A new version of the existing Compound protocol— Compound III— is now live following a successful governance proposal. Conceptualized in 2018, Compound is one of the DeFi pioneers that made collateralized borrowing popular. The third iteration aims to make the entire DeFi space more secure, efficient, and user-focused.
What is Compound III?
For the uninitiated, the older versions (Compound and Compound II) of the Compound Protocol featured a pooled-risk setup, focusing on reusable collateral. This meant that one bad asset (eroding faster than usual) could drain others due to automated liquidations.
Compound III aims to change it by bringing in a ‘single borrowable asset.’ This feature fixes the pooled-risk issues by ensuring security and control over the collateral. Also, with Compound III, users will be able to borrow the stablecoin USDC using LINK, COMP (native token), UNI, ETH, and Wrapped BTC as collateral.
Compound III received several accolades from the likes of Circle CEO Jeremy Allaire, who tweeted about this simpler, efficient, and safer version of Compound. According to Jeremy, Compound III is easily one of the better USDC borrowing platforms.
Here is the tweet from Jeremy:
VERY exciting upgrade to Compound today, v3 of protocol is simpler, safer, more efficient, and provides one of the best possible platforms for USDC borrowing. Congrats @rleshner and can't wait to showcase at Converge! https://t.co/mw4OusVCe5
— Jeremy Allaire (@jerallaire) August 26, 2022
With Compound III, users will not be earning collateral interest. Yet, it’s not all bad as there will be fewer risks of liquidations, courtesy of a higher borrowing limit. The transaction fee structure will also become more affordable.
Moreover, Compound III was unanimously approved, the cherry on the cake. Also, the new variant comes with a Business Source License (BSL)—which means that no forks will be allowed without approval from the Compound Governance. This safeguard makes sense as Compound II saw several forks owing to its permissive approach.
Compound (COMP) is currently trading at $45.14, down by 2.06%, day-on-day. It would be interesting to see if the new protocol version spurs bullish moves at COMP’s counter.