Compound Treasury, an institutional DeFi yield platform backed by the Compound Finance protocol, announced on Wednesday a launch of a new crypto loan service that enables institutions to borrow from the platform using digital assets as collateral.
Accredited institutional investors can borrow US dollars or USD Coin (USDC) from the platform using Bitcoin, Ether, and supported ERC20 tokens as collateral.
Institutions will pay interest on their loans, generating yield for the DeFi users whose stablecoins Compound lent out.
Compound Treasury’s borrows and loans are managed by smart contracts, this means the entire position is transparent to the public (a clear difference from the centralized lenders).
Borrowing is offered with an open-ended term and no repayment schedule, providing clients with the flexibility to draw liquidity and repay balances as they see fit–for as long as they (borrowing) remain overcollateralized, Compound said.
The firm said the liquidity to support these loans is provided by Compound Treasury clients and the Compound Protocol. The collateral put up by borrowers will remain in the platform’s wallet for increasing transparency and the safety of customers’ funds.
DeFi Appears Defying Bear Markets
The development shows that Compound is trying to grab the market share of the institutional crypto borrowing business that recently stunned centralized competitors like Celsius Networks, Voyager Digital, BlockFi, among others.
The new borrowing service comes as a response to the leverage-tinged disaster that shook centralized crypto lending firms three months ago when their loans to Three Arrows Capital and others went bust.
The recent crash in the crypto markets had all sorts of ripple effects across different areas of the market. The DeFi lending market was one of the segments that was severely tested.
Some of the most prominent protocols that have been heavily hit include Terra, Celsius, and Three Arrows Capital, among others, as well as Anchor (ANC) – the once-popular crypto savings platform powered by Terra – whose total value locked (TVL) has dropped 99% in June.
However, there exists a small sector within DeFi (the likes of DeFi lending protocols that allow users to trade, borrow, lend, and invest without the need for centralized intermediaries) that has shown signs of resilience despite periods of stress.
DeFi lending protocols such as AAVE and Compound have continued to see healthy demand in both lending and borrowing activities of institutions. This is evidenced by the continued growth in total demand for loans.
This healthy demand comes amidst traditional financial institutional investors demanding greater exposure to DeFi. Several crypto hedge funds and venture capitalists have expressed interest in digital assets due to opportunities to participate in DeFi ecosystems.
The main reason for interest in digital assets is their high potential upside. The higher risk-adjusted returns being gained from DeFi lending protocols make sense for investors in the current inflationary environment.
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