning interest rate curves. More than 590 proposals have gone to the governance contract since launch, under a governor that was itself replaced in February 2025. However, governance power is concentrated: a handful of large delegates control a majority of voting weight, which is worth considering if decentralisation matters to you.

Key Features of Compound Protocol

Lending (V3 Comet)

• Supply base assets: Deposit USDC or ETH into a Comet market and earn interest immediately. No lock-up period, no minimum deposit
• Algorithmic rates: Supply APY adjusts continuously with utilisation, accruing each second. USDC currently earns ~3-4% base APY
• No cTokens in V3: Your balance accrues interest directly in the Comet contract. Simpler than the V2 cToken model

Borrowing (V3 Comet)

• Single-asset borrowing: Each Comet lets you borrow one asset (e.g. USDC) against multiple collateral types — the Ethereum USDC Comet takes WETH, wstETH, weETH, WBTC, cbBTC, tBTC, LINK, UNI and COMP
• No fixed terms: Borrow indefinitely with no repayment schedule. Interest accrues per second
• Collateral factors: In that market, borrow collateral factors run from 50% on COMP through 68% on UNI, 73% on LINK and 80% on WBTC to 82.5% on WETH (on-chain, August 2026)

COMP Governance Token

• COMP rewards: Still paid to suppliers and borrowers, but only in the Ethereum USDC, USDT and WETH Comets. Governance zeroed every other market, including all layer-2 deployments, during 2026
• Governance voting: COMP holders vote on protocol changes. Creating a proposal requires 25,000 COMP — about $420,000 with COMP near $16.80 in early August 2026 — and a proposal needs 400,000 COMP in favour to reach quorum
• Concentration issue: Delegates (notably a16z, Polychain, Gauntlet) control a majority of voting power. Protocol changes largely reflect institutional preferences
• Delegation: You can delegate your voting power if you hold COMP but do not want to vote on every proposal

A proposal is submitted on-chain, waits out a review delay of 13,140 blocks, and then runs a voting period of 19,710 blocks (roughly two and three-quarter days). If it is passed, it is queued in the Timelock, whose delay is set on-chain to exactly 48 hours. That timelock is a meaningful protection: if a proposal would change collateral factors or freeze withdrawals in a way that harms you, you have two days to exit after the vote passes. Aave is not a clean comparison — its Governance v3 executes ordinary proposals behind a one-day delay and reserves a seven-day executor for changes to the AAVE token or governance itself, so Compound's 48 hours is slower than Aave's standard track and far faster than its protected one.

How to Get Started with Compound

Step 1: Wallet and Gas

You need a Web3 wallet (MetaMask, Coinbase Wallet, or hardware wallet via WalletConnect) and ETH for gas. Gas on Ethereum mainnet has fallen a long way: with the base fee around 0.12 gwei in early August 2026, and the priority tip taking the all-in price to roughly 0.23 gwei, a supply or withdraw costs about 5p and a borrow or repay under 10p. Budget more during volatility spikes, but the $10 to $40 figures you may have seen quoted reflect an older Ethereum.

Step 2: Connect and Supply

Visit compound.finance, connect your wallet, and select a Comet market (USDC Comet is the largest). Check the address in your browser bar before signing anything: the domain was DNS-hijacked to a phishing front end in July 2024, and while the contracts held, users who signed on the spoofed site did not. Approve the token (one-time gas cost), then supply your amount. Interest starts accruing immediately with no lock-up.

Step 3: Monitor Your Position

Track your position with Zapper, DeBank, or the Compound dashboard directly. If you are borrowing, watch your collateral ratio closely — once it passes the liquidate collateral factor, your whole position is absorbed at once, every collateral asset included, not partially trimmed. Keep your ratio above 200% in normal conditions, and nearer 250% when ETH can drop 15-20% in a day.

Gas Optimisation Tips

Gas used to be the deciding constraint on small Compound positions, and it no longer is: a £1,000 supply gives up a few pence, not a month of yield. What has not changed is that gas is unpredictable, and a volatile session can multiply base fees several times over — still cheap in absolute terms, but worth avoiding if you are rebalancing repeatedly. If you plan to supply and leave a position alone for months, mainnet is straightforwardly the better venue, and it is where the liquidity is. If you are running an active strategy with frequent collateral adjustments, Base or Arbitrum remain cheaper, at the cost of much thinner markets.

