Compound Finance
Pioneer DeFi lending protocol — innovated COMP token and liquidity mining.
Compound Finance is one of the first and most influential DeFi lending protocols, which popularized the concept of "liquidity mining" and the COMP token.
How it works:
•Deposit collateral (ETH, USDC, WBTC, DAI)
•Receive cToken (cETH, cUSDC) that automatically accumulates interest
•Borrow up to a certain LTV (Loan-to-Value) ratio
•Pay interest on the loan
cToken mechanism:
•Each deposit gets a cToken
•cToken value grows over time (accumulates interest)
•1 cUSDC → after one year = 1.05 USDC (example)
COMP token (2020):
•Distributed to borrowers and lenders proportionally
•"Liquidity mining" concept essentially invented by Compound
•Triggered DeFi Summer 2020 boom
Risks:
•Smart contract risk (several minor exploits)
•Liquidation on collateral value drop
•Governance risk (COMP voting)
Vs AAVE:
•AAVE has more features (flash loans, credit delegation)
•AAVE generally larger TVL
•Compound pioneer, but AAVE surpassed it