The Story Behind Compound’s Rise to DeFi Dominance

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In mid-June, the algorithmic decentralized finance (DeFi) protocol Compound made headlines by approving a groundbreaking proposal: distribute its native COMP token to both lenders and borrowers on the platform. The announcement sent shockwaves across the crypto ecosystem, triggering a massive influx of user assets. In a matter of days, Total Value Locked (TVL) on Compound surged nearly fivefold—propelling it past long-time DeFi leader MakerDAO and securing its position as the new king of decentralized finance.

For years, MakerDAO had reigned supreme in the DeFi space. So dominant was its position that analytics platform DeFi Pulse introduced a metric called “Maker Dominance” to track how much of the total DeFi TVL was held within Maker’s ecosystem. But now, the tides have turned.

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Compound vs. MakerDAO: A New Leader Emerges

Recent data reveals that Compound’s TVL has reached $579 million**, surpassing **MakerDAO’s $470 million. More impressively, Compound also leads in collateral value, with **$915 million locked** (supporting about $330 million in borrowed value), compared to MakerDAO’s $470 million in collateral (backing roughly $128 million in debt).

This shift is so significant that DeFi Pulse has officially retired “Maker Dominance” and replaced it with “Compound Dominance”—a testament to Compound’s growing influence. With 38% of the entire DeFi market’s TVL, Compound now sits at the top of the decentralized finance hierarchy.

But how did this happen? What propelled Compound from contender to champion?

Let’s explore the key factors behind its meteoric rise.

1. How Decentralized Governance Fueled Growth

The primary driver behind Compound’s success is its true commitment to decentralized governance.

While many DeFi platforms claim to be decentralized, most still rely on centralized teams to manage core functions like interest rate calculations or feature rollouts. Compound, however, made a pivotal move in 2020: it began distributing its COMP governance token directly to users—lenders and borrowers alike—effectively transferring control of the protocol to its community.

Unlike traditional models, Compound the organization holds no COMP tokens, meaning it has zero voting power in governance decisions. Even more radical: any governance proposal must be submitted as executable code, ensuring transparency and eliminating backdoor control—even from the founding team.

This model empowers users to shape the protocol’s future. Notable community-approved changes include:

These upgrades weren’t just technical—they were psychological. By giving users real ownership, Compound transformed passive participants into active stakeholders. The result? Rapid network growth, increased trust, and a self-reinforcing cycle of engagement.

2. The Role of COMP Tokens in User Incentives

At the heart of Compound’s ecosystem are cTokens—smart contracts that represent user deposits. When you supply assets like ETH or DAI to Compound, you receive cTokens in return (e.g., cETH, cDAI). These tokens accrue interest over time and can be redeemed 1:1 for the underlying asset.

There are two types of cTokens:

But what truly ignited user activity was the introduction of “liquidity mining”—a model where users earn COMP tokens simply by lending or borrowing on the platform. The more interest generated, the more COMP rewards earned.

Here’s how it works:

Rewards are split evenly between lenders and borrowers in each market (e.g., 50% to DAI lenders, 50% to DAI borrowers). This design ensures balanced participation across both sides of the market.

COMP Token Distribution Breakdown:

Because COMP is fully transferable, it behaves like any other crypto asset—traded on exchanges, held in wallets, or used for governance. And with governance power comes influence, making COMP highly sought after.

👉 Learn how token incentives are revolutionizing user engagement in DeFi.

3. How COMP’s Economic Model Creates Value

Users don’t just earn COMP passively—they can strategically use it to maximize returns.

One popular tactic is yield farming arbitrage:

  1. Borrow a low-interest stablecoin like USDT.
  2. Convert it 1:1 into DAI.
  3. Deposit DAI as collateral on Compound.
  4. Earn interest + COMP rewards.

If the combined yield exceeds the borrowing cost, the user profits risk-free—on paper.

However, risks exist:

Despite these concerns, most Compound users rely on stablecoins (DAI, USDC, USDT), minimizing exposure to price swings. This cautious approach helps sustain long-term participation.

FAQ: Your Questions About Compound Answered

Q: What is Compound Dominance?
A: It’s a metric tracking Compound’s share of total DeFi TVL. After surpassing MakerDAO, DeFi Pulse renamed “Maker Dominance” to reflect Compound’s new leadership role.

Q: Can anyone vote with COMP tokens?
A: Yes. COMP holders can vote directly or delegate their voting power to others. Over 373 addresses currently hold voting-capable balances.

Q: Is liquidity mining still active?
A: Yes. Approximately 4.2 million COMP tokens remain to be distributed over the next few years.

Q: What assets can I lend on Compound?
A: Supported assets include ETH, DAI, USDC, USDT, BAT, REP, WBTC, and ZRX.

Q: How are interest rates determined?
A: Rates are algorithmically adjusted based on supply and demand within each market—no central authority intervenes.

Q: Can I lose money using Compound?
A: Yes. While stablecoin lending is relatively safe, borrowing volatile assets or using high leverage increases liquidation risk.

The Bigger Picture: Decentralized Governance as the Future

Compound’s rise isn’t just about numbers—it’s a proof-of-concept for true decentralization. By aligning incentives through token distribution and removing centralized control, Compound demonstrated that a community-governed protocol can outperform legacy systems.

Its success may set a new standard for DeFi projects moving forward. As more protocols adopt similar models, we could see a future where users don’t just use financial platforms—they own them.

👉 See how next-generation DeFi platforms are redefining ownership and control.

Core Keywords:

With over $579 million in TVL and a thriving community of stakeholders, Compound has proven that decentralization isn’t just an ideal—it’s a competitive advantage. As the DeFi landscape evolves, one thing is clear: the era of user-owned finance has begun.