Compound launched in September 2018, and was the first instance of user-to-protocol (rather than peer-to-peer) collateralized borrowing. The ideas and innovations from this first version powered the growth of DeFi that followed.

In May 2019, the second version of Compound introduced portable collateral (cTokens), and progressive decentralization that transformed Compound into a community-governed protocol, with over $100 Billion of transactions.

Today, following a successful COMP Governance proposal, Compound III is live.

Back to Basics

Compound III is a streamlined version of the protocol, with an emphasis on security, capital efficiency, and user experience. Complexity wasn’t added — it was removed. What remains is the most effective tool for borrowers in DeFi.

The most profound change was to move away from a pooled-risk model, where users can borrow any asset. In this model (which Compound pioneered) collateral is constantly rehypothecated. A single bad asset (or oracle update) can drain all assets from the protocol.

Instead, each deployment of Compound III features a single borrowable asset. When you supply collateral, it remains your property. It can never be withdrawn by other users (except during liquidation). Capital efficiency increases too — collateral is more “useful” when you know which asset is being borrowed ahead of time.

The first deployment of Compound III allows you to borrow USDC using ETH, WBTC, LINK, UNI, and COMP as collateral.

While you won’t earn interest on collateral anymore, you’ll be able to borrow more; with less risk of liquidation and lower liquidation penalties; while spending less on gas.

New Features

• An entirely redesigned risk management / liquidation engine to increase the safety of funds while simultaneously being more borrower-friendly.
• Market-wide limits on the size of individual collateral assets to limit risk.
• Decoupled earn & borrow interest rate models; governance has full control over economic policy.
• Advanced account management tools, which enable new UX patterns and applications on top of the protocol.
• Chainlink is the exclusive price feed, which is portable to EVM chains beyond Ethereum.
• Governance is simple & easy to manage; the protocol is a monolith, with parameters set through a single Configurator contract.

For details and a list of all changes, please see the full documentation.

Security

Compound III was audited by OpenZeppelin and ChainSecurity, and formally verified in partnership with Certora.

The protocol depends on new technology which might contain undiscovered vulnerabilities. In order to protect users, the first market was initialized with modest collateral limits. The community is encouraged to observe the protocol before scaling across assets & blockchains.

Compound is in your hands

Launching this next-generation protocol has been a massive effort bringing together all stakeholders in the Compound ecosystem; thank you to everyone that contributed, reviewed, tested, audited, debated, and voted to bring the protocol to life.

Out of the gate, Compound III is controlled & owned by the community:

• COMP Governance has exclusive control over the deployed Compound III market and all future deployments.
• The codebase uses a business source license which COMP Governance can modify & grant usage to, as it sees fit, by making changes to compound-community-licenses.eth, an ENS domain owned by the community.

If you have any questions, ideas, or issues, join the community in Discord. From all of us at Compound, 📈.

Compound III is Live was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

Today, we’re proud to announce a prototype based on that paper, named Gateway.

Gateway is a Substrate blockchain, governed by COMP token-holders on Ethereum. From the get-go, Gateway is fully upgradeable; governance is able to directly upgrade the blockchain by voting on code upgrades, without forks or downtime.

We chose Substrate so that we could focus on building application code, instead of inventing consensus algorithms; it’s a modern framework built on a modern language, Rust.

Functionality

If you’re familiar with how the Compound protocol works, Gateway should feel intuitive, with a few improvements:

1. Interest is earned and paid in dollars, using CASH, Gateway’s native unit of account. If you borrow one Ether, you’ll only ever owe one Ether.
2. The Gateway risk engine is more robust; risk is based on the volatility of assets you use as collateral, as well as the assets you borrow — leading to capital efficiency improvements for less volatile assets.
3. You can quickly and inexpensively transfer any asset in Gateway to other users — even wallets from other blockchains.

There’s a lot to discover: get started by visiting compound.cash.

Validators

Validators (nodes) earn a portion of all interest, in every market, in addition to modest transaction fees. This creates an incentive to properly validate transactions that scales with the growth of Gateway.

On the Gateway testnet, anyone can become a validator; in production, validators (or the process for choosing validators) will ultimately be chosen by governance.

Next Steps

Gateway will evolve into the backbone of a global interest rate market, capable of supporting any asset — including the wave of currencies, assets, and tokens yet to be created. But it starts with humble beginnings.

Starting today, Gateway is running as a testnet, connected to Ethereum’s Ropsten testnet.

