The veteran Ethereum-based lending protocol, Compound, has taken a significant step forward in its evolution with the announcement of Compound III, also known as Comet. After months of community discussion around a multi-chain strategy compatible with the Ethereum Virtual Machine (EVM), the team officially revealed the new protocol version on January 16. Currently under review by Compound’s decentralized governance community, Comet III marks a strategic shift toward scalability, capital efficiency, and broader ecosystem integration.
This upgrade isn’t just an incremental improvement—it's a reimagining of how lending protocols can operate across chains while maintaining security and user incentives. With a clear focus on USDC as the base lending asset and plans for expansion across EVM-compatible blockchains, Compound is positioning itself for a comeback in the competitive DeFi lending space.
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What Is Compound III (Comet)?
Compound III, or Comet, is a new iteration of the Compound protocol designed specifically for EVM-compatible networks. Unlike previous versions that supported multiple borrowable assets, Comet simplifies the model by allowing users to borrow only one base asset—in the case of the Ethereum mainnet deployment, that asset is USDC.
Users can supply supported collateral such as WETH, WBTC, LINK, UNI, and COMP to borrow USDC or earn interest by supplying the base asset. This streamlined design enhances capital efficiency and reduces systemic risk by eliminating complex cross-asset borrowing dynamics.
One of the standout features is that Comet’s interface will be open-sourced and hosted via IPFS, ensuring decentralization and community-driven operation. All interactions across multiple chains will be unified through Compound Gateway, a cross-chain coordination layer that enables seamless access to Comet deployments on various EVM networks.
This modular architecture allows Compound to scale efficiently without compromising on security or governance control.
Key Features of Compound III
Built with lessons learned from years of operation and feedback from earlier versions, Compound III introduces several architectural and economic improvements aimed at borrowers, liquidity providers, and protocol安全性 alike.
1. Single Base Asset Model
By supporting only one borrowable asset (USDC on Ethereum), Comet reduces complexity and systemic risk. All other tokens serve solely as collateral, which streamlines risk assessment and improves capital utilization.
2. Customizable Supply Caps
Each collateral asset has a configurable supply limit, allowing governance to manage exposure based on market conditions and demand. This prevents over-concentration in any single asset class.
3. Flexible Risk Parameters
Comet introduces distinct borrow collateral factors and liquidation collateral factors, giving borrowers more breathing room before liquidation. This improves user experience and encourages responsible borrowing behavior.
4. Enhanced Risk & Liquidation Engine
The liquidation mechanism has been redesigned to strengthen protocol safety while preserving incentives for keepers and liquidators. It ensures rapid response during volatility without sacrificing fairness.
5. Native Chainlink Price Feeds
Instead of relying on proprietary oracles, Comet uses Chainlink’s decentralized price feeds directly. This choice enhances reliability and simplifies integration across EVM chains—critical for a multi-chain future.
6. Independent Interest Rate Models
Supply and borrow interest rates are now decoupled, enabling more granular economic tuning. Governance retains full control over these models, allowing adaptive responses to market shifts.
7. Advanced Governance & Management Tools
New tooling supports efficient testing, deployment, and management of Comet instances across chains. These tools empower delegates and developers to maintain high operational standards.
8. Built-in Incentive Mechanism
A core innovation is the inclusion of an abstracted rewards metric within the smart contracts. This allows early adopters and active users to be rewarded natively—similar to v2—but with greater flexibility through governance proposals.
9. Battle-Tested Codebase
Leveraging years of real-world data and prior protocol iterations, Comet benefits from a mature codebase equipped with robust testing frameworks and operational safeguards.
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Current Proposal: Parameter Discussion
The current governance proposal outlines initial parameters for the Ethereum deployment of Comet III. Supported collateral includes:
- Wrapped Ether (WETH)
- Wrapped Bitcoin (WBTC)
- Chainlink (LINK)
- Uniswap (UNI)
- Compound (COMP)
For each asset, specific values are being debated for:
- Borrow collateral factor
- Liquidation threshold
- Liquidation penalty (fee)
- Supply and borrow interest rate curves
These parameters are crucial for balancing risk, usability, and yield generation. Governance voters—many of whom represent large institutional holders—are expected to weigh in heavily on this decision.
Why This Matters: Compound’s Strategic Pivot
According to DeFi Llama, Compound currently holds $3.03 billion** in total value locked (TVL) on Ethereum within the lending category. In comparison, **Aave v2 alone has $5.41 billion on Ethereum, and when including Aave’s deployments across other EVM chains, its total TVL reaches $7.49 billion.
This gap highlights a key challenge: multi-chain presence drives growth. While Aave expanded early into networks like Polygon, Avalanche, and Optimism, Compound remained largely Ethereum-centric—until now.
With Comet III, Compound is clearly signaling its intent to catch up. By focusing first on USDC, one of the most widely adopted stablecoins across ecosystems, it ensures immediate utility and liquidity portability.
Moreover, USDC’s regulatory clarity compared to other stablecoins makes it a safer foundation for expansion—especially as scrutiny on crypto finance increases globally.
Governance Dynamics: Who Controls the Future?
Despite its decentralized branding, Compound’s governance is highly concentrated. Data shows that nearly 50% of voting power is held by just five major capital firms, including venture funds and large crypto investment groups.
This centralization raises questions about true decentralization but also means that critical upgrades like Comet III depend heavily on alignment among these key stakeholders.
If approved, Comet III could go live in phases across Ethereum and select EVM chains, with future additions determined by governance votes.
Frequently Asked Questions (FAQ)
Q: What is the main difference between Compound II and III?
A: Compound III (Comet) focuses on a single borrowable base asset (like USDC), uses Chainlink oracles natively, supports multi-chain deployment via EVM compatibility, and features improved risk modeling and incentive structures.
Q: Why is USDC chosen as the base asset?
A: USDC offers high liquidity, regulatory transparency, and broad acceptance across DeFi platforms, making it ideal for a scalable, cross-chain lending protocol.
Q: Can I still lend multiple assets in Comet III?
A: Yes—you can supply various approved tokens (e.g., WETH, WBTC) as collateral to borrow USDC, or supply USDC directly to earn yield.
Q: How does Comet handle liquidations?
A: It uses a redesigned engine with separate borrow and liquidation thresholds, reducing premature liquidations while maintaining system solvency.
Q: Will Comet launch on other blockchains?
A: Yes—Comet is built for EVM-compatible chains. After Ethereum deployment, expansions to networks like Arbitrum, Base, or Polygon are likely via governance decisions.
Q: How can I participate in Comet governance?
A: Holders of COMP tokens can delegate their votes or submit proposals via the official governance portal at compound.finance/governance.
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Final Thoughts
Compound III (Comet) represents more than a technical upgrade—it’s a strategic repositioning in a rapidly evolving DeFi landscape. By embracing EVM interoperability, prioritizing capital efficiency, and anchoring lending around USDC, Compound aims to reclaim relevance amid fierce competition.
While challenges remain—especially around governance centralization—the protocol’s legacy, battle-tested design, and renewed vision make Comet III one of the most anticipated developments in decentralized finance in 2025.
As multi-chain ecosystems become the norm, protocols like Comet may define the next generation of open financial infrastructure—efficient, secure, and truly user-incentivized.
Keywords: Compound III, Comet, USDC lending, EVM-compatible chains, DeFi lending protocol, multi-chain DeFi, decentralized lending, Compound governance