Compound is a decentralized finance (DeFi) lending protocol that aims to provide users with the opportunity to receive compensation on their digital assets. Users deposit cryptocurrencies into one of the platform's supported pools and in return, they receive cTokens, which represent their stake in the pool. These cTokens can be redeemed for the initial cryptocurrency deposited, with the exchange rate potentially increasing over time. Compound also provides the opportunity for borrowers to take secured loans from any of its pools by depositing collateral. The platform's native governance token, COMP, enables holders to propose, discuss, and vote on changes to the protocol.

Compound operates through smart contracts that mint cTokens when Ethereum and ERC20 assets are deposited. These cTokens can be used by Compound users to redeem their stake. The protocol enforces a collateralization factor for all assets supported by the platform, striving to ensure each pool is adequately collateralized. If the collateral falls below the minimum maintenance level, it is sold to liquidators at a discount, which aims to pay down some of the loan and return the remainder to an acceptable collateralization factor. This arrangement is designed to encourage borrowers to maintain their collateral levels, provide a safety net for lenders, and create an earning opportunity for liquidators.

Compound aims to enhance the use of cryptocurrencies by providing an open lending platform. It potentially allows anyone who deposits supported Ethereum tokens to receive compensation on their balance or take out a secured loan in a trustless way. The platform's community governance model sets it apart from other similar protocols. Holders of COMP can propose changes to the protocol, debate, and vote on whether to implement changes suggested by others. This can include choosing which cryptocurrencies to add support for, adjusting collateralization factors, and making changes to how COMP tokens are distributed.

Compound was established in 2017 by Robert Leshner and Geoffrey Hayes, both of whom previously worked at Postmates, an online food delivery service. They continue to hold executive positions at Compound Labs, Inc., the software development firm behind the Compound protocol. Since the launch of the Compound mainnet, the platform has been utilized by users. The Compound team now comprises a diverse group of individuals, a significant portion of whom work as engineers.

Users who allocate their cryptocurrencies to Compound's liquidity pool may receive non-monetary rewards. These rewards are given in the same cryptocurrency that they allocate. For instance, if you allocate Ether (ETH), you receive rewards in ETH. The reward rate is dynamic, changing based on the supply and demand of the specific cryptocurrency in the liquidity pool. On the other hand, users can obtain a loan against their cryptocurrency balance in the Compound protocol. Unlike traditional banks that require credit checks, Compound aims to maintain anonymity and only provides over-collateralized loans. This means users can obtain only a certain percentage of the value of the cryptocurrencies they allocate as collateral. The rate for obtaining a loan also fluctuates based on the supply and demand of the specific cryptocurrency in the liquidity pool.

The COMP token has a crucial function in the Compound ecosystem, acting as a governance token. This allows holders to propose and vote on changes to the protocol. The decentralized governance model aims to ensure that the community can influence the evolution of Compound. COMP also serves as an incentive mechanism. Users who supply and borrow assets on Compound may receive COMP tokens as non-monetary incentives. This aims to encourage participation and contribute to the overall liquidity and activity within the protocol.

Compound aims to address the issue of incentive rates and market-driven borrowing costs by implementing an algorithmic model. This model adjusts incentive rates based on the supply and demand of a particular asset. When the demand to borrow an asset is high, the incentive rate increases. Conversely, when the demand is low, the incentive rate decreases. This dynamic incentive rate model strives to balance the liquidity in the market, ensuring there's always a supply for borrowers and a reward for suppliers. It's important to note that Compound doesn't use traditional incentive models, but rather it generates incentives every Ethereum block, which is approximately every 15 seconds. This means that incentives are being continuously calculated and added to the supply, allowing users to receive non-monetary rewards in real-time.

The governance of Compound is managed by the community of COMP token holders and their delegates. COMP is an ERC-20 token that allows the owner to delegate voting rights to any address, including their own. This means that the community has the ability to participate in the process of change. Anybody with 1% of COMP delegated to their address can propose a governance action. Proposals are executable code, not suggestions, and are subject to a 3-day voting period. If a majority, and at least 400,000 votes are cast for the proposal, it is queued in the Timelock, and can be implemented after 2 days. This model is designed with the intention of reducing single points of failure and providing potential for protocol evolution.