Pros & Cons of Compound Protocol

Advantages

• Proven since 2018: No exploit has ever drained a Compound lending market, though the protocol has had serious upgrade, governance and front-end incidents. Audited by Trail of Bits and OpenZeppelin, with formal verification by Certora
• No lock-ups: Withdraw supplied assets instantly at any time
• Isolated risk (V3): Comet architecture means a problem in one collateral type cannot cascade to other markets
• No KYC: Anyone with a Web3 wallet can supply or borrow. No identity verification
• Full transparency: Every rate change, liquidation, and governance vote is publicly verifiable on-chain

Disadvantages

• Far smaller than Aave: Roughly $1.2B in Compound against about $14.5B across Aave's deployments in August 2026, and thinner collateral menus — the mainnet USDC Comet lists 13 collateral assets, but only nine still have a non-zero supply cap, the other four (rsETH, USDe, deUSD and sdeUSD) having been wound down by governance risk votes in 2026
• Lower supply rates: V3's conservative design leaves it a little behind Aave — roughly 3.2% against 3.5% on USDC and 1.3% against 1.5% on ETH in early August 2026
• Governance concentration: ~10 delegates control most voting power. Small holders have negligible influence
• No flash loans: Unlike Aave, Compound does not offer single-transaction uncollateralised borrowing
• Variable rates only: Borrow costs float with utilisation and can spike once a market passes its kink. No lending protocol of comparable size offers a fixed alternative anymore - Aave removed stable-rate borrowing in V3 — but the exposure is real
• Smart contract risk: Despite audits, no DeFi contract can be considered 100% safe

Current Interest Rates & Yields

Rates are algorithmic and change continuously with market utilisation. Comet accrues interest every second off the block timestamp, not in per-block steps like V2. The figures below were read directly from the mainnet Comet contracts on August 4, 2026 and will have moved by the time you read them — treat them as a shape, not a quote, and check the live market before committing:

Supply APR (What You Earn)

• USDC: ~3.2% at 89% utilisation, plus COMP rewards worth roughly a tenth of a percent
• ETH: ~1.3% in the WETH Comet at 66% utilisation. Lower because ETH borrowing demand is smaller
• USDT: ~3.1% at 87% utilisation, on about 172 million USDT supplied
• USDS: ~5.0%, the highest stablecoin supply rate on the protocol — but on under $2 million supplied and already just past its kink, so the rate is mostly a function of how thin the market is

WBTC deserves a note of its own. Compound did deploy a WBTC Comet on mainnet, but it holds only about 27 WBTC and pays around 0.3%, so it is not a real supply venue. WBTC's actual role in V3 is as collateral in the USDC and WETH Comets — and collateral in Comet earns nothing at all. If you supply WBTC expecting yield, you will receive none.

Borrow APR (What You Pay)

• USDC: ~4.0% at the time of reading. The curve kinks at 90% utilisation, above which it climbs steeply — about 22% at 95% utilisation and 40% if the market is drawn down completely
• ETH: ~1.7%. Cheaper to borrow because of lower demand
• USDS: ~6.0%, the most expensive of the mainnet stablecoin Comets and also the smallest

COMP Rewards

COMP distribution has not merely decreased since the protocol's early days — it has largely stopped. In 2020-2021, COMP rewards could add 5-10% APY on top of base rates. As of August 2026 only three Comets emit COMP at all, all on Ethereum: USDC at 55 COMP a day to each side, USDT at 30, and WETH at 10 to suppliers and 20 to borrowers. Governance zeroed everything else across two 2026 votes, including every layer-2 market. Protocol-wide emissions run at roughly 180 COMP a day, worth about $3,000, which on the USDC Comet works out at about a tenth of a percentage point on either side.

Treat COMP as a rounding error rather than a reason to choose Compound: the base APY has to justify the position on its own. Rewards are claimable at any time via the Compound interface or directly through the Comet contract's claim() function; unclaimed rewards do not expire, and at 2026 gas prices the claim transaction costs a few pence on mainnet, so there is little reason to hoard them.

