Risk Assessment
Compound V1 (MoneyMarket) Risk Assessment
Overview
Compound V1, originally called “MoneyMarket,” launched on Ethereum mainnet on September 27, 2018. It was one of the first algorithmic interest rate protocols, allowing users to deposit assets to earn interest and borrow against collateral. The original V1 was deprecated in June 2019 when Compound V2 launched.
V1 was a proof-of-concept that established the core mechanics of algorithmic interest rates but had significant centralization risks through admin controls. The protocol is no longer active (TVL effectively zero) but remains historically important.
Smart Contract Risk
Contract Architecture:
- Monolithic MoneyMarket.sol contract (~1,500 lines)
- Admin-controlled parameters and functions
- No proxy pattern (direct deployment)
- Simple architecture compared to later versions
- Interest rate models could be updated by admin
Code Quality:
- Audited pre-launch (limited scope)
- Open source on GitHub
- Simpler codebase than V2/V3
- Operated for ~9 months before deprecation
- No critical exploits during active period
- Code served as foundation for V2 improvements
Attack Surface:
- Admin key risks (single point of failure)
- Oracle dependencies for pricing
- Interest rate model manipulation by admin
- No timelock on admin actions
- Collateral ratio changes possible by admin
Admin/Governance Risk
Governance Structure:
- No decentralized governance in V1
- Admin EOA or small multisig controlled all parameters
- No COMP token (introduced in V2)
- No community voting mechanism
- Fully centralized control
Key Controls:
- Admin could modify interest rate models
- Admin could change oracle addresses
- Admin could adjust collateral ratios
- Admin could add/remove supported assets
- Admin could pause/unpause markets
- No timelock protection
- Admin could potentially access funds through parameter manipulation
Trust Assumptions:
- Complete trust required in Compound Labs team
- Admin key compromise would be catastrophic
- No community recourse for admin actions
- Users at mercy of centralized admin decisions
Oracle Risk
Price Oracle System:
- Centralized oracle operated by Compound Labs
- No Chainlink or decentralized oracle network
- Oracle could be updated instantly by admin
- Single point of failure for all price-dependent operations
Oracle Security:
- Complete dependence on Compound Labs oracle integrity
- Price manipulation possible by oracle operator
- No fallback mechanisms
- Oracle failure would break liquidations and borrowing
Economic Risk
Liquidity Risk:
- Protocol deprecated since June 2019
- TVL effectively $0 (users migrated to V2)
- Borrow transactions disabled during wind-down
- Supply, withdraw, and repay remained functional during migration
Operational History:
- Launched September 27, 2018
- Operated for ~9 months
- Successfully handled millions in lending volume
- Zero critical exploits during operation
- Smooth migration to V2 in 2019
- Proved viability of algorithmic interest rates
Migration Process:
- Borrow disabled over 4-8 weeks
- Users given time to repay and withdraw
- All users successfully migrated to V2
- Protocol wound down gracefully
Stage Assessment
Stage 0 (Fully Assisted) Criteria: ✓ Centralized admin control (EOA or small multisig) ✓ No decentralized governance ✓ Instant upgrade/parameter changes ✓ Centralized oracle ✓ Admin can access funds indirectly ✓ No timelock protections
Why Not Stage 1: ✗ No decentralized governance mechanism ✗ No COMP token or community voting ✗ Single admin controls all aspects ✗ Centralized oracle with no decentralization ✗ No multisig diversity or checks
Why Not Stage 2: ✗ Not immutable ✗ Admin controls everything ✗ Centralized in every aspect
Justification: Compound V1 (MoneyMarket) is classified as Stage 0 (Fully Assisted) due to complete centralization of control through admin keys. The protocol required full trust in Compound Labs to:
- Not manipulate interest rate models
- Provide accurate oracle prices
- Not change parameters maliciously
- Manage the protocol in users’ best interests
There were no decentralized governance mechanisms, no timelocks, no multisig protections, and no decentralized oracles. Every critical function was controlled by Compound Labs admin keys.
Historical Context: This was appropriate for 2018—DeFi governance was nascent, and V1 was explicitly a pilot before the more decentralized V2. The graceful migration to V2 demonstrated the team’s good faith, but the protocol’s design placed complete trust in a centralized party.
V1 was an important stepping stone that proved the viability of algorithmic money markets, paving the way for the more decentralized V2 (with COMP governance) and V3 (Comet).