Major DeFi lending protocol Compound intends to broaden its lending services to institutional investors by accepting Bitcoin, Ethereum, and other ERC-20 assets as collateral. The platform claimed in a Medium post today that the latest initiative comes amid a rise in interest in crypto loans. It also added that institutions can now borrow through Compound Treasury, the only decentralized business to have acquired a credit rating from S&P Global Ratings.
According to Reid Cuming, vice president of Compound Treasury, Compound Treasury can now meet the demand for liquidity with a straightforward, dependable borrowing option while continuing to provide the same trusted service we’ve provided to clients earning income over the previous year.
According to the protocol, “accredited” institutions can obtain stablecoin loans in USD Coin (USDC) or in USD at fixed rates beginning at 6% APR. The loans will have no set limit or boundary, allowing institutions to draw liquidity and repay balances as they see fit as long as they remain overcollateralized.
The compound is the fifth-largest DeFi protocol in terms of Total Value Locked (TVL). Since its inception in September 2018, the protocol has amassed over $2 billion in assets and more than $285 billion in total transaction volume.
How Compound Plans Can Help Centralized Lenders Avoid Issues
After the Terra ecosystem collapsed in mid-May, several top-tier crypto lenders had liquidity problems as a result of their failed loans to crypto funds (such as three Arrows Capital) and other crypto enterprises that had exposure to Terra. Several cryptocurrency lenders, including Celsius, BlockFi, and Babel Finance, lost millions of dollars in user money.
Compound seeks to employ smart contracts to make the whole position clear in an effort to stop such an incident from happening again. In order to guard against price fluctuations and short-term volatility, the positions will continue to be overcollateralized. The release also stated that “Collateral never leaves Compound Treasury’s supervision, boosting transparency and the protection of cash for our clients.”
Liquidity Demand is Growing
When chasing liquidity, institutions and significant financial organizations typically face difficulties trusting opaque centralized lenders or interacting directly with new and vulnerable DeFi protocols. The recent market downturn has eroded trust in these platforms even further. However, liquidity remains in high demand.
Coinbase recently proposed paying 1.5% interest on 33% of MakerDAO’s Peg Stability Module (PSM), worth around $528 million. The agreement would provide Maker with an additional $24 million in annual revenue if approved.
Using the Compound Protocol, Compound Treasury offers cash management solutions for organizations. Accredited institutions can borrow using Bitcoin, Ether, and supported ERC-20 assets as collateral and earn 4% APR on USD and USDC with daily liquidity.
By using a compliant counterparty that offers white-glove service, clients take advantage of DeFi’s transparency and liquidity. By Compound Prime, LLC, a division of Compound Labs, Inc., Compound Treasury is made available.