Compound finance
Compound finance connects supplying and borrowing with market-specific reward eligibility
Compound finance lets users supply crypto to lending markets and borrow against collateral, with rewards governed by each market's configuration. In Compound III, each market has a base asset that users can supply for interest or borrow against supported collateral. Collateral deposits do not earn Compound III interest. Additional rewards depend on eligible base-asset participation and configured accrual conditions. A recorded supply or borrow confirms the position; receiving rewards requires a separate successful claim.
Updated -In short: Compound III separates base-asset interest, collateral backing, and reward claims, so supplying an asset does not automatically establish reward eligibility.
Eligible balances and recorded rewards
Compound III tracks reward participation through an account's base-asset supply or borrowing balance. Supplying collateral alone does not create either balance. The selected market must support rewards, and the relevant supply or borrow tracking speed must permit accrual. Supplier rewards require the market's total base supply principal to meet baseMinForRewards; borrower rewards apply that threshold to total borrow principal. These totals exclude accrued interest. An account's balance alone does not establish reward eligibility.
The core contract, Comet, maintains reward tracking alongside account balances. The separate rewards contract calculates the configured token amount owed after accounting for previous claims. A displayed supply balance confirms participation, while an amount owed identifies accrued, unclaimed rewards. Neither proves that a reward transfer has reached the recipient.
Base assets, collateral, and account balances
Compound III assigns different jobs to the base asset and supported collateral. Each market permits borrowing its base asset, while collateral determines borrowing capacity. Markets maintain separate positions and configurations; collateral in one market does not automatically secure borrowing elsewhere.
Supplying the base asset
A base-asset supply first reduces any existing base-asset debt in that account. Only the amount beyond repayment creates a positive supply balance. This distinction matters when a transaction succeeds but the account does not show the interest-bearing deposit that the user expected.
Supplying collateral and borrowing
Collateral balances
Supported collateral adds borrowing capacity according to its price and borrowing collateral factor. Asset-specific supply caps constrain deposits. The collateral remains exposed to its own price movements even though Compound III does not pay lending interest on it.
Base-asset debt
Borrowing creates a negative base-asset balance. The protocol requires sufficient collateral and applies a configured minimum borrow size. Interest then increases the amount owed. Supplying the borrowed asset reduces that debt through the same supply operation used for deposits.
Does lending interest automatically become a reward token?
Lending interest increases the base-asset supply balance; it does not automatically convert into a separate reward token. Reward tracking follows another calculation, with its own configuration and claim process.
Compound III calculates interest accrual using elapsed seconds measured by block timestamps. Separate supply and borrow models use base-asset utilization, which relates total borrowing to total supply. Their configured slopes determine how rates respond as utilization changes. An annualized display describes those conditions at the time of calculation, rather than fixing the return over the coming year.
Reward tokens introduce another valuation input. Their market value can change independently of the supplied asset or borrowing cost. A reward allocation therefore does not establish that borrowing produces a positive return.
A supply preview blocked by token allowance
Consider a supply preview that reports insufficient token allowance. The intended position is a positive base-asset supply in a market with configured supplier rewards, using an account without existing debt. Reading balances, allowance, and market settings can identify the problem before authorizing a transfer. A zero reward preview alone does not diagnose an allowance failure.
Read-only checks preserve the option to abandon the deposit. An approval changes spending permission; the later supply transaction commits the assets to the protocol. Before supplying, the account can revoke unused spending permission by setting the allowance to zero. Revocation does not reverse completed transfers.
| Stage | Action | Observable evidence | Asset control or permission |
|---|---|---|---|
| Identify the position | Read the selected account's base balance and debt. | The account has no debt that would consume the intended supply. | Reading balances moves no assets. |
| Establish eligibility | Inspect supplier reward settings and applicable accrual conditions. | The selected market supports the intended reward participation. | Configuration checks require no spending permission. |
| Diagnose the preview | Compare the intended supply with the token allowance for Comet. | An insufficient allowance explains the reported failure. | The account can abandon the operation before authorization. |
| Authorize the supply | Approve the intended token spending after reviewing the spender. | The token contract records sufficient allowance. | Tokens remain in the wallet, with spending permission granted. |
| Commit the deposit | Submit the supply after the preview succeeds. | The transaction succeeds and the market credits the base balance. | The protocol holds the supplied assets. |
| Read accrued rewards | Refresh the account's amount owed as eligible participation accrues. | The rewards calculation reports the configured token and amount owed. | An owed amount remains separate from wallet holdings. |
| Receive an available claim | Claim a positive amount when the rewards contract can transfer it. | The successful claim records the token transfer to the recipient. | The recipient controls the transferred tokens. |
If the amount owed remains zero, the recorded supply still confirms the deposit. There is no positive reward amount to claim at that point. An additional base-asset deposit can help meet the market-wide supplier reward threshold, but it cannot enable disabled rewards. A failed transfer also leaves receipt unconfirmed.
