Sebastian Sinclair

A federal judge in California denied a motion on Thursday to dismiss a case against key figures in Compound Labs and its associated entities, following allegations they violated financial regulations by selling unregistered securities in the form of COMP governance tokens.



Plaintiffs in the case, initially filed 13 months ago, argue those in control of Compound effectively acted as unregistered &#8220;sellers&#8221; of securities under their soliciting role.



&#8220;They assert one cause of action against a range of defendants for violation of sections 5 and 12(a) of the Securities Act of 1933,&#8221; according to a court filing in the US District Court of Northern California on Tuesday.&nbsp;



They’re also unhappy with the price of the tokens, which have since fallen significantly from a peak in May 2021, when it reached more than $850. COMP is currently trading at a little over $38, down more than 95% from its all-time high.



The individual defendants include Compound Labs&#8217; co-founders Robert Leshner and Geoffrey Hayes. Associated entities include Bain Capital Ventures, Polychain Academy, AH Capital Management, Paradigm Operations and Gauntlet Networks.



Collectively, these entities allegedly control a significant portion of the <a href="https://blockworks.co/price/comp">COMP</a> token voting power, per the filing. It’s alleged fewer than ten people control over 50% of COMP tokens and, therefore, have significant influence over the protocol’s governance.



Blockworks reached out to Leshner and Compound representatives but has yet to receive a response.



Compound was initially created by Hayes and Leshner in 2017 with its Mainnet launching a year later. The protocol allows users to lend and borrow crypto, relying on smart contracts to handle operations.



Each COMP token holder can suggest and vote on modifications to the protocol, including the way its reserves and treasury are managed. A single COMP token equates to one vote, purportedly allowing for democratic decision-making.&nbsp;



If a token holder chooses not to participate in voting personally, they can assign their voting rights to another holder wanting to be actively involved.



The court found that the plaintiffs had &#8220;plausibly alleged&#8221; that each defendant solicited the public to purchase COMP tokens, thereby denying the motion to dismiss the case. A case management conference is scheduled for Oct. 10.



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Compound

Securities lawsuit against Compound founders, investors to proceed

Bessie Liu

Traditional financial infrastructure has reached the peak of its efficiency, according to Coinbase’s head of tokenization.&nbsp;



Anthony Bassil’s remarks came as he appeared as a panelist at the Real World Asset Summit held in New York City on Tuesday. Bassil said he believes that the adoption of tokenization for such assets will occur slowly, in the coming decade or two.&nbsp;&nbsp;



Bassil believes that this process will take time, and much of the adoption of tokenization will come slowly in the next twenty or so years.&nbsp;



Robert Leshner, the founder of Superstate, noted that a transition toward tokenization would likely begin with the most liquid and most stable assets.



“Stablecoins, the tokenization of the simple dollar, was the first killer user case,” Leshner said.



Non-volatile assets are easier to program and can be applied more readily than volatile assets, according to Leshner.



Although uncertain exactly what the next RWA to be tokenized would be, Lesnher noted that a number of companies are exploring the tokenization of US government debt. 



Read more: <a href="https://blockworks.co/news/centrifuge-real-world-assets-tokenization-ethereum">Centrifuge to meet demand for Real World Assets with liquidity pools</a>



This sentiment was shared by Matt Halstead, director at the Teacher Retirement System of Texas, who noted that low-volatility assets represent a potentially safer bet.&nbsp;



“Even real estate is difficult with respect to the tokenization model today,” Halstead said. “There has to be an approach through a data perspective so you can speak the same language.”



<h2 class="wp-block-heading">Liquidity catalysts</h2>



Keerthi Moudgal, head of product of JPMorgan’s Onyx blockchain unit, said that in order to bring more volatile real world assets on-chain, the interest of institutional players — and their liquidity — is required.



Read more: <a href="https://blockworks.co/news/real-world-assets-empire-buzzwords-defi">Real world assets in DeFi: Buzzwords or the real deal?</a>



Moudgal contended that regulatory challenges, specifically on the matter of securities rules, would need to be addressed before these assets could be brought on-chain.



“These challenges need to be solved to further drive adoption and functionality,” Moudgal said.



Solving customer problems that currently exist in traditional finance would also aid this process,&nbsp; Halstead argued.



“Institutions are understandably risk-averse,” he said.&nbsp;



User interfaces on DeFi protocols also need improvements, Leshner contended. He went on to say that there are already users willing to tinker with complicated DeFi products for an extra 3% in yield.&nbsp;



“People are motivation-based,” Leshner said.&nbsp;



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real world assets

‘We’ve hit peak efficiency’ with legacy tech, says Coinbase exec

Andrew Thurman

As the luggage piled up in a checking area as attendees streamed in for the third and final day of the Permissionless conference in Austin, it seemed as if the question on everyone’s mind was, “What’s next?”