Over the coming months, we’ll work with the community & validators to:

• Audit the codebase, improve all aspects of the blockchain, conduct stress-tests, and finally launch to production.
• Connect Gateway to the Compound protocol running on Ethereum.
• Add Starports on other blockchains.

There’s a lot of work to do — and we’d love your help. Join the community forum at comp.xyz and the Discord #development channel.

From all of us at Compound Labs, 📈.

Introducing Gateway was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

Ever since COMP token-holders replaced our team as administrator of the Compound protocol in April, we’ve been thrilled to watch community governance in action. While we’ve watched from the sidelines, you’ve developed, proposed, approved, and implemented changes to the protocol.

Since the distribution of COMP began in June:

• 15 governance proposals were created; 12 were implemented
• A new interest rate model was developed by Dharma, and deployed for the DAI and USDT markets
• The Augur team spearheaded risk management changes for REP, during the upgrade to REPv2
• COMP token-holders voted to change the protocol’s price oracle to the Open Price Feed, an open-source project where a set of reporters sign price data which can be posted on-chain by any Ethereum address — and which doesn’t rely on our team
• The community built an entirely new feature, market-level Borrowing Caps, to limit risk to the protocol
• Autonomous Proposals were created, which allow anybody with 100 COMP to gather support for a Governance proposal

COMP Distribution Update

When community governance first went live, we explained how the total supply of COMP tokens would be allocated. Out of 10,000,000 total COMP, we reserved 775,000 tokens “for the community to advance governance through other means — which will be announced at a future date.”

Here’s how those tokens are being distributed to the community:

• In June, we designated up to 500,000 COMP for distribution through Coinbase Earn. COMP tokens will be available through Coinbase Earn until November 2021, at which point Coinbase will transfer all remaining tokens to the Compound community
• Today, we sent the remaining 275,000 COMP directly to the Reservoir contract. We believe the best way to promote decentralization is to allow the community to allocate these tokens through the Governance process

In total, 5,004,949 COMP will be distributed to the community — just over half of the total supply.

If you’d like to get involved in protocol governance, you can join the discussion in the community forum at comp.xyz or in the Discord #governance channel.

From all of us at Compound, 📈.

COMP Governance & Distribution Update was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

The stakes are high — the protocol holds more than $100 million of assets, and dozens of applications rely on Compound markets. Which is why, for the past two months, COMP has been tested in the open, with a limited group of stakeholders.

During that time, the community proved that Compound is upgradable by anybody with a good idea, without relying on our team or middlemen:

1. Our team added a new asset, Tether, to the protocol
2. Dharma, an application built on Compound, created a new DAI interest rate model
3. A community member managed the process to begin deprecating SAI

The functionality to create proposals, delegate and vote performed flawlessly in Coinbase Custody and the voting interface, and no vulnerabilities were discovered.

Today, we’re excited to announce that Governance is ready to scale from our core team and shareholders, to the entire Compound ecosystem.

Distributing COMP

The distribution of COMP will become a core mechanic of the Compound protocol. All users and all applications built on top of Compound will continuously, and automatically receive governance rights, for free— in order to shape the future of the protocol.

“The individuals, applications and institutions that use the Compound protocol are capable of collectively stewarding it into the future — and are incentivized to provide good governance.” — Robert Leshner, Compound Founder

How it works

• 4,229,949 COMP will be placed into a Reservoir contract, which transfers 0.50 COMP per Ethereum block (~2,880 per day) into the protocol for distribution
• The distribution is allocated to each market (ETH, USDC, DAI…), proportional to the interest being accrued in the market; as market conditions evolve, the allocation between assets does too
• Within each market, 50% of the distribution is earned by suppliers, and 50% by borrowers; in real-time, users earn COMP proportionate to their balance; this is separate from the natural interest rates in the market

April 2021 update: the COMP Distribution was modified in proposals 10, 21, and 33; Governance allocates 2,312 COMP per day to markets in a fixed allocation, which is no longer based on interest rates.

Public Testing, Review, and Planning

An upgraded version of the protocol is now running on Ethereum’s Kovan testnet:

• The COMP Distribution codebase is available to review on Github
• OpenZeppelin performed an audit of the release; no issues were found
• You can manually test the release by setting your web3 network to Kovan on the Dashboard

Developers should plan whether & how to transfer COMP to users; with some planning, the distribution can be a powerful mechanism for user acquisition and participation.

Tracking the Distribution

You can monitor the distribution on a newly created COMP Distribution Dashboard.

Next Steps

Allowing every user to participate in governance will be the most important milestone in Compound history — and one worth preparing for.

