Compound: Lending on the Blockchain

This case critically examines Compound, an innovative decentralized finance (DeFi) platform. Focusing on Compound’s blockchain-based borrowing and lending protocol, the case explores its automated, intermediary-free system using Ethereum smart contracts. This system significantly contrasts with traditional finance, offering greater accessibility, transparency, and the opportunity to earn interest on cryptocurrency holdings. The case delves into the platform’s distinctive features, such as liquidity pools, algorithmically set interest rates, and a decentralized governance model allowing token holder voting. However, it also addresses inherent DeFi risks like smart contract vulnerabilities, governance complexities, and market volatility. Highlighting a specific operational incident within Compound, the study underscores the challenges in balancing decentralization with operational efficiency. This case is pivotal for understanding DeFi's innovative yet intricate nature, posing crucial questions about blockchain technology's role in reshaping financial paradigms, and is especially relevant for individuals at the intersection of finance and technology.