CompoundIII

Compound Goes Multi-Chain in Major Upgrade

Compound Finance, the pioneering DeFi money market, published the code for its forthcoming third iteration, called Comet, on June 30.

Jared Flatow, the vice president of engineering at Compound Labs, said the protocol is designed to be deployed across any network that is compatible with the Ethereum Virtual Machine (EVM). Comet will “form the basis of a multi-chain deployment strategy,” he asserted.

Liquidation Engine

The protocol is designed to facilitate a single borrowable, interest-earning asset, with all other supported assets functioning as collateral. Comet’s risk management and liquidation engine were also redesigned to bolster the safety of the protocol while preserving incentives for liquidators. 

“This reduces risk, and can improve capital efficiency,” Flatow wrote.

On Twitter, Boyan Barakov, of Fuji Finance, applauded Comet, highlighting that “each market can be seen as a separate protocol instance with its own collateral and liquidation factors.” 

“This gives the flexibility to create tailored money markets with different flavors and risk profiles deployed across multiple EVM chains,” Barakov said.

Why Compound Might Ditch its Yield Farmers

Compound launched as Ethereum’s first decentralized money market in September 2018, and its second version went live on Ethereum in May 2019. The permissionless protocol allows users to earn yield on crypto asset deposits, and use the deposits as collateral backing self-managed loan positions.

Compound is the ninth-largest DeFi protocol and its total value locked has skidded 78% since last May, to $2.7B, according to DeFi Llama. In May, it made crypto history when S&P rated its treasury.

Top Rival

While Compound consistently ranked among the top DeFi protocols by TVL for several years, its decision to operate exclusively on Ethereum made it susceptible to the network’s skyrocketing gas fees. In contrast, the TVL of Aave, Compound’s top rival, continued to grow throughout 2021 as the protocol enjoyed new deployments on six low-cost Layer 1 and Layer 2 networks.

Aave is the second-ranked DeFi protocol with $5.3B locked, down 71% from a record high of $18.4B in October.

Compound said it published the new code so that developers can begin planning integrations with Comet, audit the code, and suggest potential improvements for the protocol. Comet uses a business source license (BSL), meaning that Compound governance can grant usage rights to third parties.

Full Control

Among other new features, Comet uses Chainlink directly for price oracles, rather than a custom price feed. Supply and borrow models can be decoupled and operate independently, with Flatow noting that “governance has full control over economic policy.”

Mark Monfort of web3 venture studio, NotCentralised, praised Compound for adopting the BSL. Speaking to The Defiant, Monfort emphasized that the license allows for a variety of devs to explore the code without Compound relinquishing control over it. 

New Code

“In a BSL arrangement, non-production use (aka testing) is typically free and this is important whilst they are in the midst of testing/auditing with users before deploying to mainnet and across other EVM chains,” he said. 

The new code has also been well received on Compound’s governance forum.

Shubiwubi described Comet as prioritizing a simple and streamlined user experience. “Especially in a multi-chain/L2 world, I can definitely see this thrive in a big way,” they said, noting they are contemplating liquidating their Aave position to migrate their lending activities over to the upcoming deployment.

Defiripper said they have been “wanting to see Compound go multi-chain for a while now,” adding they would like to see Comet deployed on the Polygon network. 

However, Dakeshi expressed concerns regarding the security vulnerabilities associated with cross-chain protocol deployment, noting the recent $100M bridge hack suffered by Harmony, a Layer 1 blockchain.

Verification Tool

Looking ahead, Compound said it will work with the community to finish auditing the new protocol over the coming weeks. Once the audit is complete, an initial release of Comet will be deployed on Ethereum.

A bug has already been discovered and rectified in the protocol, with smart contract security firm, Certora, publishing a blog post highlighting an error that its automated verification tool identified in Comet. The issue related to user collateral, making it possible for a user to be liquidated even if they held sufficient collateral in the protocol.