Compound III (Comet): one borrowable asset, idle collateral, clear books
How Comet markets work, why posted collateral earns nothing, and how to record supplying, borrowing, interest, liquidation and rewards.
Compound III is simpler than most lending protocols, and that helps the books: each market has one asset that earns and pays interest, and everything else is collateral that earns nothing. If your treasury lends or borrows on Compound III, you mostly need to track two things per market: your base-asset balance and your collateral.
How a Comet market is built
Compound III, also called Comet, lets users supply crypto assets as collateral in order to borrow a single base asset [1]. The first Ethereum deployment used USDC as the base asset [1]. Each market is a separate deployment with its own base asset, and users interact with one proxy contract address per market [1].
Your account in a market has a single base-asset balance. A positive balance means you are supplying the base asset; a negative balance means you are borrowing it [1]. If you supply the base asset while you have a borrow, the supply repays the debt first and only the excess becomes a lending position [1]. That one detail matters for classification: a single supply transaction can be part repayment and part new lending.
Collateral earns nothing
Assets supplied as collateral do not earn interest; only the base asset does [2][3]. Each collateral asset has a borrow collateral factor that caps how much you can borrow against it. For example, an 85 percent factor on WBTC lets you borrow up to 85 percent of the USD value of the WBTC you posted [2]. Markets also have supply caps on collateral [2].
So posting ETH as collateral is not an interest-earning investment. Whether it is a disposal or just a movement of your own asset is a policy question, discussed below, but there is no yield to accrue on it.
Borrowing and interest
You borrow by withdrawing the base asset when you have enough collateral; the first borrow must meet a minimum size [2]. Interest accrues continuously, with per-second rates driven by utilization, the share of supplied base asset that has been borrowed [3]. Rates follow a kinked curve that steepens above a set utilization level [3].
There is no separate interest payment. The protocol's balance functions return your supplied balance or your borrow balance including accrued interest [4]. Your supplied USDC grows, or your debt grows, without a transfer. Period-end interest should therefore come from the change in the protocol-reported balance, adjusted for your own deposits and withdrawals in the period.
Liquidation is all-or-nothing
Each collateral asset also has a liquidation collateral factor, set higher than the borrow factor [5]. If your debt breaches it, anyone can call absorb on your account. The protocol takes all of your collateral, clears your debt, and credits you the collateral's value less a penalty, usually leaving you a positive, interest-earning base balance [5]. The protocol can later sell the seized collateral at a discount to rebuild its reserves [5].
A liquidation is best split into its parts rather than booked as one net figure. For an absorb, that means a disposal of every collateral asset (with gain or loss against basis), extinguishment of the debt, the penalty, and any remaining base balance credited to you. The on-chain event gives the quantities; you supply the prices and basis.
Rewards
Compound III can pay rewards in any ERC-20 token to accounts that supply or borrow the base asset [6]. Rewards accrue inside the protocol and are paid only when someone claims them through the separate CometRewards contract, which also allows claiming to a different address [6]. Many entities recognize reward income when it is claimed and under their control, at fair value on that date. If you recognize earlier, document why, since an unclaimed reward is a figure in a contract, not a token in your wallet.
| Account | Debit | Credit |
|---|---|---|
| Supply USDC to the base market (continuity policy) | ||
| Lending receivable — Compound III USDC | 1,000,000.00 | |
| Digital assets — USDC | 1,000,000.00 | |
| Month-end: supplied balance has grown Protocol-reported balance 1,003,500.00 less 1,000,000.00 supplied | ||
| Lending receivable — Compound III USDC | 3,500.00 | |
| Interest income — DeFi lending | 3,500.00 | |
| Separate market: post 100 WETH as collateral Carried at cost of 250,000.00 | ||
| Digital assets — WETH pledged (Compound III) | 250,000.00 | |
| Digital assets — WETH | 250,000.00 | |
| Borrow 150,000 USDC | ||
| Digital assets — USDC | 150,000.00 | |
| Loan payable — Compound III | 150,000.00 | |
| Month-end: borrow balance has grown Protocol-reported debt 150,900.00 | ||
| Interest expense — DeFi borrowing | 900.00 | |
| Loan payable — Compound III | 900.00 | |
| Claim 12 COMP rewards 12 COMP at 50.00 on the claim date | ||
| Digital assets — COMP | 600.00 | |
| Other income — protocol rewards | 600.00 | |
Policy choices to settle
Two questions need a written policy. First, is supplying the base asset, or posting collateral, a disposal? Some entities treat supply as derecognition of the token and recognition of a receivable; others keep the asset on the books as encumbered. In 2026 the FASB tentatively decided that a lender of crypto should keep the asset on its balance sheet as an encumbered asset, measured at fair value adjusted for borrower credit risk, and voted to issue a proposal; KPMG notes the definition of a lending transaction is still unclear [7]. As of October 2026 this is not final guidance.
Second, is your supplied position in scope of ASU 2023-08? That standard covers fungible crypto assets that give no enforceable rights to underlying assets [8]. A protocol balance that is a claim to withdraw USDC looks more like a receivable than an in-scope crypto asset, and USDC itself is commonly outside the standard. Document the conclusion for each market you use.
What to do
- Keep a register of each Comet market you use, its base asset and proxy address.
- Split every supply transaction into repayment and new lending when you had an open borrow.
- Accrue interest from protocol-reported balances at period end, net of your own flows.
- Track liquidation collateral factors and alert well before your position nears them.
- Book an absorb as separate collateral disposals, debt extinguishment, penalty and residual base balance.
- Recognize rewards on claim (or document another trigger) and keep the claim transaction as evidence.
- Revisit your supply and collateral policy if the FASB proposal on crypto lending is finalized.
Sources
- Compound III Documentation (Compound Labs)
- Collateral & Borrowing (Compound III Docs)
- Interest Rates (Compound III Docs)
- Helper Functions (Compound III Docs)
- Liquidation (Compound III Docs)
- Protocol Rewards (Compound III Docs)
- FASB makes progress on crypto asset transfers project (KPMG)
- 2.3 Crypto Assets Within the Scope of ASU 2023-08 (Deloitte DART)
General information for finance teams, current as of publication. Not legal, tax or accounting advice.