Compound 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, in a fully decentralized manner, without banks or brokers.
For early DeFi users, it felt obvious. The project raised millions in backing from Andreessen Horowitz, Bain Capital Crypto, Paradigm, and Coinbase Ventures.
Compound also helped popularize yield farming, especially after launching its governance token, $COMP, in 2020, which turned passive users into active participants.
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, cementing the protocol’s dominance in the space.
That changed in October 2021, when the protocol’s liquidity began to thin quickly.
Compound’s TVL. Source: DefiLlama
The decline is evident in Compound’s 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.
Value Leak
The problems began when a protocol update called “Proposal 62,” intended to adjust $COMP rewards, went live with a bug. As a result, the protocol began overpaying rewards, leaking tens of millions of dollars’ worth of $COMP to users.
Because of how Compound governance worked, the team couldn’t immediately stop it. The fix had to wait through a mandatory timelock. In the meantime, tokens kept flowing out, and confidence in the protocol’s stability went with them.
In an X post on Sept. 30, 2021 Leshner asked recipients who received excess $COMP to return it and offered a 10% reward for whitehat returns.
He added that “otherwise, it’s being reported as income to the IRS, and most of you are doxxed.” The threat sparked swift backlash from the crypto community, and Leshner later called it a bone-headed post and walked it back.
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.
Bad Timing
It’s hard to say if the October 2021 bug alone ended Compound’s dominance, but it clearly left the protocol vulnerable at a bad time. By December 2021, Bitcoin had started falling from its $69,000 all-time high, signaling the start of a multi‑year crypto bear market.
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.
The contrast became clearer as the 2022 crypto winter came in. After Terra’s multi-billion dollar collapse, the implosion of FTX, and a string of centralized lender failures, the crypto community grew more sensitive to systemic risk.
Behind the scenes, leadership was changing too. Leshner stepped back 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 their public shares on blockchain.
As a result, today Compound looks markedly different from its peak, when crypto lending was still taking off. Today, Compound’s once double-digit TVL sits at just below $1.4 billion. That makes it the 7th largest lending protocol in DeFi by TVL, where Aave dominates with a TVL of nearly $27 billion.
Monthly fees have dropped from a 2021 peak of nearly $47 million to about $3.5 million, while the protocol’s highest monthly revenue since the start of 2025 was $888,666, down from an all-time high of $5.14 million in April 2021.
Compound declined The Defiant’s request for comment for this story.
