This latest version, unlike previous versions, only enables single “underlying asset” for lending. It eliminates the “hybrid risk concept in which users may loan any asset” by offering alternative encrypted assets as collateral.
ETH, WBTC, LINK, UNI, and COMP are now being utilized as collateral to lend USDC, the underlying asset. Users may borrow any digital tokens since Compound V2 employs the same pool risk mechanism as the majority of existing loan agreements, such as Aave. However, badly performing assets might endanger rest of the assets in the Compound lending protocol, culminating in the risk of investor money.
Consequently, this enhancement enables users to restrict the quantity of particular collateral assets inside the market in order to reduce risk. This enhanced protection has a price tag. The given collateral will no more accrue interest.
Robert Leshner, the inventor of Compound, said that despite the fact that consumers may no more accrue interest on collateral, they can loan more, enhance capital use, minimize liquidation danger, and pay less in Gas Fees. Users may earn money by offering underlying assets with lesser risk. With this improvement, Compound III’s primary rival is no more Aave, but MakerDAO.
Under 24 hours of its introduction, Compound III has acquired around $1.03 million in assets and loaned 56,000 USDC, according to official statistics.