Security & Risk Management

Protocol Security

• Audits: Trail of Bits and OpenZeppelin audited the core protocol, and Certora formally verified it against a written security specification wired into continuous integration. OpenZeppelin has been the DAO's standing security partner since December 2021 and audited Comet itself
• Bug bounty: Up to $1,000,000 for a critical vulnerability through Immunefi, calculated as 10% of the funds directly at risk with a $50,000 floor
• Timelock: 48-hour delay on all governance-executed changes, giving users time to exit before parameter changes take effect
• Risk modelling: Gauntlet and Chaos Labs continuously simulate collateral factor adjustments and liquidation scenarios

"Never been hacked" is the wrong summary, and worth unpacking before you weigh the rest. No exploit has drained user deposits from a Compound market since 2018. But a September 2021 Comptroller upgrade shipped a comparison-operator bug that paid out on the order of $80 million of DAO-owned COMP; an August 2022 oracle upgrade returned empty data for cETH and froze the largest V2 market for about a week while the timelock ran; a July 2024 governance attack got a roughly $24 million transfer of treasury COMP queued before it was cancelled; and that same month the compound.finance domain was hijacked to a phishing site. The contracts held every time. The processes around them did not always.

A better honesty anchor than "no hacks" is what the auditors keep finding. OpenZeppelin's 2025 renewal reported six critical vulnerabilities caught in the July 2024 to June 2025 term alone, at roughly $4 million a year. That spend is why nothing has been drained — not evidence that nothing was there to find.

Your Risk as a User

• Liquidation: Once your borrow exceeds the liquidation collateral factor (88% for WETH in the USDC Comet), the whole position is absorbed at once, not trimmed. The haircut is set per asset: 7% on WETH, 9% on wstETH, 10% on WBTC and cbBTC, 17% on LINK and UNI, 25% on COMP
• Rate spikes: How violent these are depends entirely on which Comet you are in. The USDC, USDT and USDS Comets kink at 90% utilisation and climb hard above it — USDC borrows go from about 4% at the kink to roughly 22% at 95% and 40% fully drawn. The WETH and wstETH Comets use the same 90% kink but a far gentler upper slope, reaching only about 3.5% at 95% and 5% fully drawn; the small WBTC Comet kinks at 85% and tops out near 19%
• Smart contract risk: Despite audits, no DeFi protocol is immune. Never deposit more than you can afford to lose
• Use a hardware wallet: Connect Ledger or Trezor via MetaMask for any position above $10K

Advanced Strategies on Compound

Leveraged Staking

Supply wstETH as collateral in the WETH Comet, borrow ETH, stake it for more wstETH, and repeat. This amplifies staking yield and liquidation risk alike, and only works while the staking yield exceeds the borrow rate.

Rate Arbitrage

When Compound's USDC supply rate exceeds Aave's borrow rate (or vice versa), you can earn the spread by supplying on one and borrowing on the other. In early August 2026, the two sat close together — around 3.2% supply on Compound against roughly 4.2% to borrow on Aave — so the trade was not on. Cheap gas means the barrier is no longer transaction cost; it is borrow-rate risk on one leg for a spread that can close overnight.

Automated Position Management

Compound itself ships no automation — the only protocol-level convenience contract is the Bulker, which batches several actions into one transaction. Third parties fill the gap: DeFi Saver can automatically repay or add collateral when your position approaches its liquidate collateral factor, which prevents liquidation during flash crashes. Setup costs gas but saves you from monitoring positions 24/7. These tools speak of a "health factor", which is Aave's term; Comet exposes two booleans instead, one for whether you may still borrow and one for whether you may be absorbed.

Technical Architecture

Interest Rate Model (Kinked Curve)

Each Comet market uses a kinked interest rate curve with its own target utilisation, and the parameters are per market rather than protocol-wide. Read on-chain in August 2026, the mainnet USDC, USDT, USDS, WETH and wstETH Comets all kink at 90%; the small WBTC Comet kinks at 85%. Below the kink, rates rise gently; above it, the steep segment takes over — but how steep varies by an order of magnitude. USDC borrows go from about 4% at the kink to roughly 22% at 95% utilisation and 40% drawn down to nothing, while WETH reaches only about 3.5% and 5% at the same points.

