Definition
Compound is a decentralized finance (DeFi) protocol that enables users to supply and borrow crypto assets through smart contracts on a public blockchain. It aggregates user deposits into a shared liquidity pool for each supported asset and uses algorithmic interest rate models to determine borrowing and lending rates in real time. The protocol is non-custodial, meaning funds are controlled by code rather than a centralized intermediary, and positions are tracked on-chain.
As a concept in DeFi, Compound illustrates how lending markets can be built using programmable money and transparent, auditable smart contracts. Its design is closely related to ideas behind a liquidity pool, where assets from many participants are combined to facilitate borrowing and lending. Compound has influenced other protocols in the ecosystem, including those focused on credit markets and capital efficiency, such as Maker and dYdX.
Context and Usage
Compound is often discussed alongside other DeFi primitives that coordinate capital through incentives and automated market mechanisms. It helped popularize the concept of distributing governance tokens as rewards, a pattern that later became widely known as liquidity mining across the broader ecosystem. In this context, users supplying or borrowing assets interact with the protocol’s pools and may receive additional token incentives for contributing liquidity.
Within the DeFi landscape, Compound is frequently compared conceptually to other lending and liquidity protocols that specialize in different market structures or asset types. For example, Curve focuses on efficient swaps between similar assets using specialized liquidity pool designs, while Maker centers on overcollateralized stablecoin issuance. Together, these protocols demonstrate how composable on-chain financial primitives can interoperate to form more complex decentralized financial systems.