Accrued amounts and completed claims
A reward claim transfers the amount that the rewards contract calculates as owed. Its accounting incorporates the configured token conversion and previous claims. Raw tracking values therefore should not be interpreted directly as wallet token amounts.
The claim option that refreshes accrual includes newly accounted rewards before attempting the transfer. Successful receipt requires sufficient reward tokens in the contract and a successful token transfer. A successful transaction with nothing owed can transfer nothing. The transfer amount, recipient, and claim record distinguish actual receipt from merely submitting a transaction.
When can borrowing put collateral at risk?
A Compound III borrowing position becomes eligible for liquidation when its debt exceeds the collateral value allowed by liquidation collateral factors. Falling collateral prices or increasing debt can move the account across that boundary.
Compound III uses separate collateral factors for initial borrowing capacity and liquidation eligibility. Losing permission to borrow more therefore does not necessarily mean that liquidation can already occur. The account's liquidation test answers a different question from its borrowing-capacity test. Reward accrual does not change either test or offset debt automatically.
During liquidation, the protocol absorbs the account's debt and takes its collateral. The accounting applies a liquidation penalty; any resulting positive base balance belongs to the account. This mechanism can remove the original collateral even when the account previously accumulated rewards.
Compound v2 and Compound III positions
Compound v2 represents supplied assets through cTokens, whose exchange rate reflects accrued interest in the underlying asset. Compound III instead uses base-asset balance accounting and separate collateral balances. This difference determines where interest appears and which supplied assets earn it.
In v2, users enable eligible supplied markets as collateral through the Comptroller. Borrowing across supported markets remains subject to collateral and liquidity constraints. Its COMP distribution also depends on market settings; supplying or borrowing does not establish a universal reward entitlement. The v2 claim mechanism belongs to the Comptroller, while Compound III uses its external rewards contract. Position identification must therefore include the protocol version.
Repayment, withdrawal, and continuing permissions
Repayment reduces debt, while withdrawal returns assets subject to the market's rules. Removing collateral cannot leave a Compound III account below its borrowing collateral requirement. Base-asset withdrawals also require sufficient transferable liquidity. Closing a position changes future participation, but claiming accrued rewards remains a separate operation.
Spending allowances and account-manager permissions also remain distinct from balances. Compound III allows an account owner to authorize another address to withdraw or transfer on its behalf. Removing that permission stops subsequent authorized management; it does not reverse completed transfers.
COMP holders and delegates govern protocol changes, including reward settings and risk parameters. Authorized pause controls can also restrict operations, including withdrawals. A position's exit options therefore change when collateral requirements, liquidity, or pause status change, even if its earlier deposit succeeded.
What readers ask about Compound finance
Do I need to hold COMP before supplying assets?
Holding COMP is not a prerequisite for an ordinary Compound III supply. Participation uses the selected market's supported asset and the required transaction authorization. COMP has a governance role, while reward eligibility follows the market's participation rules. Holding the governance token alone does not activate supplier rewards.
Can another account claim my Compound III rewards?
Another account can call the standard claim function for your account, with the rewards going to your account. Sending them to a different recipient through claimTo requires permission from the reward-owning account. A transaction sender and a reward recipient therefore need not be the same address.
Why does the raw reward counter differ from the displayed token amount?
The raw counter uses internal tracking units that the rewards contract converts into the configured token amount. Token scaling, any configured multiplier, and previously claimed rewards affect the amount owed. Comparing an unconverted tracking number directly with a wallet balance can therefore produce a misleading discrepancy.
Is supplying assets on behalf of another account supported?
Compound III supports supplying assets to a separate destination account through supplyTo. The destination receives the protocol balance, which matters when the sender expects to see participation under its own address. Supplying through an authorized manager uses a separate permission model. The credited account determines whose position the transaction changes.
What happens to a v2 deposit when its cTokens move to another account?
Transferring v2 cTokens transfers the corresponding claim on the underlying supplied asset. The sender's supplied position decreases and the recipient's increases. A transfer can fail when the sender uses that market as collateral and the transfer would create an account liquidity shortfall.