Ameen Soleimani – 8 min read

You’ve probably heard of Compound. They built on Ethereum which allows you to lend and earn interest on your ETH, DAI, USDC, and several other ERC20s.



I spent some time over the last month evaluating several categories of risk when lending on Compound:

  1. Contract Security Risks
  2. Centralized Points of Failure
  3. Bank Run Risk

I break my investigation down by category below, but the most important things to know are:

  1. The smart contract security seems legit.
  2. Compound is a CUSTODIAL system, all lending pools can be trivially drained if their admin private key is compromised.
  3. When you lend on Compound, you are NOT guaranteed to be able to withdraw whenever you want. If you try to withdraw your funds and all the money is locked up in outstanding loans, your withdrawal transaction will fail.

I hope these lenders understand the risks… source:

Contract Security

Compound has been audited by several reputable smart contract security firms.

  1. OpenZeppelin Audit Report
  2. Trail of Bits Audit Report
  3. Certora Audit Report

In addition, Compound was offering a private bug bounty of up to $250,000 for critical vulnerabilities (defined as 1% of funds stolen or 10% frozen), and to my knowledge no independent security researchers have been able to claim the bounty.

The contracts have also held $20M+ for over 6 months, $50M+ for over 2 months, and currently hold $100M+. For me personally, the most important metric of contract security is total funds held in contract * time held in contract, and Compound has been secure with quite a large public bounty thus far.

Based on the above factors, I presently believe that the Compound smart contracts are secure.

Centralized Points of Failure

I’m not a smart contract security expert myself, so I enlisted the assistance of the one and only samczsun who famously found a critical bug in the 0x contracts (despite multiple audits from top firms) and was paid $100,000 for it. He had the following to report about centralized points of failure in Compound (emphasis mine):


Cryptocurrencies were supposed to destroy the traditional monetary system. Ten years on, where are we?
Bitcoin has been wildly successful, but as a financial game–not as a medium of exchange.