To begin the transition, we’ll first abdicate the Guardian functionality that allows our team to disable Governance in an emergency; once disabled, COMP holders have complete, censorship-resistant control over the protocol.

Next, one of the members of our team will propose a protocol upgrade to support COMP Distribution — this will likely occur next month. Once activated, the distribution will last for approximately four years—continually bringing more users, and more applications into the governance process.

Update, June 10th

The COMP Distribution has been tested, analyzed, and verified on the Kovan testnet; thank you to every community member that participated and provided feedback.

We’ve created Proposal 007 to upgrade the protocol, which if passed, will begin the COMP Distribution on June 15th — the start of complete community involvement.

If you have any questions, ideas, or issues, join us in Discord and the Governance forum — we’d love to hear from you.

From all of us at Compound, 📈.

Expanding Compound Governance was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

With protocol upgrades now in the hands of COMP token-holders (and their delegates), we’re excited to announce the first governance proposal, to support Tether (USDT).

Proposal 001 — Add USDT Support

Compound

In order to add Tether, our team developed (1) an improved cToken contract, which adds support for token transfer fees in the underlying token, and optimizes gas costs, (2) an updated price feed that pegs USDT to $1. These changes have been reviewed by our team and OpenZeppelin.

This proposal would add USDT as a borrowable asset with its own interest rate — but does not allow USDT to be used as collateral. In the unlikely event that USDT experiences a market or technical failure, it would pose no (known) risk to users in other Compound markets.

Participating in Compound Governance

With this milestone, the public testing of the Compound governance system has begun! Any address that has been delegated COMP will have 72 hours to vote; if a majority (and a minimum of 400,000) COMP vote for the proposal, it can be executed two days after voting ends.

As governance begins, we hope that this initial proposal can serve as a template and inspiration for the community to develop their own proposals, upgrades, and ideas. Already, members of the community have set up a forum to discuss proposals, and submitted pull requests to the Compound code repository.

Wednesday, April 29 Update

Voting has ended — the proposal was successful, with 797,981.28 votes for, and 85,580.73 votes against the proposal, and queued in the Timelock. In two days, USDT can be added to the protocol.

We would like to extend deep gratitude to the 24 addresses that voted in the first alpha test of Compound Governance, and the community members that added context to their votes:

Gauntlet Network, Ryan Adams, DefiRate, Jacob Horne, Ric Burton, 1inch, IDEO, and Max Wolff.

Friday, May 1 Update

The first Compound governance proposal has been executed, and Tether is now available to supply and borrow through the Compound protocol — we’re incredibly excited to watch the market evolve.

As a brand new market, interest rates, liquidity, and behavior may be highly unusual at first — please exercise caution when interacting with Compound Tether.

• Starting today, crypto hedge funds including ParaFi Capital, GSR Markets, and DARMA Capital will be both supplying and borrowing from the Compound Tether market, to facilitate sophisticated trading strategies.
• Argent, imToken, and InstaDapp that are already integrated with Compound will enable their users to begin accessing Compound Tether.
• Soon, exchanges including Binance.US, BitMax, and Coinone will enable their users to begin earning interest on or borrowing Compound Tether (and other assets) from the protocol.

“Coinone’s goal is to be the most innovative leader in the global crypto market; supporting Compound USDT is an important step towards this goal.” —Kevin Cha, CEO, Coinone

If you have any questions, ideas, or issues, join us in Discord and the Governance forum— we’d love to hear from you.

From all of us at Compound, 📈.

The first Compound Governance Proposal was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

Today, we’re extremely proud to announce that community governance has replaced the administrator of the Compound protocol. From this point forward, all changes (from supported assets, to system parameters) will originate from COMP token-holders — fulfilling our vision of an open protocol that can evolve in entirely new ways.

For a primer on how Compound governance works, please see our COMP announcement and the full documentation.

Distributing COMP

A collection of Compound’s most important stakeholders share the ability to upgrade the protocol:

• 2,396,307 COMP have been distributed to shareholders of Compound Labs, Inc., which created the protocol
• 2,226,037 COMP are allocated to our founders & team, and subject to 4-year vesting
• 372,707 COMP are allocated to future team members (we’re hiring!)
• 4,229,949 COMP are reserved for users of the protocol
• 775,000 COMP are reserved for the community to advance governance through other means — which will be announced at a future date
• 0 COMP will be sold or retained by Compound Labs, Inc.

COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.

Anyone Can Participate

Possessing COMP and participating in Compound governance are not the same; COMP token-holders can delegate voting authority to any address; their own, a hot wallet (while COMP sits in cold storage), a DAO, or your address.