You can watch this coming by tracking utilisation on-chain: the USDC Comet was sitting at 89% when these figures were read, close enough to the kink that one large withdrawal would push borrow costs up sharply.

The interest rate model is encoded directly in the Comet contract as two separate linear segments joined at the kink. The governance-set getters are supplyKink, supplyPerSecondInterestRateBase, supplyPerSecondInterestRateSlopeLow and supplyPerSecondInterestRateSlopeHigh, with a matching borrow set — the per-second naming is literal, and the older per-block and per-year names belong to V2. Supply and borrow curves are set independently, so the spread (borrow rate minus supply rate) is always positive, and that spread is what the DAO takes. Because rates update continuously, no settlement period; the rate you pay changes second by second. For time-sensitive strategies, check utilisation immediately before transacting rather than relying on rates you saw an hour earlier.

Liquidation Mechanics

This is the part of V3 most often described using V2's rules, so it is worth stating precisely. Compound V2 used partial liquidation with a close factor: a liquidator repaid up to half your debt and took collateral at a discount. Compound V3 has no close factor. Once your borrow exceeds the liquidation collateral factor, any address can call absorb(), and absorption is all-or-nothing — the protocol takes the entire position, every collateral asset and the whole debt, in one transaction. There is no partial trim that leaves you with a smaller, healthier loan.

Nor is one coming to V3. A partial-liquidation design has been discussed on Compound's forum since April 2025, but no proposal implementing one has ever reached the chain and the deployed contracts carry no close-factor parameter at all — calls to it simply revert. Governance funded a Compound V4 programme in May 2026, so treat partial liquidation as a candidate for that, not as behaviour you can plan around today.

The absorbing account is not paid a bounty in COMP; Comet records liquidator points, which the documentation describes as a basis on which governance could compensate absorbers in future. Seized collateral is then offered through buyCollateral() at a fixed discount to the protocol's own price feed, not through a time-decaying auction. The discount is the store-front price factor multiplied by the asset's liquidation penalty — with the mainnet USDC Comet's store-front factor at 60% and WETH's penalty at 7%, buyers get WETH about 4% below oracle price.

What this means for you as a borrower is better than "you lose everything" and worse than a partial liquidation. Comet values your seized collateral, applies the per-asset penalty, repays your debt in full and credits any remainder to you as an interest-earning base-asset balance. You keep the surplus and carry no residual debt. But because absorption is total, a position that dips one basis point past the threshold is closed entirely — you cannot rely on being liquidated back to health and continuing.

Each collateral asset carries three separate parameters, all readable on-chain. The borrow collateral factor caps what you can draw, the liquidate collateral factor is the point at which absorption becomes possible, and the liquidation factor sets the haircut taken from your collateral. For WETH in the mainnet USDC Comet in August 2026 these were 82.5%, 88% and 93% — a 7% penalty. The gap between 82.5% and 88% means a borrow taken at the maximum survives only about a 6% adverse move in WETH before it can be absorbed. During the 2022 bear market ETH fell over 30% in a single week; a position opened at the cap would not have lasted the first day.

Reserve Factor

Comet has no reserve factor. The parameter exists in V2 and in Aave, and guidance written for those is routinely misapplied to V3, but the Comet contract exposes no such getter. What the DAO takes is the gap between the supply and borrow curves, which governance sets independently — on the mainnet USDC Comet in August 2026 that worked out at roughly 9-10% of borrower interest. The proceeds build reserves that buffer bad debt, around $8 million against a $20 million target on that market. Widening the gap is the V3 equivalent of raising a reserve factor: lower supplier APY, stronger solvency.

