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Last year, in 2021, Compound’s Treasury decided to add services that would help institutions benefit from cryptocurrencies and hopefully encourage them to get more involved with the digital asset industry. As part of that initiative, it launched an institutional cash management solution powered by the Compound Protocol.
The solution offered 4.00% PR on USD, as well as USDC, also featuring daily liquidity. The project attracted numerous clients, including banks, fintech firms, and even other crypto companies, and it proved that they could rely on Compound Treasury and use it as a predictable source of yield.
Then, in May, the Treasury also became the first DeFi-backed firm to receive a credit rating, with great accountability and transparency levels, which further encouraged institutions to join and make use of its services. Now, the Treasury is taking the next step by launching a brand new service for institutions and allowing them to borrow money while providing crypto as collateral.
How does it work?
The new service comes in response to a growing demand for liquidity, and it will allow institutions to use Bitcoin, Ether, and a number of supported ERC-20 tokens to borrow either USD or USDC. They would also get fixed rates, starting at 6% APR.
The institutions get to borrow with an open-ended term and no specific repayment schedule. This allows them to enjoy the flexibility to draw liquidity and repay their balances as they see fit. Of course, they will have to be overcollateralized in order to enjoy these terms.
Compound Treasury noted that liquidity is provided by its own clients in combination with the Compound Protocol. The Treasury has over $3 billion in these assets, with over $285 billion in total transaction volume, from inception to date. Collateral will not leave the project’s control, which will increase the safety of the clients’ funds simply by making them transparent at all times.
Institutions are getting more and more into crypto
According to Compound, institutions might be more inclined to join DeFi than CeFi, as they continue to encounter challenges when it comes to trusting opaque CeFi products. Of course, interacting with DeFi in order to manage their balance sheets comes with its own fair share of challenges. The market has, after all, been extremely volatile, with the bearish market dominating the crypto sector since November 2021.
The available liquidity has gone down, and so the number of trustworthy options has been significantly reduced. But, the demand for liquidity remains robust, which means that there is hope yet for DeFi solutions.
Compound Treasury’s VP, Reid Cuming, stated that the Treasury is now in a position to address this demand with a simple but reliable borrowing solution. At the same time, it continues to offer the same trusted service that has already captured the institutions’ trust and interest over the past year. He added that borrowing would expand the company’s cash management product, allowing it to meet the needs of even more clients.
The company wishes to be the most trusted and transparent partner to institutions that decide to work with it in order to access the core benefits of the DeFi sector, and right now — it has taken a major step towards achieving that goal.
To learn more about Compound, visit our Investing in Compound guide.
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.