The DeFi protocol, Compound, aims to launch a blockchain network that allows cross-string value transfer.
The DeFi lending protocol, Compound, published a whitepaper on Thursday introducing Compound Chain, a new blockchain network aimed at providing value transfer capability between chains.
Reactions to the news have been overwhelmingly negative and many respondents on social networks disagree with the perceived centralisation concerns associated with the project. Perhaps expecting a negative response from „Crypto Twitter“, Compound Labs even limited the responses in its tweet announcing the project.
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According to the whitepaper, Compound Chain is a blockchain architecture that will allow cheaper value and liquidity transfer across different distributed networks. The project will use the Test of Authority (PoA) consensus among a group of validators to govern the chain with CASH as the native currency of the stablecoin.
While not complete in detail, the technical document rated CASH as similar to MakerDAO’s Dai. However, unlike Dai, CASH will be used to settle transaction fees in the Compound Chain.
As part of the documentation released on Thursday, the Compound Chain is a response to three main problems: high gas tariffs, aggregate risks associated with the backed assets, and the inability to manage non-ethereum-based assets. By using PoA among a limited number of validators, Compound Chain can, in theory, deliver faster transactions.
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However, as is often the case, higher transaction returns are achieved at the cost of decentralisation. Indeed, critics such as Anthony Sassano of Set Protocol argued:
„Although the reason [ETH gas tariffs are] expensive is because Ethereum’s performance is limited due to its extreme decentralisation, Compound Chain will only have low tariffs because it will be much, much less decentralised, as it is a PoA chain (where validators are chosen by COMP governors)“.
Instead of creating a complete blockchain network, Sassano felt that Compound could achieve the same goal by using layer two solutions in the Ethereum chain. However, layer two implementations also come with additional composability concerns, especially for DeFi users.
In defending the project’s decision to create a new blockchain network, Compound Finance founder Robert Leshner noted that Compound Chain would allow cryptoactives broadcast on other blockchain networks to be linked to „where DeFi occurs,“ i.e., Ethereum. Leshner highlighted assets such as digital central bank currencies (CBDC) as likely use cases for the planned network’s cross chain function.
Compound refused to compensate the victims of the Dai liquidation in November
As Cointelegraph reported earlier, the founder of Compound Finance is confident of future synergies between centralised finance (CeFi) and DeFi. However, the initial technical document did not contain an explanation of how the project will resolve compatibility issues while transporting non-ETHEREUM-based assets to the Ethereum chain.
The news of the planned blockchain Compound Chain comes less than a week after a planned compensation fund for users affected by the Dai mass liquidations that occurred on November 26 failed to get enough votes.