Compound V3

Compound V3 (codenamed Comet) is the most recent generation of one of DeFi’s original money markets. Where the previous version (V2) was a multi-asset pool that allowed any supported token to be used as collateral and borrowed against any other, V3 enforces a single-borrowable-asset model: each market has one borrowable token (USDC, ETH, USDT, depending on the deployment) and supports a curated set of collateral assets that can only back loans of that single asset. The split eliminates much of the cross-asset risk that plagued first-generation lending protocols and lets V3 set materially better LTV ratios on conservative collateral.

The interest-rate model also differs from V2 - V3 uses a smooth piecewise function with a configurable “kink” rather than the steep utilization step that V2 inherited from the original Compound paper. In practice this means supply rates stay tighter to borrow rates and produce less volatile APYs across the utilization range. Suppliers earn the borrowable asset’s APY directly; collateral suppliers earn nothing on the collateral side (in V3 collateral is genuinely just collateral, not interest-bearing) but borrowers pay materially less for the privilege.

Compound has been audited continuously since 2018 by OpenZeppelin, Trail of Bits, Certora, and ChainSecurity. The protocol’s one significant historical incident was the September 2021 COMP distribution bug in V2 that mistakenly sent excess COMP rewards to users - a governance error rather than a contract exploit, with funds eventually recovered through legal pressure on the recipients. V3 has had no comparable issues. Primary risks today are oracle errors on the single-borrowable-asset (a USDC depeg cascades immediately into liquidations of stETH/ETH collateral borrowing USDC, and vice versa) and the smaller liquidity pool size per market relative to Aave V3, which can mean worse rates on niche borrow assets.