On Monday, decentralized finance, or DeFi, protocol Compound Treasury announced that it received a credit rating of B- from S&P Global Ratings. According to the Compound team, it is the first time that a major credit agency has issued a rating for an institutional-grade DeFi protocol. S&P Global Ratings’ investment suitability scale ranges from AAA (extremely strong) to D (failing). A score of B- indicates that the issuer is able to meet its financial commitments, although vulnerabilities to business, financial and economic conditions remain.
As for Compound’s rating specifically, S&P Global cites the uncertain regulatory regime for stablecoins such as USD Coin (USDC), the risks of fiat convertibility, and the protocol’s “limited capital base” along with a 4.00% annual return obligation for the decision. However, the rating agency says the Compound protocol’s track record of zero losses measured in USDC partially mitigates the risks of the offering.
Regarding the event, Compound Treasury CEO Reid Cuming commented, “S&P’s rating helps our institutional clients more easily understand the opportunity and risks of cryptocurrency-driven cash management.” As part of ongoing discussions with S&P Global, Compound Treasury’s ratings could be upgraded in the event of greater regulatory clarity for digital assets or a longer track record of strong performance.
Compound Treasury and its performance are supported by its underlying DeFi lending protocol, Compound. As of press time, 301,650 providers have deposited $6.94 billion worth of digital assets into the protocol, while 9,275 borrowers have applied for $1.83 billion worth of loans. Although above the savings rates of major US banks, the Compound Treasury yield is only accessible to accredited investors or those who meet significantly high income and net worth thresholds.
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