Already, members of the community and applications built on top of Compound have received voting authority. Anyone with a good idea can marshal support to change the protocol; we’re curious and excited to see how the ecosystem evolves.

Voting Interface

Addresses that hold COMP or voting rights will see a special screen on app.compound.finance — soon, this will be available to everyone, alongside tools to create Compound governance proposals.

Transparent, Liquid Democracy

Out of the gate, the complete history of all proposals, voters, COMP token usage, and governance metrics are available to you in the Compound Governance Explorer.

All information is served through the Compound Governance API, which we encourage developers to incorporate into new products & dashboards.

Next Steps

After the governance system has been publicly tested, and is operating in a reliable, distributed manner, we’ll remove the last governance failsafe — our ability to disable community voting in an emergency — and begin distributing the remaining COMP to Compound protocol users.

At that point, the protocol will truly be governed by the community, without any foundation, the original developers, or other centralized middleman in charge.

From all of us at Compound, 📈.

Compound Governance is Live was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

At Compound, our goal is to create financial infrastructure that applications and developers can rely on, forever. To get there, we intend to fully decentralize the Compound protocol — removing the largest single point of failure (our team), and creating an indestructible, open protocol that can evolve in entirely new ways.

Today, we’re proud to introduce a governance system that will replace the Compound protocol’s administrator with community governance — allowing you to suggest, debate, and implement changes to Compound — without relying on, or requiring, our team whatsoever.

The Compound governance token

Participation starts with the Compound governance token, COMP.

In addition to being a standard ERC-20 asset, COMP allows the owner to delegate voting rights to the address of their choice; the owner’s wallet, another user, an application, or a DeFi expert. Anybody can participate in Compound governance by receiving delegation, without needing to own COMP. The token also includes code to query an address’ historical voting weight, which is useful for building complex voting systems.

We hope that COMP can set the standard for how governance tokens operate, and our team will write an Ethereum Improvement Plan (similar to the ERC-20 standard) to accelerate decentralization for the entire ecosystem.

COMP empowers community governance — it isn’t a fundraising device or investment opportunity. Until the decentralization process is complete, COMP will not be available to the public.

Community, not centralized, decisions

We’ve designed a simple governance framework so that you can easily participate in shaping the direction of Compound. Here’s how it works:

Anybody with 1% of COMP delegated to their address can propose a governance action; these are simple or complex sets of actions, such as adding support for a new asset, changing an asset’s collateral factor, changing a market’s interest rate model, or changing any other parameter or variable of the protocol that the current administrator can modify.

Proposals are executable code, not suggestions for a team or foundation to implement.

All proposals are subject to a 3 day voting period, and any address with voting power can vote for or against the proposal. If a majority, and at least 400,000 votes are cast for the proposal, it is queued in the Timelock, and can be implemented after 2 days.

And if you don’t like the governance framework, great! You can vote to replace it with a new model.

Testing Compound Governance

For months, we’ve been designing and building Compound governance; today, the journey begins:

• COMP has been deployed to 0xc00e94cb662c3520282e6f5717214004a7f26888
• Governance has been deployed to 0xc0dA01a04C3f3E0be433606045bB7017A7323E38
• The COMP and Governance codebase is available to review on Github, and has been audited by OpenZeppelin and Trail of Bits
• COMP design assets are available for developers

Decentralization Process

The transition to community governance will be managed with a relentless focus on security & stability, and will follow the principle of increasing decentralization.

During an initial sandbox period, a portion of the governance tokens will be distributed amongst our company’s shareholders, who can delegate voting weight to themselves or the public as they see fit; the majority of COMP will be escrowed, and will not participate in governance.

Developers building on top of Compound are encouraged to actively participate in governance, which will be tested in the open. As a failsafe, our team will have the ability to suspend the governance system (though not the protocol’s 2-day timelock) during the sandbox.

When the governance system is operating in a reliable, distributed manner, we’ll suggest that the failsafe be removed — and that the remaining tokens be distributed to Compound protocol users. We’ll be releasing more details of this plan in the coming months — stay tuned!

If you have any questions or ideas, we’d love to hear from you in Discord. From all of us at Compound, 📈.

Compound Governance was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

Multi-Collateral Dai has been added to the Compound protocol through the creation of a new cToken contract, cDAI — you can now supply and borrow the latest version of DAI.

Several minor improvements have been made to the cToken contract for this launch, and one significant improvement — upgradability. Over time, the mechanics of cDAI can evolve through the governance layer of Compound.

