Learning About Compound Treasury

[Music] [Applause] [Music] presentation so next up we have nick and nick's going to be talking about the compound treasury so nick without further ado welcome hey guys thank you for having me here let me go ahead and just share my screen [Music] okay awesome i hope this is showing up okay um cool so i'm nick i am the partnerships lead for compound treasury um which is a product from compound labs uh let me give you one second i might have shared the wrong one oh here we go yeah um so today i'll be giving an overview of compound treasury i want to start with just a little bit of compound protocol background which i'm sure most people here are familiar with but just kind of frame how we went from the compound protocol itself to the treasury offering um and then dive into a little bit of the risks and considerations that a number of more traditional financial firms are thinking about when they want to participate in d5 so to kick it off i'm sure most of you are familiar with the compound protocol obviously um it's an open source uh interest rate marketplace for various ethereum assets where anyone can come with their crypto um we've seen i think the most popular use case in uh compounds lifetime has been um these trading firms and hedge funds who are supplying uh volatile assets like bitcoin and ethereum and then borrowing stable assets like usdc dive or tether and what that produces is this uh pretty high uh interest rate on stable coins that's been integrated into a number of different applications projects exchanges custodians um and has been pretty successful um the compound protocol itself will always remain open and freely accessible um and we're sort of building treasury as a premium service on top so under the hood um as mostly probably familiar users are supplying assets into liquidity pools um unlike traditional lending where they're matching uh sort of various uh suppliers and borrowers based on shared terms and the over collateralization presents a new type of risk profile i think than most traditional investors are used to since all borrowing is over collateralized and the health of someone's principle essentially depends on the automatic liquidation mechanism um so that's sort of a key part and when we talk to folks who aren't familiar with d5 is getting them comfortable with the fact that um if someone borrows close to more than what they've supplied there that this open ecosystem of liquidators will come in and keep the protocol solvent interest rates are simply determined by supply and demand for borrowing of each asset in the pool and this presents both uh benefits and drawbacks to different parties people like the floating interest rate because they don't need to be matched on a fixed rate with a borrower but there are other sort of financial firms who have a lot of interest in locking in a fixed rate so that they can uh more easily plan around future products or releases a little bit on what the protocol has done so far um so there's been over 160 and probably at this point closer to 180 billion dollars worth of assets supplied um probably closer to 60 billion dollars worth of assets borrowed um over 300 000 active users and a lot of crypto native uh institutions have integrated the protocol um exchanges like binance okay x okay coin um projects like ledger or argent or fire blocks have all integrated the protocol to launch different types of earn or save features and so for the first three years or so of the protocol's existence this was a major focus of the community is how can we expand compounds interest rate markets natively into these various different uh avenues for liquidity um just a little bit more on our team so we are compound labs obviously um the team is distributed was originally based in san francisco um we built the protocol back in september of 2018 pioneered a lot of the concepts of in d5 and we've now set up a new uh subsidiary which is offering this treasury product so when we think about the transition from the compound protocol to compound treasury uh the genesis from it came uh from these existing financial firms who are interested in accessing the high rates in d5 but didn't want to deal with the operational complexity of converting their fiat into crypto managing their private keys um paying for custody and setting up all the kind of different service providers they would need in the back end to access these high rates that exist on stable coins so that was our impetus to build this treasury product which essentially seeks to create the uh lowest barrier to entry to accessing the benefits of the protocol so with treasury um we abstract away all of those complexities that i mentioned we do all this in the back end and present users with a very simple experience for earning interest and supplying dollars rather than coming with crypto um we think over time this will bring more institutions into d5 sort of starting with a limited offering and then as they get more comfortable with the protocol mechanics and maybe other types of protocols on ethereum and other chains they'll want to dip their toes a little deeper but with treasury we simply offer four percent on cash balances we do all the conversions uh for our customers um using different service providers like fire fireblocks who's our partner in this offering um and very simply we take the variable interest rate that the protocol produces on usdc and we guarantee this fixed rate of four percent back to the customer um and you can see a little bit of what that interface looks like should feel somewhat similar to the compound app interface but a lot of the