‘Wire in your funds and we’ll handle the rest’: Compound Treasury gets fintech firms into DeFi
- Compound Treasury introduces non-crypto native financial institutions to the benefits of the DeFi ecosystem.
- The Treasury account offers a 4% fixed interest rate – much higher than a regular savings account.
DeFi firm Compound Labs recently launched a new product called Treasury, which is designed for non-crypto native fintechs and financial institutions to access the benefits of DeFi without dealing with the technical complexities that normally surround cryptocurrencies. The Treasury account provides a fixed annual percentage rate of 4%, which is significantly higher than what is offered by an average U.S. Dollar savings account, according to the firm.
Through a collaboration with crypto firm Circle and blockchain security service provider Fireblocks, Treasury offers access to DeFi interest rates for non-crypto challenger banks and fintechs, while taking care of operational technicalities such as private key management, Ethereum gas fees, crypto-to-fiat conversion, and interest rate volatility.
Circle provides the crypto onramps and offramps, automatically converting customers’ U.S. Dollars to stablecoin USDC and sending them to the Compound protocol to generate interest. Fireblocks keeps these assets safe from attacks by providing the secure custody and protocol integration required to operate Compound’s USDC market.
Once USD funds are added to the Compound Treasury account, it acts somewhat like a regular savings account. Customers earn interest on a daily basis, and they can make deposits or withdrawals at any time, with a 24-hour turnaround. They also have access to real-time balances and transaction history.
Based in San Francisco, Compound Labs is an open-source interest rate protocol built on Ethereum that creates tools, products, and services for the DeFi ecosystem. Since it was founded in 2017, the firm has raised over $30 million from investors including Andreessen Horowitz, Bain & Company, Coinbase, Paradigm, and Polychain. The Compound protocol has been used by hundreds of thousands of DeFi users to earn interest rates on over $120 billion of crypto assets.
Compound Labs says it hopes to bridge the gap between traditional and decentralized finance by expanding access to Treasury accounts substantially over the coming months. The firm has already begun onboarding clients, including challenger bank Current, which will offer Treasury’s services to its customers through the Current app.
Nick Martitsch, business development associate at Compound Labs, believes that combining DeFi interest rates with the fintech user experience could be a game-changer for the industry. “The launch of Treasury marks a turning point towards a world where open-source protocols serve as the underlying infrastructure for a wide range of financial services and products,” he said. “As the barriers to adoption continue to fall, we anticipate that Treasury will power novel use cases and business models that benefit both the DeFi and fintech communities.”
Unlike conventional DeFi protocols, which offer unstable yields that can occasionally shoot up to 1000%, Treasury instead aims to offer stable revenue for companies looking to earn passive income on their USD funds. “Treasury’s strategy is to provide liquidity to the USDC market on the Compound protocol, which has proven to be one of the safest operations in DeFi,” said Martitsch. “While other protocols may offer higher rates, our fixed rate still provides customers with a yield that’s over 50 times the average U.S. national savings rate, backed by the security of a protocol that has processed over $150 billion of supply volume with no borrower defaults or code exploits.”
The 4% yield will be generated by supplying USDC to the Compound protocol. If the yield is lower than 4%, the difference will be compensated from Compound Labs’ marketing costs, and will not affect client earnings.
While most companies want to take advantage of the high interest rates offered by DeFi, they are deterred by having to deal with the complexity and volatility of the crypto ecosystem. Compound Treasury has taken this uncertainty out of the equation, according to Ian Kane, co-founder of Unbanked, a firm that provides blockchain-based banking services.
“Big banks offer roughly 0.15% to 0.50% interest on USD savings to customers. With inflation at 4.2%, it’s costing consumers a lot of spending power to keep their capital in these traditional savings accounts,” said Kane. “Meanwhile, Compound is basically saying, ‘Wire in your funds and we’ll handle the rest’ – that’s powerful. Now a neobank with zero knowledge of cryptocurrencies can offer their customers the high interest rates only found in the crypto industry.”
Brady Dale, senior reporter at CoinDesk, says a 4% interest rate on savings is a compelling offering to attract traditional firms, especially since they don’t need to ever touch a cryptocurrency to benefit from it. “If institutions bite, there will eventually be a lot more funds in DeFi for entrepreneurs and traders to take advantage of. If they make good use of those funds, that should attract even more institutional money and give DeFi builders the capital they need to continue disrupting traditional finance,” said Dale.
“Look for the mobile-first banks, payments companies, and investment apps to get in first as a way to grow their user bases. Provided they don't get into any trouble with regulators, the bigger firms likely won’t be able to resist putting some of their idle funds into Treasury as well in due time.”