Crypto Lending Platform Compound Rolls Out Fresh Upgrade for DeFi Users

Compound, the popular decentralized finance (DeFi) protocol for borrowing and lending crypto, has launched a new “streamlined” version of the protocol called Comet.

The launch follows a successful governance proposal, with the protocol’s new iteration being touted as a “game-changing upgrade” for borrowers in the DeFi space.

“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,” Robert Leshner, the founder of Compound, wrote in a blog post.

While the new version of the protocol features several improvements, the biggest change, however, is the introduction of a new borrowing model that facilitates a single borrowable, interest-earning asset, with all other supported assets functioning as collateral.

In the pooled model from previous iterations, collateral posted was mixed with other collateral. If you borrowed USDC against Ethereum, for example, it was possible that your Ethereum could be mixed with other users’ assets.

Now, though, users can only withdraw the collateral that they have deposited. “It can never be withdrawn by other users,” wrote Leshner.

The possible advantage here, as Jared Flatow, VP of Engineering at Compound Labs, wrote in the original proposal, is that “since there are separate borrowing collateral factors, and liquidation collateral factors,” this approach “protects borrowers from early liquidation, and can improve risk management.”

Decrypt has reached out to Compound for more comments, but is yet to hear back by press time.

Compound ramps up risk management

The first deployment of Compound v3 will let users borrow the USDC stablecoin using Ethereum (ETH), wrapped Bitcoin (wBTC), as well as native tokens of Chainlink (LINK), Uniswap (UNI), and Compound (COMP), with Chainlink’s oracles serving as the protocol’s exclusive price feed.

“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,” wrote Leshner.

To further limit risk, Comet, per the passed governance proposal, introduces market-wide limits on the size of individual collateral assets.

The new version of the Compound protocols features a redesigned risk management and liquidation engine, bolstering the safety of the protocol.

It also introduces advanced account management tools for developers—something that is supposed to enable new applications to be built on top of the protocol.

Compound v3 will change the protocol’s governance system, too. Instead of a network of contracts managed individually, the new governance model is carried out through a single “configurator” contract.

What this means in practice is that all governance functionality is contained in a single smart contract, making both the protocol's code base and the actual participation in governance simpler.