Compound Staking Yields Hit Zero, and That Changes Everything
Compound DAO passed proposals 553 and 554 setting COMP borrow and supply incentives to 0 for ten Comets on Ethereum, Linea, OP Mainnet, and Unichain on March 26th. While the protocol is still healthy as a whole (TVL $1.389 billion, ~$17.72 million annualized fees) how one can farm yield through Compound has changed so drastically that any strategy relying on it must be rethought. If you are planning on buying COMP or holding COMP to earn yield, you should know what is actually happening under the hood.
The Token Model That Trips Up First-Time Users
COMP is not a compound staking token. That's the truest fact about COMP that's got the widest dissemination that people get wrong. COMP is not issued on a proof-of-stake network (unlike Metis which is on proof-of-stake, or TRAC coin which exists on one of TRAC's many chains). The COMP token itself does not secure a blockchain. It does not earn staking rewards like a validator would. COMP is a governance token with a hard maximum token supply of 10,000,000 tokens. Nearly all COMP tokens were already issued years ago and are currently in circulation. Its only use on-chain is to vote on DAO proposals. Including the very DAO proposals that voted to just kill its own issuance as a form of distribution incentive.
COMP was distributed to lenders and borrowers as an additional yield above and beyond the native interest rates lenders would earn and borrowers would pay on the protocol. As of late March 2026, this is no longer the case for most deployments. Yet if you google compound price prediction or COMP price prediction, chances are most people doing the forecasting are pricing in a yield that doesn't exist.
Supply-side demand for lending assets on Compound III (present iteration, also called Compound V3) still exists. When you supply USDC into a Comet (Compound III's name for a market deployment) you earn variable interest that's paid by borrowers. Compound staking? No. Staking doesn't even occur on the contract. There's supplying. There's borrowing. There's governance. That's IT. Conflating any of these categories will lead to bad trades.
Where Yield Actually Comes From Now
Before proposals 553 and 554, interest earned from supplying assets on Compound was derived from two sources. Borrower interest paid on Compound (commonly referred to as base interest) and COMP token incentives distributed by the protocol itself. Compound's base rate is determined algorithmically. Every Comet has a utilization curve where interest rates increase the higher the percentage of supplied capital that is borrowed.
Compound really set itself apart and attracted yield-hungry capital through its COMP incentive layer. When supplying to Compound, users were essentially earning compound interest on their base yield that was periodically redistributed with a bonus in COMP tokens. This bonus was denominated in COMP which could rise or fall based on market volatility of COMP itself. That bonus just went to zero on most Comets. The DAO has mentioned they will be looking to redistribute whatever remaining incentives there are to "strategic Ethereum Comets" in a subsequent proposal.
Until that time occurs, ROI for supplying assets on Compound will solely be determined by borrower demand. Currently, Compound is pulling in ~$47,000 per day in fees across all its deployments. Spread out across a TVL of $1.389 billion, compounded daily this only comes out to a blended annualized yield of just under 2% before gas costs. If you're providing liquidity on a lower TVL chain like Base ($28.17 million) or Arbitrum ($70.92 million) then you're going to see higher utilizations and yield, but the broader outlook is bleak.
COMP could very well trend lower if the price has been pricing in future incentives (like it very well seems to have) and there are no future incentives. Other than governance token voting rights and whatever means the DAO comes up with to share future revenues, there is no intrinsic value to COMP. $17.46 buys you 97.95% off Compound Finance's all-time high.
Four Approaches Ranked by What You Actually Keep
Strategy 1: Single asset on Ethereum mainnet. Deposit stablecoins into the USDC Comet. Accumulate variable interest. Withdraw whenever. Deposit at least $10,000 to $15,000 to break even on Ethereum gas costs over the course of 90 days. These yields are currently mediocre. This is a parking strategy at best.
Strategy 2: Supply on L2 for better rates. Compound's Comets on Arbitrum, Base, and OP Mainnet are undersupplied. Gas fees on L2 Comets are also cheaper, and in most cases you'll find greater utilization percentages as well. Fees on Base are so cheap that a user can deposit $2,000 to $5,000 USDC and spend just a few fractions of a cent per transaction which makes Compound yield-bearing viable at much lower amounts of capital. Bridge risk exists. Liquidity can be thin at times.
