Thread by @BoyanBarakov

1/ @compoundfinance published version III of the protocol last week.

Why is it essential for the #DeFi lending landscape, and what opportunities does it create?

🧵⤵️

2/ The highlight of the new version called "Comet" is the introduction of lending markets with single borrowable assets.

Each market can be seen as a separate protocol instance with its own collateral and liquidation factors.

3/ This gives the flexibility to create tailored money markets with different flavors and risk profiles deployed across multiple EVM chains.

Other major improvements ⤵️

4/
- redesigned liquidation system to increase protocol safety by keeping incentives for liquidators

- whole new account management and rewards systems, no cTokens

- authorizing onBehalfTo operations similar to Aave

5/ The code is under the “Business Source License” which gives the power to $COMP governance to allow deploying new protocol instances or grant other projects the right to use the code.

6/ The claim is to build more capital-efficient money markets by reducing overall risk.

How can Comet achieve this?

7/ In the existing version of Compound, adding a new asset as collateral is a problematic decision.

The whole protocol is as safe as its “weakest” asset.

8/ We’ve seen a lot of Compound forks with a more aggressive policy of adding new assets, and some of them suffered major hacks, with the most famous one being @CreamdotFinance

9/ @RariCapital approached the trade-off between safety vs. flexibility with Fuse in a more interesting way.

Fuse pools are isolated instances of Compound with their own list of assets and a custom set of rules.

10/ Fuse pools found a good PMF allowing other projects to create markets for their tokens w/o relying on the hosting protocol’s governance decisions.

Some of those markets also suffered from hacks, but losses stayed isolated only to the affected pools.

11/ Comet is a move in the right direction.

While keeping a solid case for the governance, there will be enough flexibility w/o compromising the protocol’s overall safety.

12/ @compoundfinance and @AaveAave dominated the lending markets with relatively similar products throughout this cycle.

13/ With the recent launch of V3, Aave continues its expansion in a more horizontal way, adding more and more new features to the protocol’s core activity.

Compound III, on the other hand, turns away from the “one fits all” approach.

14/ This allows for more space for experiments through “franchises” or other forms, thus creating more market verticals.

There are no limitations for the single borrowable asset; it can be of any type.

15/ Going forward, a drawback for composability in #DeFi lending and borrowing is the lack of standardization.

We recently saw another DeFi primitive such as yield-bearing vaults getting their ERC-4626.

16/ Compound v2 de facto plays this role on the lending side where most of the protocols are highly inspired or forks of v2.

We’ll see how Comet rolls out but my bet is that it will lay down the bases for such standardization.

17/ The contracts are still undergoing audits, but they are already deployed to Kovan, and you can test them out through a UI at …qjt4kimwg6ajcbc3a.ipfs.infura-ipfs.io
this is the Github repo of Comet
github.com/compound-finan…