<\/p>\n
Compound was an OG of DeFi lending, but missteps have knocked it off its perch.<\/p>\n
Compound<\/a> was once the default answer for crypto lending in decentralized finance. Launched in 2018 by Robert Leshner and Geoffrey Hayes, the protocol lets users earn interest or borrow assets directly on Ethereum<\/a>, in a fully decentralized manner, without banks or brokers.<\/p>\n For early DeFi users, it felt obvious. The project raised<\/a> millions in backing from Andreessen Horowitz, Bain Capital Crypto, Paradigm, and Coinbase Ventures.<\/p>\n Compound also helped popularize yield farming, especially after launching its governance token, COMP, in 2020, which turned passive users into active participants.<\/p>\n By 2021, Compound was the core infrastructure for crypto lending. Billions of dollars sat in its smart contracts. Other protocols like Yearn Finance and exchanges like Coinbase also integrated it<\/a>, cementing the protocol\u2019s dominance in the space.<\/p>\n That changed in October 2021, when the protocol\u2019s liquidity began to thin quickly.<\/p>\n The decline is evident in Compound\u2019s total value locked (TVL), which fell sharply from a November 2021 peak of $12 billion to just $2.2 billion by November 2022, per data from DefiLlama<\/a>. <\/p>\n The problems began when a protocol update called \u201cProposal 62,\u201d intended to adjust COMP rewards, went live with a bug. As a result, the protocol began overpaying rewards<\/a>, leaking tens of millions of dollars\u2019 worth of COMP to users.<\/p>\n Because of how Compound governance worked, the team couldn\u2019t immediately stop it. The fix had to wait through a mandatory timelock. In the meantime, tokens kept flowing out, and confidence in the protocol\u2019s stability went with them.<\/p>\n In an X post<\/a> on Sept. 30, 2021 Leshner asked recipients who received excess COMP to return it and offered a 10% reward for whitehat returns.<\/p>\n He added that \u201cotherwise, it’s being reported as income to the IRS, and most of you are doxxed.\u201d The threat sparked swift backlash from the crypto community, and Leshner later called it a bone-headed post and walked it back.<\/p>\n But funds continued to leave, and tens of millions of dollars flowed out of the protocol in the weeks after the bug was discovered. Even though the issue was fixed, the incident was enough to shake confidence.<\/p>\n It\u2019s hard to say if the October 2021 bug alone ended Compound\u2019s dominance, but it clearly left the protocol vulnerable at a bad time. By December 2021, Bitcoin had started falling<\/a> from its $69,000 all-time high, signaling the start of a multi\u2011year crypto bear market.<\/p>\n As crypto prices fell, lending activity slowed across DeFi as borrowers began pulling funds. For Compound, which relied heavily on pooled liquidity markets, those outflows hit harder than rivals like Aave and Maker, which were built around isolated or more flexible risk models.<\/p>\n The contrast became clearer as the 2022 crypto winter came in. After Terra\u2019s multi-billion dollar collapse<\/a>, the implosion of FTX<\/a>, and a string of centralized lender failures, the crypto community grew more sensitive to systemic risk.<\/p>\n Behind the scenes, leadership was changing too. Leshner stepped back<\/a> from day-to-day involvement, and by June 2023, he left Compound and founded Superstate, a tokenization platform that allows companies to issue and trade<\/a> their public shares on blockchain.<\/p>\nValue Leak<\/h2>\n
Bad Timing<\/h2>\n