At launch, cDAI functions exactly like other cTokens — in the coming weeks, cDAI will be upgraded to implement the Dai Savings Rate and interest rates set through the MKR voting process. Following that upgrade, cDAI will be enabled as collateral to borrow other assets.

As a brand new market, interest rates, liquidity, and behavior may be highly unusual at first— please exercise considerable caution when interacting with cDAI.

Resources

• cDAI token code, current implementation code, and full release (v2.3) source code
• cDAI brand assets

Update, December 17th

The planned upgrade to cDAI has been queued in the governance layer of Compound, and will go live in two days:

• The interest rate model for cDAI will be replaced with 0xec163986cC9a6593D6AdDcBFf5509430D348030F, which sets the borrowing cost lower bound to be the Dai Savings Rate * 1.05, and the borrowing cost at 90% utilization to be the Dai Stability Fee + 0.05% — going forward, MakerDAO will effectively control the interest rates of cDAI through the MKR voting process.
• The implementation for cDAI will be replaced with 0xbB8bE4772fAA655C255309afc3c5207aA7b896Fd, which will sweep all DAI held by the cDAI contract into the Dai Savings Rate.
• The collateral factor for cDAI will be increased from 0% to 75%.

As a safety mechanism, two transactions to revert cDAI back to it’s original, standard cToken format have been queued in the Timelock; these are intended to expire unused in 14 days, and will only be executed in the event of a near-term emergency or flaw in MakerDAO.

Compound + Multi-Collateral Dai was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

Plans, expectations, and timeline

The Compound protocol currently supports DAI, a stablecoin created by the MakerDAO ecosystem. MakerDAO’s team has announced their intention to release a new version of the stablecoin, Multi-Collateral Dai (taking the name “DAI”) on November 18th, and intent to deprecate the legacy token (taking the name “SAI”) through global settlement months later.

Subject to further review, here’s what you can expect from the Compound protocol:

Existing (Current) DAI

• The existing Compound DAI market, “cSAI”, will continue to function normally; all protocol functions should continue to operate without issue, and no changes are expected to be made to the protocol at this time.
• Users will not be forced to redeem SAI, nor maintain SAI inside the Compound protocol. You are individually responsible for choosing when, and how, to migrate to Multi-Collateral DAI.
• After MakerDAO calls for a global settlement, SAI will no longer be a stable asset, and will instead track the (partial) value of Ether — you should be aware that holding SAI inside Compound does not preserve its value, and does not prevent global settlement.

Multi-Collateral DAI

• Following the development, review, and auditing of a cToken contract, as well as a determination of suitability, Multi-Collateral DAI will be added to the Compound protocol as “cDAI”.

General Expectations

• Following the launch of Compound’s new DAI market, the Compound Interface will support both SAI and Multi-Collateral DAI, until SAI balances and usage become immaterial.
• Interest rates, in either the SAI or Multi-Collateral DAI market, may be unusually volatile or abnormal during the transition period.
• InstaDapp plans to support one-click migration from cSAI to cDAI.

Support for Multi-Collateral DAI was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.

When an asset is added to the Compound protocol, it’s upgraded with two new superpowers — a liquid interest rate that token-holders can earn, and the ability to use the asset as collateral (to frictionlessly borrow other supported tokens, such as Ether or Dai).

Adding an asset to the protocol is a significant milestone, and one that the protocol’s users control. Today, we’re pleased to announce that in approximately two weeks a community vote will begin to select the next Compound asset.

Compound users will have the opportunity to vote for one of twelve potential assets:

• Ampleforth (AMPL)
• Decentraland (MANA)
• Flexacoin (FXC)
• Huobi Token (HT)
• Loom Network (LOOM)
• Maker (MKR)
• Numeraire (NMR)
• OmiseGo (OMG)
• Paxos Standard Token (PAX)
• Synthetix USD (sUSD)
• Tether (USDT)
• TrueUSD (TUSD)

Voting Mechanics

All Compound protocol users will be eligible to participate in the community vote, weighted by usage of the protocol (measured by lifetime interest earned + interest paid). This is an experimental “Sybil-resistant” voting mechanism, which is designed to allocate governance proportional to impact.

Voting will last for 14 days, after which the 2 winning tokens will be added to the protocol following the creation of cToken integration contracts, successful security audits, and a determination of suitability.

Join the Conversation

If you have any questions, ideas, or issues, join us in Discord — we’d love to hear from you.

Select the next Compound asset was originally published in Compound Labs on Medium, where people are continuing the conversation by highlighting and responding to this story.