In Industry First, S&P Gives Compound Prime Junk Credit Rating

Crypto industry participants expect credit raters to increase their scrutiny of DeFi firms as institutional interest in the space continues to grow

article-image

Source: Shutterstock

share

key takeaways

  • The DeFi protocol is the first to receive a credit rating from S&P Global Ratings
  • Low capital base, increasing regulatory scrutiny and return obligations were areas of concern for credit raters

The first institutional DeFi company rated by S&P Global received a B-, or junk, grade.

S&P Global Ratings has assigned Compound Prime a B- long-term credit rating. It is the first time an institutional DeFi (decentralized finance) offering has been rated by the agency, 

Compound Prime, a Compound Labs subsidiary, has a stable outlook, but ratings issuers cited uncertain regulatory conditions around stablecoins and Compound Treasury’s currently “very low” capital base — as well as its 4% return obligation — as concerns.

Compound Prime oversees Compound Treasury, the company’s security offering that converts US dollars to stablecoin USDC and secures accredited investors a 4% return, according to Reid Cuming, Compound Treasury’s general manager. 

The Treasury offering was first announced in June 2021. 

A B- rating, a junk rating six levels below investment grade, means the business is more vulnerable to adverse financial conditions, although it “currently has capacity to meet financial obligations,” S&P Global Ratings said in its explanation.

“As part of ongoing discussions with S&P, Compound Treasury’s ratings could be upgraded in upside scenarios such as greater regulatory clarity for the digital asset industry, or a longer track record of stable performance,” Cuming said in a statement.

S&P choosing to assign a DeFi protocol a rating, which Compound said is a first, shows that greater adoption is coming, Cuming said. 

“Over time, traditional financial markets and DeFi will converge,” Robert Leshner, Compound’s founder, tweeted. “Compound Treasury is one of the products accelerating this transition, by offering institutions a cash-management product powered by the Compound protocol.”

Ratings will become more common, Lesher added, which will help to foster institutional demand.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

ao cover.jpg

Research

Arweave recently launched the testnet for AO computer, a new messaging protocol that will sit atop a PoS network and aims to become a scalable global compute platform through parallel processing and modularity.

article-image

The fighting in pro wrestling is largely fake and the outcomes are mostly pre-determined, similar to Ethereum’s relationship with the crypto ecosystem

article-image

Shakeeb Ahmed was tied to two hacks, and the DOJ first filed an indictment against him in July of last year

article-image

HashKey is expected to be among the issuers who receive the green light, according to the report.

article-image

The “fastest-growing ETF in history” has seen net inflows on every trading day since its Jan. 11 launch

article-image

Relm and Chainproof will provide insurance quotes to distributed validators

article-image

DLC.Link uses a Taproot-based Bitcoin multisig to let institutions mint dlcBTC, starting on Arbitrum