Gas Costs: Ethereum Mainnet vs Base

This is where most published guidance, including earlier versions of this page, is badly out of date. A supply or withdraw still consumes roughly 150,000-200,000 gas units and a borrow or repay 200,000-280,000, but the price of that gas has collapsed. On 4 August 2026 the mainnet base fee was about 0.12 gwei, against a 60 million block gas limit that blocks were running well short of. Priority tips take the all-in price to roughly 0.23 gwei; with ETH near £1,380 that is about 5p for a supply and under 10p for a borrow. The familiar rule that mainnet gas makes small DeFi positions uneconomic no longer describes reality.

On Base — Coinbase's L2, which runs a USDC Comet of its own — the same operations cost a fraction of a penny, because Base posts transaction data to Ethereum as compressed calldata. What Base does not have is depth. Compound's entire Base deployment was worth around $20 million in August 2026 against roughly $1 billion on Ethereum (DeFiLlama), and the Base USDC Comet itself holds under $10 million supplied against 343 million on mainnet. Supply rates do track mainnet closely, at about 3.1% against 3.2%, though the Base Comets emit no COMP at all. With mainnet fees now measured in pennies, cost is no longer the reason to choose Base; it is worth using mainly if you already operate there.

UK Tax Treatment of Lending Income

HMRC does not apply a single blanket rule here. Its Cryptoassets Manual states at CRYPTO61214 that the nature of the return on a DeFi loan depends on how the transaction is structured, and can be revenue or capital: a predetermined, recurring return paid for the use of your tokens looks like income, while a one-off gain on redemption can be capital. Where the return is revenue in nature and you are not trading, CRYPTO61213 applies the miscellaneous income sweep-up in sections 687-689 of the Income Tax (Trading and Other Income) Act 2005, taxable at your marginal rate of 20%, 40% or 45% in the year of receipt. The sterling value at the moment of receipt is the figure to report.

COMP rewards received as governance incentives are also treated as income on receipt. When you later sell or swap those COMP tokens, a capital gains event arises on any increase in value between receipt and disposal. The £3,000 CGT annual exempt amount (2026/27) applies to net gains across all cryptoasset disposals in the tax year. Accurate record-keeping matters: tools such as Koinly and Blockpit can import your Compound history by wallet address and produce both figures for your Self Assessment return. Because Comet interest accrues continuously rather than in discrete payments, record the sterling value at each point of actual receipt — when you withdraw or claim.

Institutional Use

DAOs and corporate treasuries use Compound to earn yield on idle stablecoin reserves while keeping instant withdrawal access. On-chain transparency provides a full audit trail — every rate change, deposit and liquidation is publicly verifiable, which simplifies compliance reporting. Institutional users typically interact through multi-sig wallets (Gnosis Safe) or custody providers such as Fireblocks.

The protocol's conservative asset listing — nine collateral assets with live supply caps in the mainnet USDC Comet — appeals to risk-averse institutions but limits flexibility compared to Aave's far longer list.

For UK-based DAOs or companies, interest earned in a Comet is generally recognised under normal accruals accounting, with the sterling equivalent at each period end determining the taxable figure. Unlike CeFi platforms that issue annual statements, Compound provides no tax reports — finance teams must extract on-chain data themselves.

Sources & References

• Compound Protocol Official Website
• Compound Protocol Documentation
• Compound Governance Portal
• Compound GitHub Repository

Honest Limitations

Before committing capital, you should understand where Compound falls short compared to alternatives:

• Fewer markets than Aave: The mainnet USDC Comet lists 13 collateral assets, nine of them with a live supply cap, and the WETH Comet 17. Aave lists far more across many more networks. If you hold mid-cap tokens, Compound will very likely not accept them as collateral.
• Concentrated on Ethereum and retreating there: Roughly $1 billion of Compound's $1.2 billion sits on Ethereum. Arbitrum is the largest layer 2 at around $65 million, and Base carries about $20 million, so an L2 position trades gas savings — now marginal — for materially thinner liquidity. Worse, governance is retiring most of the rest: Votes all deprecated Scroll, Linea, Mantle, Polygon and Unichain between February and July 2026, with supply caps cut to zero and, on some, the supply-rate curve zeroed so suppliers earn nothing while borrowers still pay. Do not open a position there.
• No flash loans: Unlike Aave, Compound does not offer native flash loans, limiting its utility for arbitrage and advanced DeFi strategies.
• Governance concentration: Approximately 10 delegates control a majority of COMP voting power. Creating a proposal takes 25,000 COMP — about $420,000 in early August 2026 — and passing one takes 400,000 COMP in favour, which keeps governance in the hands of large holders and protocol-aligned entities.
• Lower supply rates: Because Compound's V3 architecture prioritises safety over capital efficiency, supply rates sit below Aave's on comparable assets — about 3.2% versus 3.5% on USDC, and 1.3% versus 1.5% on ETH, when both were read in early August 2026. The gap is a few tenths of a point, not the full percentage often quoted.
• Variable rates only: All borrowing on Compound uses variable rates. Switching to Aave will not fix this — Aave deprecated stable-rate borrowing and removed it entirely in V3, so every major on-chain lender now prices borrowing off utilisation. If you need a genuinely fixed cost, you are looking at a fixed-term venue or a CeFi loan, each with its own trade-offs.