The platform supports a variety of assets for lending and borrowing. When someone lends an asset on the Compound Protocol, they receive non-monetary rewards in the same form as the asset they deposited and a token called c token, which is the primary way to interact with the protocol. The Compound Protocol aims to offer over collateralized loans, meaning borrowers must provide collateral that exceeds the value of what they want to borrow. The platform is an active player in the lending and borrowing market.

Compound has a mechanism to manage the liquidation of collateral in the event of a borrower default. When a borrower's account balance exceeds the limits set by liquidation collateral factors, it becomes eligible for liquidation. A liquidator, which could be a bot, contract, or user, can call the 'absorb' function. This function transfers the borrower's debt to the protocol account, decreases liquidity reserves to repay the borrower's borrows, and adds the collateral to the protocol's own balance. The liquidator's gas expenditure is noted and could potentially be compensated via governance in the future. The protocol now holds excess collateral and makes this available at a reduced rate. However, if the protocol's reserves are higher than a governance-set target, liquidators are unable to acquire collateral, increasing the protocol's base asset reserves. This liquidation process, based on incentives, seeks to manage risky borrowings once they cross the liquidation threshold.

cTokens are integral components of the Compound ecosystem, serving as a representation of assets supplied to the protocol. When users interact with the Compound Protocol, whether it's minting, redeeming, borrowing, repaying a borrow, liquidating a borrow, or transferring, they do so using the cToken contract. Essentially, cTokens are a form of digital IOU issued by the Compound Protocol to users who supply assets to its liquidity pool. These tokens are designed to be compatible with the ERC-20 standard, meaning they can be transferred or traded like any other token on the Ethereum network. The value of cTokens may change over time relative to the underlying asset, which may result in users receiving non-monetary rewards. These rewards accrue through the cToken's exchange rate, which may change in value relative to the underlying asset. Therefore, by holding cTokens, users may receive non-monetary rewards as each cToken becomes convertible into a different amount of the underlying asset. This mechanism is designed with the intention of encouraging users to supply assets to the Compound Protocol, which is intended to contribute to the protocol's liquidity and transaction capabilities.

Compound supports the transfer of a specific set of cryptocurrencies, including Dai (DAI), Ether (ETH), USD Coin (USDC), Ox (ZRX), Tether (USDT), Wrapped BTC (WBTC), Basic Attention Token (BAT), Augur (REP), and Sai (SAI). The Compound protocol interacts with other DeFi protocols and platforms in the ecosystem by facilitating the movement of these assets within the ecosystem. The Compound protocol also utilizes its native COMP token for governance purposes. The COMP token is used in the governance process, where token holders can participate in decision-making related to the protocol. This governance process plays a role in how the Compound protocol interacts with other DeFi protocols and platforms. The Compound protocol aims to facilitate the transfer of specific crypto assets, with the intention of contributing to the movement of these assets within the ecosystem.

The Open Price Feed is a key component of the Compound protocol, serving as a reference point for asset prices. It is designed to provide current, reliable, and up-to-date price data for the protocol's Comptroller contract. The Open Price Feed is updated by Chainlink Price Feeds and is overseen by various participants. It uses a View contract, also known as the "Price Feed", which verifies that reported prices fall within an acceptable range of the time-weighted average price of the token/ETH pair. This is referred to as the Anchor price. The Open Price Feed's architecture allows multiple views to use the same underlying price data, but to verify the prices in their own way. This system strives to foster transparency and reliability in asset valuations, which is useful for users understanding their assets. In certain circumstances, the protocol allows for adjustments to the primary oracle.

Compound seeks to address scalability concerns through continuous upgrades and iterations of its decentralized finance (DeFi) lending platform. The latest version, Compound v3, reduces the number of supported tokens that can be borrowed and collateralized on the protocol, thereby aiming to address the system's security and scalability. This version also simplifies governance smart contracts and employs Chainlink as the protocol’s exclusive price feed. Moreover, Compound v3 introduces a mechanism that requires community permissions for forking the protocol, with the intention to ensure the code behind each proposed fork is less susceptible to exploits. This approach seeks to address the system's resilience against potential security threats as the number of users and assets grow.