Compound wants to let borrow cryptocurrency, or lend it and earn a rate of interest. Most cryptocurrencies are locked in a wallet or metaphorically hidden under a mattress, failing to arouse interest as bank assets traditionally do. But Compound wants to create liquid money markets for cryptocurrency by algorithmically setting interest rates, and allowing you to bet by borrowing and then selling coins in the open. He plans to launch his first five for Ether, a stable play, and a few others, by October.
Today, Compound announces ridiculously powerful allies for this quest. It just became the very first investment by crypto exchange venture capital fund of the Juggernaut Coinbase Stock Exchange . It is part of an $ 8.2 million round led by Andreessen Horowitz’s first-tier, Polychain Capital Encryption Fund and Bain Capital Ventures – the startup arm of the large investment bank.
While the compound is currently dealing with cryptocurrency via the Ethereum blockchain, co-founder and CEO Robert Leshner says that he eventually wants to make atomized versions of real assets like the dollar, the yen, the # 39; euro or Google action. That’s because Leshner tells me “My thesis is that almost every crypto asset is bullshit and worthless.”
How to get a compound interest on your crypto
This is how Compound tells me it’s going to work. It is an “overnight” market that allows for very short term loans. Although it is not a bank, it is centralized, so you borrow and borrow directly from your peers, which relieves you of trading. If you lend, you can earn interest. If you borrow, you must put 100% of the value of your loan in a Compound asset. If prices fluctuate and your loan takes more value than your collateral, part of your collateral is liquidated under a pension agreement in order to be equal.
To set the interest rate, Compound acts much like the Fed. It analyzes the supply and demand for a particular crypto asset to establish a fluctuating interest rate that adjusts as market conditions change. You earn this on what you lend permanently, and can withdraw your assets at any time with a 15-second lag. You will pay this rate when you borrow. And Compound takes a 10 percent reduction in what lenders earn in interest. For crypto-haters, it offers a way to bypass parts you are convinced that they are doomed.
“Finally, our goal is to transfer responsibility [for setting the interest rate] to the community. In the short term, we are forced to be responsible. In the long run, we want the community to elect the Fed, “says Leshner. If the interest rate is wrong, an influx of lenders or borrowers will bring it back to where it is supposed to be. Compound already has an internally prototyped user interface, and it even seemed smooth and sturdy.
“We think it’s a game changer.” Ninety percent of the assets are stored in cold storage, portfolios or exchanges, and are not used or exchanged, “says Leshner. The compound could allow people to interact with crypto in a whole new way.
The history of the creation of the compound
Compound is actually the third Leshner company and its co-founder and technical director Geoff Hayes started together. They have teamed up for 11 years since they went to college at UPenn. One of their latest companies, Britches, has created an index of GIC inventory in local stores and was eventually acquired by Postmates. But before that, Leshner entered the banking and wealth management business and became a chartered accountant. A real nerd of the economy, he is the chairman of the SF bond supervisory committee, and entered crypto five years ago.
Sitting on coins, Leshner wondered, “Why can not I realize the time value of the cryptocurrency I own?” Compound was born in mid-2017 and sneaked out in January.
With $ 8.2 million in funding from Transmedia Capital, Compound Ventures, Abstract Ventures and Danhua Capital, Compound strives to develop its products and partnerships and “recruit like crazy” “. The district of San Francisco Mission. The partners will be crucial in solving the problem of obtaining its first lenders and borrowers. “We plan to launch with excellent partners – chip projects, hedge funds and dedicated users,” said Leshner. Having hedge funds like Polychain should help.
“We avoided an ICO and said,” Raise Venture Capital. “I’m a very skeptical person and I think most IFAs are illegal,” says Leshner. end when Coinbase announced Coinbase Ventures.Then Leshner pulled an email asking if he wanted to join in. “In 12 hours, they did some research, met our team, diligently and l & # 39; 39 have rated more than any other investor so far, “recalls Leshner.When asked if there was a conflict of interest given the large ambitions of Coinbase, he has stated, “They are probably our favorite company in the world.I hope they will survive for 100 years.It is too early to say that they overlap.”
The Conquest of the Money Markets
There are other encryption platforms, but none are similar to Compound. Centralized exchanges like Bitfinex and Poloniex allow people to trade marginally and speculate more aggressively. But they are off-line, while Leshner says Compound is on the chain, transparent and can be built on. This could make it a more important element of the blockchain funding stack. There is also a risk that these exchanges are pirated and that your coins are stolen.
In the meantime, there are many peer-to-peer crypto peer-to-peer protocols on the Ethereum blockchain, such as ETHLend and Dharma. But interest rates, no need for slow reconciliation, flexibility to withdraw money and deal with a centralized party could attract users to Compound.
Yet the biggest threat to Compound is regulation. But to date, the SEC and regulators have focused on ICOs and the way people raise money, not on what people build. People do not file lawsuits against real products. “All operations have flown under the radar and I think this will change in the next 12 months,” predicts Leshner. How exactly are they going to treat the compound is in the air.
A source in the space of crypto hedge funds has spoken of the next regulation: “You will either annihilate yourself and have to disgorge your profits or dissolve yourself. Or you pay a fine and you are among the first legal funds in the space. This is the bet you take before the asset classes are baptized. “As Leshner confirmed,” It’s the number one risk, period. “
Money markets are only one part of the puzzle of the financial infrastructure that has yet to emerge around the blockchain. Custodians, auditors, administrators and banks are still largely absent. When these will be put in place to make the space safer, hedge funds and investment banks could join the team. For Compound, obtaining logistics will require a serious legal ballet.
Yet, Leshner is happy to dream big despite all the volatility of the crypto world. He concludes, “We want to be like Black Rock with a trillion under management, and we want to have 25 employees when we do that. They probably have [tens of thousands] employees. Our goal is to be like them with a skeleton team. “