Common Questions About Compound

What is Compound Protocol?

It is a decentralised lending protocol built on Ethereum that allows users to lend and borrow cryptocurrencies while earning interest on supplied assets. The protocol uses algorithmic interest rates that adjust automatically based on supply and demand, creating efficient money markets without traditional intermediaries.

How do I earn interest on Compound?

Supply a Comet market's base asset, and you automatically earn interest that compounds over time based on market demand. Only the base asset pays interest in V3 — anything else you supply is collateral and earns nothing. Rates are determined algorithmically and accrue every second off the block timestamp, with earnings added to your supplied balance without manual claiming.

What cryptocurrencies are supported on Compound?

Compound V3 runs separate Comet markets on Ethereum for USDC, USDT, USDS, WETH, wstETH and WBTC, and each market accepts its own set of collateral assets with their own borrow collateral factors, liquidation thresholds and penalties, all set by COMP governance and readable on-chain. The distinction that matters is that only the base asset earns interest; collateral you post earns nothing, so supplying WBTC as collateral to borrow USDC pays you no yield on the WBTC.

Is Compound safe to use?

It has been audited by Trail of Bits and OpenZeppelin and formally verified by Certora, and no exploit has ever drained user deposits from a Compound lending market. That is not the same as an unblemished record: a 2021 Comptroller upgrade leaked roughly $80 million of DAO-owned COMP through a one-character bug, a 2022 oracle upgrade froze the largest V2 market for about a week, and in July 2024 both a governance attack and a DNS hijack of the front end had to be caught. Like all DeFi, it carries smart contract and market risk.

How do I get started with Compound?

Connect a Web3 wallet like MetaMask to the Compound interface, supply assets to start earning interest immediately, or borrow against your collateral following the platform's collateral requirements. Ensure you have sufficient ETH for gas fees and understand the liquidation risks before borrowing.

What are COMP tokens and how do I earn them?

COMP tokens are Compound's governance tokens that allow holders to vote on protocol changes and parameter updates. COMP still accrues automatically to suppliers and borrowers, but as of August 2026 only in three Ethereum markets — the USDC, USDT and WETH Comets. Governance zeroed every other Comet, including all layer-2 deployments, during 2026, and the surviving emissions add roughly a tenth of a percentage point to the rate.

How does liquidation work on Compound?

Compound V3 liquidates in full, not in part. There is no 50% close factor — that was the V2 model. Once your borrow passes the liquidate collateral factor for your market (88% for WETH in the Ethereum USDC Comet in August 2026), any address can call absorb() and the protocol takes the entire position at once. It values your collateral, applies a per-asset penalty of 7% to 25% depending on the asset, repays your debt in full and credits any surplus back to you as an interest-earning base-asset balance. You keep the remainder and owe nothing further, but the position is closed, not resized.

Can I use Compound for flash loans?

No. Compound does not offer native flash loans. If you need uncollateralised single-transaction borrowing, Aave is the venue, charging a 0.05% premium on V3. dYdX is often still named for this, but its flash-loan facility was the Solo protocol on Ethereum, which was retired in 2021; dYdX today is a perpetuals exchange on its own chain. Developers can still build multi-step strategies that interact with Compound within a flash loan borrowed from another protocol.

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