Compound Chain Foreshadows Cross-Chain DeFi Lending

Compound Finance is entering uncharted DeFi territory with an independent blockchain called Compound Chain.

Underpinned by a native unit of account called CASH, Compound Chain is a “reimagination of the Compound Protocol” that is “proactively preparing for the rapid adoption of digital assets, both on Eth2 and central bank digital currency ledgers,” according to compound.cash. $3.7B worth of assets are being supplied on Compound today, making it the largest US-based DeFi lending protocol.

CASH Pays for Transactions

Compound Chain will allow users to lend governance-approved assets from any blockchain and borrow against them to mint CASH, according to a primer published Thursday. CASH is used to pay for all transaction fees and accrues a continuously compounding interest rate to holders. 

Compound Chain will be used to lock and account for balances on other chains using smart contracts called Starports. These assets are represented as balances on Compound Chain that live on their ‘peer blockchain’ (i.e. Ethereum, Tezos, etc.) meaning that protocols could reference locked collateral from any other chain using Compound as the connective tissue.

“Any balance on Compound Chain can be sent to any other address, an Ethereum address can send Compound Chain ETH to a Tezos address, or a Tezos address can send Compound Chain WBTC to Solana”.

Different from a Layer 2

This inherent structure makes it marginally different from a layer two solution, as Compound can now direct and aggregate value from many blockchains, including Ethereum and any layer two networks it supports.

Image source: Kerman Kohli – DeFi Weekly

Mixed Community Sentiment

The decision to become protocol agnostic has received mixed feelings from the DeFi community. Those in favor see Compound Chain as the natural extension of a growing DeFi market that will soon include chains outside of Ethereum. Critics say that Compound Chain’s consensus mechanism, which operates with governance-approved validators, would be a more centralized solution than Ethereum. Governance of Compound protocol on Ethereum, which is ruled by COMP holders, controls Compound Chain.  .

This attempt at a vertical-specific chain (i.e. DeFi lending) is one of the first of its kind, and an approach that has the potential to differentiate Compound from other Ethereum lending protocols like Aave.

“We’re excited to have this whitepaper out in the world.” strategy lead Calvin Liu told The Defiant “It’s an early phase of a huge vision, and just the tip of the iceberg.”

As suggested, Compound Chain will be rolled out gradually over the course of the next year, with this release offering a glimpse into what’s been going on under the hood since the release of COMP. Outlined in the end of the paper, all aspects of Compound Chain will continue to be governed by the Ethereum-based COMP token.

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