Compound III aims for Security and Scalability

16.09.2022

Compound Labs, decentralised finance (DeFi) developer, officially introduced Compound III.

For background, Compound was initially developed so that the developers could unlock an environment of open financial applications through algorithms. It is also noteworthy that Compound is an autonomous interest rate protocol.

On the other hand, Compound III is an Ethereum Virtual Machine (EVM). Technically, it allows cryptocurrency asset supply to become a form of collateral for their clients to take a loan of the base asset. Compound III is also a smooth-running and timesaving edition of the protocol, focusing on a more secure, effective, and efficient end-user experience.

You may check their official website at https://compound.finance/ for more information.

Since this lending platform, Compound III, is targeting to have a more secured and scaled protocol in supporting tokens, they recently launched new governance changes. As publicised by Compound III’s founder in a blog post, the company’s move was to release a short supply of cryptocurrency being used to collateralise the protocol in the lending platform.

Compound III aims for Security and ScalabilityNow, there is the latest iteration from Compound – it was made known as Comet. In Comet, end-users are allowed to take a loan of a United States Dollar Coin, or what is called USDC. It is an individual asset that earns interest through the use of wrapped Bitcoin, or wBTC, together with native cryptocurrency tokens like Chainlink (LINK), Uniswap (UNI) and Compound (COMP), still in the form of collateral.

Further, Compound III is employing Chainlink as its company’s data feed. In the case of Chainlink and Compound III, it is called Price Feed.

Chainlink’s Price Feed for decentralised finance (DeFi) is structured in advance. It aims to give DeFi applications financial exchange data in real-time, including trading rates for cryptocurrency tokens, coins, stock market, fiat currencies, and other financial data.

Chainlink is also responsible for simplifying Compound III’s smart contracts in governance. The objective here is to improve the company’s blockchain security and scalability. This limited edition release of Smart Contract Protocol has a set limit of one hundred million United States dollars (USD 100 million) in total worth of assets or approximately two percent (2 %) of the 3.8 billion United States dollars (USD 3.8 B) worth of Compound II assets.

According to Robert Leshner, the founder of Compound, their newest version, Compound III, enables end-users to take out a loan to hit up for additional cryptocurrency tokens with safer liquidation consequences such as penalties.

In a recent interview, R. Leshner expressed that the structure of version two of Compound has many risks, to the point wherein in just a single lousy asset, the whole protocol can, in theory, be drained. In contrast, the newly developed Compound III is risk-free from plummeting because of this single lousy asset.

Compound’s earlier program was iterated with risk pooling. This allowed the company to support nine cryptocurrency coins such as ether (ETH), dai (DAI), and tether (USDT). 

In the previous version, clients would have to deposit their assets in the crypto lending pool, where the goal was to receive profits. The clients’ deposits will be exchanged with cTokens, representing the worth of the deposits they made. Through these cTokens, the lending company can take out a loan with a particular percentage of the cryptocurrency collateral’s current value.

Compound III’s Blockchain Protocol Forking

Aside from diminishing Compound’s total amount of cryptocurrency tokens they support, they are also bulldozing forks without authority.

Forking means diverging or separating a blockchain into two different trajectories moving forward. If the mentioned platform is into protocol forking, they aim to clone the codes to build a new program design. Forking is usually modifying a blockchain’s initial coding structure. However, other forks from the same company, Compound, seemed to be structured with low efforts; thus, nothing much has improved besides the branding.

Compound III aims for Security and ScalabilityIn the latest coding, the fork is required to have the acknowledgement from communities. The intent of improving this new fork protocol is to ensure that the developed codes are not prone to exploitation.

Compound has developed to be a top-considered forked blockchain protocol in the past years. However, the uncomplicated process of having non-specialist program developers Clonie’s previous editions of protocols resulted in several headaches.

In particular, an exploitation case under Compound’s previous codes brought about an approximate loss of one hundred million United States dollars (USD 100 Million). This unfortunate situation is just one of the recorded exploitations of the decentralised finance environment, wherein codes were the cause of multimillions worth of companies’ losses.

What is more, it is becoming a common scenario in the industry.

As reported by Chain analysis in their recent study, around ninety-seven per cent (97 %) of the total cryptocurrencies embezzled during the first quarter of 2022 (that is, January to March) were affected by fraud from decentralised finance protocols. The scenario was the same in 2021, with approximately seventy-two percent (72 %) of stolen cryptocurrency assets.

Improved governance

Adding up to the secured blockchain Compound III is targeting, they also have the ambition to improve their governance system. That is through what they call “Configurator”, which is a streamlined contract. It is an alternative to the current agreements typically used in the industry that is being commanded individually.

In continuation with R. Leshner’s interview earlier, he emphasised that the basis of the codes is less complicated, and all datasets are managed in just one smart contract for every operation.

Today, end-users will have more control of their assets in the decentralised finance system through this improved governance, and Chainlink’s price feeds.

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