Compound Treasury Launches Institutional Lending Service

Compound Treasury, a business that streamlines access to the Compound DeFi lending protocol on behalf of institutional clients, announced a new borrowing service Wednesday.

Treasury clients can now borrow US dollars or the dollar-pegged USDC stablecoin at a fixed 6% APR using crypto as collateral.

The Compound protocol is one of the largest in DeFi, with more than $2B in total value locked, according to data from The Defiant Terminal. Among lending protocols, only Aave and Maker are larger.

Overcollateralized Loans

Compound Treasury loans must be over-collateralized, and users can only borrow dollars or USDC worth up to 90% of their collateral’s value.

“Institutions continue to face challenges trusting opaque CeFi products or interacting directly with DeFi protocols to manage their balance sheet,” Compound Treasury vice president Reid Cuming wrote in a blog post announcing the borrowing service. “Compound Treasury can now address demand for liquidity with a simple, reliable borrowing solution.”

Compound Treasury launched last year, offering institutions a fixed 4% yield on deposits of US dollars by converting them to USDC and depositing them into the Compound Protocol.

Between 30 and 40 investment banks, hedge funds, fintech companies and other businesses use Compound Treasury, Cuming told The Defiant Wednesday – businesses that want to take advantage of the high yields DeFi offers without assuming the industry’s risks, such as variable interest rates and the automatic liquidation of collateral that declines in value.

Trusted Counterparty

“What our counterparties tell us – and this goes both ways, borrowers and those that earn – is that yes, they could go directly to a protocol,” Reid said. “However, they wouldn’t have someone trusted that they could call, or an agreement. With us, they have a compliant and transparent counterparty that really shields them from those risks and absorbs the risk on their behalf. And that’s really where the value is.”

At its peak, Compound Treasury had more than $260M in assets under management, Reid said, though that figure has fallen to the “mid-eight figures” in the wake of the June crash prompted by the implosion of crypto hedge fund Three Arrows Capital.

Earlier this year, Compound Treasury became the first DeFi product to receive a credit rating from a Big Three credit rating agency. S&P Global Ratings gave Compound Treasury a junk rating, citing regulatory uncertainty among other concerns.

At the time, the yield for lending USDC on Compound was less than 1%, meaning there was a negative margin that Compound Treasury needed to supplement to meet its 4% commitment to depositors. Compound Labs, the company set up to support the Compound protocol, paid the difference, CEO Robert Leshner told The Defiant at the time.

The institutional lending service, with its 6% APR, will allow Compound Treasury to “more consistently control and ensure we can meet our obligations to our customers without having to rely solely on the Compound protocol,” he said.

Compound’s governance token, COMP, was unfazed by the news. It’s up 13% this month.