Compound Ditches Retail, Pursues Institutional Lending with $52 Million Budget

Compound Finance, once a shining star in DeFi lending, has announced its shift away from retail users. In an attempt to survive, the protocol has approved a record-breaking budget of $52 million and replaced its management team.

The decision was driven by dismal numbers: Compound's TVL (Total Value Locked) has plummeted 90% since its peak in 2021, falling from approximately $12 billion to $1.2 billion. Aave, another prominent DeFi protocol, now boasts a TVL of around $14.8 billion.

Compound's troubles can be attributed to its reliance on liquidity mining, which attracted yield-chasing capital rather than loyal users. When token rewards diminished or the COMP price fell, capital immediately migrated to higher-yield opportunities.

Aave, on the other hand, has been expanding rapidly across multiple chains and introducing new revenue streams, including the GHO stablecoin. Its Horizon protocol offers institutional RWA-backed lending using tokenized money market funds as collateral.

Compound's response lagged behind, stagnating in multi-chain expansion and product innovation. Governance gridlock and strategic drift have left the protocol struggling to compete in DeFi.

The $52 million budget will focus on building compliance infrastructure for institutional clients, including whitelist mechanisms, legal entity integration, risk management frameworks, and KYC/AML integration. The new management team has 'deep institutional experience,' according to CoinDesk.

Gal Stern, Chief Business Development Officer at deBridge, believes that now is a good time for this kind of work, as it allows for structural buildout while bringing in professionals who can explain DeFi to risk committees.