Compound DAO Approves $52M Budget, Treasury Holds $5.95M

Compound's decentralized autonomous organization approved a $52 million development program on Aug. 17, the largest budget in the nine-year-old lending protocol's history. The money is meant to build infrastructure for banks, asset managers and other institutional lenders.

The DAO's own non-native treasury holds $5.95 million. The protocol earns $2.4 million a year in revenue. The commitment is nearly nine times the treasury and about 22 times annual revenue.

The governance proposal, posted to the protocol's forum in April, splits the funding into two pieces. $28 million goes to engineering, integrations and risk systems. $24 million goes to institutional partnerships and liquidity.

Funding releases in stages, starting with $14 million in the first year, tied to specific deliverables. Those include a new liquidation engine, integration kits for the current version, and completed audits of the next major version. The proposal states the goal plainly: "a trusted and easily integrated credit infrastructure layer for partners, institutions, and distribution platforms."

Running the effort is Aaron Schnarch, the Compound Foundation's executive director. Schnarch already held that title before this week's announcement. Compound's own account showed him presenting as executive director at a Yale Innovation Summit panel on institutional blockchain adoption earlier this year.

The push comes as Compound has fallen well behind its biggest rival. The protocol holds $1.24 billion in deposits, down from a peak of about $12 billion in 2021, a decline of roughly 90%. Aave, by comparison, holds $14.3 billion.

The $5.95 million treasury figure is not a one-time shortfall. Compound's own dashboard shows the protocol collects $32.87 million a year in fees but keeps only $2.4 million of that as revenue, about 7%. The rest flows through to lenders and suppliers on the platform.

Compound's $6.21 million in on-chain COMP liquidity is also thin next to the $33 million in COMP that changes hands daily. Most trading in the token happens away from Compound's own markets.

Goldfinch Finance, backed by Andreessen Horowitz and Coinbase Ventures, built a similar model starting in 2021, routing crypto deposits into loans for off-chain borrowers. The protocol originated about $100 million before widespread defaults forced it to wind down this June. One depositor reported more than $50 million in outstanding loans across eight borrowers, two in default and six being restructured, with realized losses near 70% against a protocol estimate of 20%.

Compound's own founder argued the opposite thesis three years ago. Robert Leshner told the Permissionless conference in Austin in September 2023 that "the institutions aren't coming," saying banks and asset managers wanted exposure to traditional assets like stocks and bonds. He left Compound Labs to found Superstate, a company built around bringing traditional assets onto blockchains rather than adapting DeFi lending for institutional use.

Schnarch's diagnosis today sounds similar. He said DeFi has achieved "limited institutional adoption" because current products fall short of "the traditional finance bar." The two men reached the same starting observation and chose opposite paths.

Neither Compound's proposal nor its public statements explain how the $28 million operational portion gets funded against a treasury this size. The DAO approved the program through its standard governance process. The proposal's milestone structure ties later payments to product deliverables rather than a lump sum.

Those milestones are the clearest test ahead: a liquidation engine, integration kits for Compound's current version, and completed audits of the next one. Compound has said new institutional products will launch within weeks.