Compound Crypto: What It Is, How It Works, and What You Need to Know

When you hear Compound, a decentralized finance protocol that lets users lend and borrow crypto without banks. Also known as Compound Finance, it was one of the first platforms to turn idle crypto into earning power—no paperwork, no credit checks, just smart contracts. Unlike traditional banks that pay you pennies on savings, Compound lets you earn real yields on assets like ETH, USDC, or DAI—sometimes over 5%, sometimes more. It’s not magic. It’s math. And it’s built on Ethereum, so your money moves through code, not tellers.

Compound works by pooling your crypto into liquidity pools. When someone else wants to borrow, they lock up collateral—say, ETH—and take out a loan in USDC. You, as a lender, earn interest from their payments. The rate? It changes every block based on supply and demand. If everyone’s borrowing USDC, the rate goes up. If everyone’s depositing, it drops. There’s no middleman deciding rates. The market does. And because it’s open-source, anyone can audit the code. No hidden fees. No surprise terms. Just transparency.

But Compound isn’t just for earning. You can also borrow. Deposit ETH, get a loan in DAI. Use that DAI to buy more crypto. Reinvest. It’s leveraged yield farming in practice. But here’s the catch: if the price of your collateral drops too fast, your position gets liquidated. That’s not a bug—it’s a feature. The system protects lenders by automatically selling collateral before it becomes worthless. Still, it’s risky. People lost money in 2022 when ETH crashed and Compound’s liquidation bots kicked in hard.

Compound also ties into bigger DeFi ideas. It’s part of the DeFi, a system of financial apps built on blockchains that replace banks and brokers. Also known as decentralized finance, it enables lending, trading, and saving without central control. You’ll see it linked to crypto lending, the practice of loaning out digital assets to earn interest. Also known as lending crypto, it’s the backbone of yield strategies across wallets like MetaMask and WalletConnect. And then there’s interest-bearing crypto, digital assets that generate returns just by sitting in your wallet. Also known as yield-bearing tokens, they’re the reason you can now earn more on USDC than in a savings account. These aren’t separate ideas—they’re layers of the same system. Compound sits at the center.

Most people don’t use Compound directly. They use apps that plug into it—like Aave, Yearn, or even centralized platforms that quietly route your deposits through Compound’s pools. But knowing how it works helps you spot the real opportunities—and avoid the scams. If someone promises 100% APY on Compound, they’re lying. The protocol’s rates are public. You can check them live. If a platform says they’re giving you extra rewards from Compound, ask how. Most of the time, it’s a Ponzi.

What you’ll find in these posts aren’t theory pieces. They’re real reviews, breakdowns, and warnings from people who’ve used these tools. You’ll see how Compound connects to yield farming, how it’s used in high-risk DeFi plays, and why some users walk away after losing money to liquidations. You’ll also see how it’s being used by people who just want to earn something on their stablecoins without touching exchanges. No hype. No fluff. Just what’s actually happening on-chain.