Compound: The Money Market Protocol

The problem the paper names

Matching a lender to a borrower is slow, and a bilateral loan does not let a supplier exit without the borrower's cooperation. Compound pools suppliers of one asset and borrowers of that asset, and prices the rate from how full the pool is.

What the design proposes

• Each asset is a market. Supply and borrow balances are claims on that market, not IOUs against a named person.
• A collateral factor limits how much a borrower may take against a given asset.
• If health falls through a threshold, a liquidator may repay part of the debt and seize collateral, with a discount.

How the mechanism is specified

• The interest-rate model is a public function of utilisation. Changing the function is a governance action, which the paper locates outside the core math.
• Interest compounds into the exchange rate of the claim token, in the paper's accounting.
• Oracle prices determine collateral value. The paper needs an oracle even where it does not dwell on one.

What this page does not treat as proven

• A collateral factor is a risk parameter, not a scientific constant.
• Liquidation only works if someone is willing and able to do it, and if the oracle is timely.
• Later Compound versions and the COMP distribution are not this paper.

Why a venture studio still reads it

The template for on-ledger money markets. A venture copying it needs an answer on oracles, on who sets collateral factors, and on what happens when the asset cannot be liquidated at the price the oracle printed.