Compound Review 2026
Compound is a pioneering DeFi lending protocol offering algorithmic interest rates and permissionless borrowing on Ethereum.
Last updated: 2026-02-27 · Independently reviewed
Key Details
Compound Ratings Breakdown
What Is Compound?
Compound Finance is one of the foundational protocols of decentralized finance. Founded in 2017 by Robert Leshner and Geoffrey Hayes, Compound helped invent the concept of algorithmic money markets — automated lending pools where interest rates adjust based on supply and demand. While Aave has since surpassed it in TVL and market share, Compound remains a respected and actively developed protocol. The current version, Compound III (also called "Comet"), represents a significant architectural shift toward simplicity and capital efficiency. In 2025, Compound expanded to multiple chains including Polygon, Base, and Arbitrum, and the DAO established a $5 million emergency security fund.
How Compound Loans Work
Compound III works differently from the original Compound. Each market revolves around a single "base asset" (typically USDC or WETH) that can be borrowed. You deposit supported collateral (ETH, WBTC, COMP, UNI, LINK, etc.) and borrow the base asset against it. Interest rates are algorithmically determined — when utilization is high (many borrowers, fewer lenders), rates rise; when utilization is low, rates fall. This single-asset market design isolates risk better than the original pooled model. Loans are open-ended, and you can repay at any time with no penalties. Like Aave, everything runs through audited smart contracts with no intermediary — you connect a wallet, deposit collateral, and borrow.
Compound Interest Rates
Compound's borrowing rates range from approximately 2% to 12% APR, though these are variable and change with market conditions. The algorithmic rate model means you might see 2–3% during quiet periods and 8–12% during high demand. One advantage of Compound III's single-asset model is that rates tend to be more stable than the older pooled design. Compound doesn't have loyalty tiers, token-holding requirements, or governance-set rates like Aave's GHO — what you see is purely market-driven.
Security & Safety
Compound has been operating since 2018, making it one of the most battle-tested protocols in DeFi. The code has been audited by OpenZeppelin, Trail of Bits, and ChainSecurity. In 2024, Compound launched a bug bounty program on Immunefi offering up to $500,000 for critical vulnerabilities. The DAO established a $5 million USDC emergency security fund in early 2026 for rapid response to threats. Compound III's risk-isolated market design reduces contagion risk — a problem with one collateral type can't cascade to affect other markets. Like all DeFi protocols, smart contract risk exists, and there's no customer support or FDIC-style insurance. The legacy Compound V2 is being deprecated, with borrows paused and reserve factors set to 100%.
Pros and Cons
Pros
- Battle-tested protocol (since 2018)
- Clean, simple interface
- Algorithmic interest rates
- Fully decentralized governance
- Compound III (Comet) is highly gas-efficient
Cons
- Fewer supported assets than Aave
- Ethereum mainnet only (Compound III)
- Variable rates only
- Smart contract risk
- No customer support
Who Is Compound Best For?
Compound is best for DeFi users who want a clean, simple borrowing experience without the complexity of Aave's many features. If you primarily need to borrow USDC against ETH or BTC collateral, Compound III does this efficiently with minimal overhead. It's also a good choice on Layer 2 chains like Base and Arbitrum where gas costs are minimal. Compound is less suitable if you need multi-chain deployment across many networks (Aave has broader coverage), want to borrow against exotic assets, or need advanced features like flash loans.
Compound vs Alternatives
| Feature | Compound | Aave | MakerDAO (Sky) |
|---|---|---|---|
| Rate (APR) | 2% – 12% | 2% – 15% | 4% – 8% |
| Max LTV | 83% | 82.5% | 77% |
| KYC Required | No | No | No |
| Collateral Options | 5+ | 8+ | 3+ |
| Disbursement | instant (1 transaction) | instant (1 transaction) | instant (1 transaction) |
| Our Rating | 7.8/10 | 8.8/10 | 8/10 |
Final Verdict
Compound earns a 7.8/10 in our review. It's a solid, well-audited protocol with a proven track record and a design philosophy that prioritizes simplicity and risk isolation. Compound III's single-asset market model is arguably more elegant and safer than pooled designs. The protocol loses points for fewer supported chains and assets compared to Aave, the lack of unique features like flash loans or a native stablecoin, and the same DeFi accessibility barriers (no customer support, wallet requirement). For borrowers who value simplicity and battle-tested security, Compound remains a top-tier DeFi lending option.
Frequently Asked Questions
Is Compound Finance safe?
Compound has operated since 2018 with audits by OpenZeppelin, Trail of Bits, and ChainSecurity. The protocol offers up to $500K bug bounties and established a $5M emergency security fund. Compound III's risk-isolated design limits contagion between markets. However, like all DeFi protocols, smart contract risk exists and there's no customer support.
What is Compound III (Comet)?
Compound III is the current version of the protocol, also called "Comet." Unlike the older pooled model, each Compound III market revolves around a single base asset (like USDC). Borrowers deposit collateral and borrow that single asset. This design is simpler, more gas-efficient, and isolates risk better than the original architecture.
How do Compound's rates compare to Aave?
Both use algorithmic rates based on supply and demand, so rates fluctuate similarly. During low-demand periods, both can offer 2-4% on stablecoin borrows. Compound's rates tend to be slightly more stable due to its simpler market design. Aave's GHO stablecoin can sometimes offer more favorable rates set by governance.
What chains does Compound support?
Compound III is available on Ethereum mainnet, Polygon, Base, Arbitrum, and Ronin. The multi-chain expansion in 2024-2025 significantly reduced gas costs for users who deploy on Layer 2 networks.
What happened to Compound V2?
Compound V2 is being deprecated. In late 2025, the DAO voted to pause borrows and mints for all V2 assets and set reserve factors to 100%. Users should migrate to Compound III (Comet) for active borrowing and lending.