complexities are abstracted away there's a little more granularity on the terms of the offering um so we guarantee that four percent apr for one year um there's daily liquidity on positions uh with funding and withdrawals by wire transfer um we're currently only offering to us-based accredited institutions so that's institutions with at least five million dollars worth of net assets um but we expect to expand this offering over time to hopefully make it as easy as possible for anyone with traditional us dollars to get started with d5 so just walking through what it would look like to fund your treasury account and get started earning um people would simply pull up wire instructions send a wire from their bank they can use an interface or the api to track their balance there's also reporting tools that are a little more familiar to people who uh use web 2 products today um rather than querying stuff on the blockchain directly so they can simply export balance and activity history in a csv and then to withdraw they simply click an amount um that they want to send back to their bank that they originally registered with us so it's a really simple flow for the customer um in the back end the interest rates are powered by d5 but it's sort of combining these two worlds of uh fintech and decentralized finance um and this is a little more granularity on the flow of funds itself so this is how we work with our partner fire blocks and some banking providers um as well as coinbase who's doing the conversion um it's a pretty simple process of uh taking the dollars converting them into usdc supplying the protoculture and interest and then custom on the firebox platform and the flow and reverse works exactly the same way this is a little bit just on what we collect from potential customers treasury is only offered to these institutions where we're doing kyc and a credit investor verification which is obviously very different than the compound protocol which is openly accessible to anyone with a web3 wallet um a little bit on the risk and considerations as you can imagine um you know a number of financial institutions like banks and fintechs um see the benefits of these higher interest rates and liquidity that d5 provides but they're very interested in digging into what is the risk profile of these products look like and how would they fit amongst um you know the other sort of assets that we're holding or other yield strategies we have in traditional finance um so we look at treasury what we try to point these people to um is to understand the risks in the flow of funds um so how do you go from u.s dollars in a bank account into the actual yield bearing assets cusdc and firebox custody um there obviously can be risks in the flow of funds to get there um there could potentially be custodial risks in um how those uh cusdc are being stored um and then there's counterparty risk and that you are now interacting with a business which is a compound prime or entity instead of a protocol directly um all these risks are very well mitigated with the secure flow of funds we've created fire blocks has best in class custody um so these uh risks i think are very well mitigated for these customers um and then on the protocol itself uh there's a big sort of educational piece we do for these firms um there's sort of a difference between the actual risk on the protocol and the perceived risk but the things that these financial institutions need to be aware of is any potential default risk um so would a borrower not be able to repay what they go to the protocol and suppliers um would become insolvent um which has never happened thanks to a really efficient liquidation engine um is there liquidity risk and that an entire market would be borrowed out and someone couldn't get their funds back in a timely manner this also never really happens outside of when a market is less than a million dollars but in markets like usdc uh with billions of dollars of supplied capital um there's typically always 20 of its total volume and open liquidity um and then lastly is any code security risk so um is there a way for someone to maliciously take user funds out of the pool um and we've mitigated this through a number of security audits and some great community members who consistently monitor the protocol so that's pretty much it i hope it was helpful to kind of see the evolution from the compound protocol into this treasury offering um how it may be appealing to more traditional financial firms who aren't ready yet to fully dip their toes into d5 but want to get started and understand the risks and benefits awesome thank you so much nick that was a great overview of the treasury product um one quick question uh what has been the reaction for people who have tried this this is clearly a much much better offering than the alternative uh so i'm just wondering how people have reacted to this yeah i mean uh we have a few customers on board today they all really enjoy the experience um they uh sort of see it as an educational tool right so they're earning you know more than they would usually um they're also just getting more involved in the compound ecosystem we've seen them you know kind of serve as like a gateway drug in a d5 right it's it's very simple to get started but then you start learning more uh about the processes underneath and we think it'll really just open up the floodgates to institutional capital in the space that makes a lot of sense so hopefully i will have a lot more people switching over and uh we get to see more deep fi companies or just crypto companies use this as a treasury product so thanks for that and [Music] [Applause]