Popular decentralized finance (DeFi) protocol that provides borrowing and lending services, Compound has introduced a new version of its protocol named Comet, which it says is more ‘streamlined’.

A governance proposal had first been introduced for approving the launch, which has been touted as a ‘game-changing upgrade’ for those who borrow in the world of decentralized finance (DeFi).

Compound III

The founder of Compound, Robert Leshner, stated in a blog post that Compound III was the protocol’s more streamlined version that puts emphasis on capital efficiency, security as well as user experience.

He said that rather than adding complexity, they had removed it and this makes it the most effective tool that borrowers can enjoy in the DeFi market.

There are several improvements that can be found in the new version of the protocol, but the biggest change is that of a new borrowing model.

This is aimed at facilitating a single, interest-earning borrowable asset, with the other supporting assets playing the role of collateral.

The previous iterations had a pooled model in which the posted collateral was combined with other collateral.

For instance, if Ethereum was given as collateral for borrowing USDC, there was a possibility that it would be mixed with the assets of other users.

But, with the change, users will only be able to withdraw the collateral they deposit. Other users will not be able to withdraw it.

The advantage

Compound Labs’ VP of Engineering, Jared Flatow said that the benefit is that borrowing collateral factors and liquidation ones are different.

In this way, borrowers can remain safe from early liquidation and it can help in ensuring better risk management.

In the first deployment of the new version, users will be able to borrow the USDC stablecoin by providing collateral in the form of wrapped Bitcoin (wBTC), and Ethereum (ETH).

Native tokens of Uniswap (UNI), Chainlink (LINK), and Compound (COMP) can also be used and oracles of Chainlink would serve as the exclusive price feed of the protocol.

Risk management

Leshner said that users would not be able to use their collateral for earning interest, but they will be able to borrow a lot more.

Moreover, the risk of liquidation will also be reduced and the penalties associated with liquidation will also be lower and gas expenses would also be less.

In order to limit risk further, the passed governance proposal dictates that Comet would introduce market-wide limits on the number of collateral assets submitted individually.

The new version boasts a redesigned liquidation and risk management engine, which enhances the protocol’s safety.

Developers are also given access to advanced account management tools that can be used for building new applications on top of the protocol.

Furthermore, the governance system of the protocol will also change with Compound V3. Rather than individual management of a network of contracts, a single contract will be used in the new model.

This means one smart contract will contain all governance functionality, making participation and code base of the protocol simpler.