Strategy 3: Recursive borrowing. Supply ETH, borrow USDC against it, then supply that USDC you just borrowed to earn interest on it too. This recursively subjects you to both ETH and USDC price risks but compounds your yield significantly. The big difference on Compound III is that your collateral asset and borrow asset are intentionally different (you can't borrow ETH against ETH) so you'll be exposed to two separate asset classes. Liquidations are possible. Ether could crash 20% against a 3x leveraged position and get you liquidated. Compound has seen $1.23 billion in liquidations occur across the entire protocol. This strategy is probably best left to advanced DeFi practitioners with $50K+ willing to watch their health factors religiously.
Strategy 4: Governance-weighted supply. COMP token holders that supply and hold to earn governance votes can vote on proposals to allocate future incentives. If the DAO decides to allocate future COMP incentives to certain Comets, the early suppliers to those markets get rewarded. Speculative. Long horizon. Compound price: $17.46. Market cap: $174.66 million. Compound has a treasury of $6.4 million. Against that market cap, who knows if the DAO will even have funds to support inflated incentive programs going forward.
Tax Drag, Tooling, and What COMP Actually Is Now
Yield optimization on Compound doesn't stop at the protocol layer. In most jurisdictions, interest accrued from supplying crypto to a lending protocol will be subject to taxation at time of receipt or accrual (jurisdiction dependent), NOT withdrawal. For U.S. taxpayers, every time interest accrues on Compound, it is a taxable event, likely taxed at ordinary income rates. The IRS does not make special exceptions for DeFi lending yields vs your bank paying you interest. If you are a U.S. taxpayer with $500 USDC interest across the course of a year and you sit in a 32% marginal tax bracket then your actual yield (pre-state taxes) was $340.
Recursive borrow structures compound the tax event as well. Every leg of that recursion is a taxable event. The borrow isn't typically taxed, but the interest generated from re-supplying your borrow is. Tax drag can easily eat up 30-40%+ of gross yields for high-bracket taxpayers. This also spills over into why you choose which chain you use. Fewer transactions on an L2 means fewer taxable events to track. Someone that deposits once and withdraws once per quarter on Base is creating 2 taxable events. Someone deploying recursive strategies on Ethereum mainnet is creating dozens, if not hundreds of taxable events.
DeFi portfolio trackers (DeBank, Zapper) have developed features that consolidate Compound positions spanning Ethereum, Arbitrum, Base, and other deployments into one dashboard with real-time health factors, accrued interest, and historical yield data. DeFi Saver and Instadapp automate certain features of position management. Within DeFi Saver, the "Automation" tab can trigger debt repayments or place additional collateral if the health factor of your Compound III position dips below a certain threshold. Setting one automated repayment trigger for when your health dips below 1.3 can avert total catastrophe for recursive borrowers.
Gauntlet, which has risk parameter setups for Compound out to September of 2026, is constantly updating collateral factors and liquidation thresholds. Anyone trading or leveraging on static assumptions of those parameters will get burned. Tax automation software like Koinly, CoinTracker, and TokenTax can pull Compound transaction history from addresses. Each of these tools will auto-categorize supply interest as income, track cost basis for COMP tokens received (legacy positions require this), and create localized tax reports. Since Compound exists on seven different blockchains, reconciling taxes manually isn't possible for active traders.
Talk of Compound token price has revolved around trailing Aave's $23.3 billion TVL. Most compound coin price predictions center around some variation of "protocol growth drives token value." Thinking like that ignores the inevitability of structural change. Compound basically turned off incentives: 0 on the vast majority of Comets. Compound will be a pure lending marketplace where yield is derived from borrower demand, not token emissions. Better economic model long-term even if it means lower reported APYs. Any protocol paying users its own governance token to provide liquidity is simply operating a dilution engine. Compound shut theirs off.
