Compound Finance’s DAO has approved a $52 million budget—the largest in the lending protocol’s history—and replaced its management team as it redirects development toward tokenized real-world assets, institutional credit and compliance tools. The plan marks a break from the retail-driven liquidity-mining model that helped make Compound one of DeFi’s early leaders but has struggled to restore its position as activity moved to competitors and multi-chain markets.
The budget is intended to finance infrastructure that financial institutions commonly require before using on-chain lending markets. That includes whitelisting controls, links between wallets and legal entities, risk-management processes, and know-your-customer and anti-money-laundering integrations.
Compound has not yet publicly set out the full architecture for combining those permissioned functions with its existing open lending markets. The distinction will shape whether institutions use isolated pools, as several RWA projects do, or interact with a shared protocol under additional eligibility rules.
Compound seeks a new source of liquidity
The strategic shift follows a steep reduction in the capital deposited in Compound’s markets. DefiLlama data shows the protocol’s total value locked peaked at roughly $12 billion in 2021 and later fell to about $1.2 billion, leaving it far below its previous scale.
Aave, Compound’s main decentralized lending rival, held approximately $14.8 billion in total value locked in the figures cited for the same period. The gap reflects Aave’s expansion to networks including Arbitrum, Optimism, Polygon and Avalanche, where lower transaction costs and new user bases helped extend its lending operations beyond Ethereum mainnet.
Compound became a defining protocol of the 2020 DeFi Summer after introducing a liquidity-mining system that distributed COMP tokens to people who supplied assets or borrowed through its markets. The approach created a powerful incentive to move capital into Compound, helping to establish the model later adopted across decentralized finance.
That mechanism also tied part of Compound’s activity to the value of its governance token. COMP reached roughly $900 during the 2021 market cycle before falling below $50, based on historical market-price data. Lower token prices reduce the dollar value of reward emissions unless a protocol increases the number of tokens it distributes, a choice that can create further dilution for existing holders.
The new budget suggests Compound is seeking to compete on services that are less dependent on short-term token rewards. Institutional firms considering on-chain credit generally need controls that open DeFi markets were built to avoid: defined counterparties, custody arrangements, audit documentation, legal opinions, insurance provisions and a clear route for meeting internal compliance requirements.
Those requirements can make institutional lending slower and more expensive to launch than a standard permissionless pool. They can also create a different type of liquidity base, one that may be more durable than yield-seeking capital but is subject to stricter onboarding and collateral standards.
Aave has already moved into RWA lending
Aave has built a lead in the area Compound is now targeting. Its Horizon initiative is designed to let users borrow USDC and Aave’s GHO stablecoin against approved tokenized real-world assets, including tokenized money market funds.
Horizon uses a hybrid design: lending liquidity remains permissionless, while the collateral accepted by the system is restricted to approved RWA tokens. That structure attempts to preserve open access to borrowing liquidity without allowing unvetted assets to enter the collateral side of the market.
Aave’s published Horizon framework also sets a revenue-sharing schedule under which 50% of revenue would go to the Aave DAO during the first year, declining to 10% by the fourth year. The initiative has been positioned around the potential growth of tokenized financial assets, a market Standard Chartered has forecast could reach $16 trillion by 2030.
The model gives Aave a more developed reference point for Compound’s strategy. Compound will need to show where its product design, governance process or risk framework offers an advantage rather than merely adding similar permissioned features after a rival has already entered the market.
Governance friction remains part of the backdrop
Compound’s organizational changes also follow disputes within its DAO. In September 2025, the DAO rejected a proposal to recover 300,000 COMP previously allocated to special delegates, with 70% of participating votes opposing the measure.
That episode illustrated a recurring challenge for protocols governed by token holders: strategic changes, treasury decisions and accountability measures can take longer to resolve when authority is distributed across delegates with different economic interests. Replacing the management team and approving a large development budget may give Compound more operational capacity, but the DAO will remain responsible for overseeing how the funds are used.
The plan arrives during a weaker period for decentralized finance more broadly. DefiLlama data cited in the proposal materials puts sector-wide TVL at about $70 billion after a decline of more than one-third year to date. Lower crypto-asset prices, reduced lending yields and security concerns have all made capital more selective.
MakerDAO, now operating under the Sky brand, has also moved substantial parts of its balance sheet toward real-world assets, particularly U.S. Treasury exposure and on-chain structures tied to traditional financial instruments. Its DAI and USDS stablecoin ecosystem increasingly relies on a mix of collateral that extends beyond purely crypto-native assets.
Compound’s $52 million commitment places it within that same contest for regulated on-chain finance, but with a more difficult starting point. The protocol must rebuild product momentum while preserving enough of its permissionless identity to retain existing users. Its next test will be whether the budget produces concrete institutional lending markets, rather than compliance infrastructure that adds cost without attracting sustained liquidity.
Want deeper context on DeFi’s institutional pivot and RWAs? Explore our tokenized real-world assets guide next.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