Calling in virtually from his travels in East Asia, Ethereum co-founder Vitalik Buterin served as the day’s opening main stage attraction. He fielded questions on some of the most promising and underappreciated avenues for further crypto development.&nbsp;



On his mind were various forms of public goods funding — DeSci and more privacy-preserving zero knowledge proofs, among others — as well as more robust, high-security oracle and <a href="https://blockworks.co/tag/defi">DeFi </a>models. Buterin also speculated on the continued growth of decentralized social media, naming Farcaster and Lens in particular. 



Aside from use cases that need to develop further, multiple conversations focused on whether or not crypto can be expected to follow the classic “four year cycle” bull/bear pattern that has consistently played out essentially since Bitcoin’s inception.&nbsp;



At the “Who Is Still Investing In Crypto” panel, <a href="https://blockworks.co/tag/framework-ventures">Framework’s</a> Vance Spencer and <a href="https://blockworks.co/tag/alliance-dao">Alliance DAO’s</a> Qiao Wang took up the topic, with Wang arguing that crypto’s size means that crypto is now tethered to global markets more broadly. 



To explore the question further, I caught up with Framework’s Michael Anderson among the conference booths. Anderson’s view is that by late spring of next year — the end of May and beginning of June — we’ll know for sure that we’ve started a new cycle as prices rally.&nbsp;



But what if the broader economy tanks on higher-for-longer interest rates, taking crypto down with it and undercutting the start of a new cycle? 



Read more: <a href="https://blockworks.co/news/permissionless-day-one">Permissionless day 1: Prepping for institutional adoption</a>



“We win either way,” says Anderson, pointing to the uptake of tokenized treasury yields — even if we don’t get another cycle, degens can sit back and reap high rates.&nbsp;



Also working in the industry’s favor are a number of high-upside use cases that could stealthily bring on large numbers of users. Anderson pointed to social and gaming — both sectors that have been around and discussed for the better part of a decade, but due to structural challenges (say, the amount of time and talent it takes to make a good game) haven’t quite seen the light of day just yet. Keep an eye out for AI Arena and Illuvium, he recommended.&nbsp;



Personally, I’m a fan of Superstate founder Robert Leshner’s call: Come June 2024, exactly four years after the launch of Compound’s COMP governance token that kicked off DeFi summer, we’ll have our answer as to if crypto will see a new spring or another few years of a devastating winter.



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Permissionless

Permissionless day 3: What’s next?

Jack Kubinec

As DeFi adoption fails to keep pace with its technological sophistication, the question of whether TradFi institutions are DeFi’s competition — or its white knight —&nbsp;is emerging.



At the Permissionless conference in Austin, Texas, on Tuesday, Compound founder Robert Leshner was unequivocal.



“I have a strong view here,” Leshner said. “The institutions aren’t coming.”



Leshner, now the CEO of blockchain finance company Superstate, argued that TradFi institutions want to use DeFi tech without buying into the token economy on which the ecosystem was built. In his view, DeFi’s onboarding of legacy financial firms will require the tokenization of traditional finance assets and a surrender on crypto-native assets.



“This is the big divide that is going to define the next ten years of DeFi,” Leshner said.



Pushing back, Blockworks co-founder Michael Ippolito pointed out that some TradFi institutions have already entered DeFi with crypto asset backing, noting <a href="https://blockworks.co/news/visa-usdc-solana-stablecoin-expansion">Visa’s use of the Solana blockchain</a> for settlement on the credit card giant’s USDC payment program.



The exchange perhaps highlighted a tension at the conference: that the crypto world both needs <a href="https://blockworks.co/news/permissionless-day-one">institutional adoption</a> and regards it with suspicion.&nbsp;



When asked about Uniswap’s philosophy on its users, Mary-Catherine Lader, the DEX’s chief operating officer, said Uniswap is currently focused on its crypto-native users while building a product that can provide value to institutions in the future.&nbsp;



“[Uniswap is] not putting on suits and going to pitch JPMorgan tomorrow,” Lader said.



“No offense to anyone who’s from JPMorgan,” Ippolito added after a short pause, prompting a laugh from the audience.



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Compound founder Leshner on DeFi: ‘The institutions aren’t coming’

Darren Kleine

Sometimes, boring is best.



At least when it comes to investment. As a hook to start off a story, not so much.&nbsp;



And for an investment portfolio, nothing is more boring than holding US government bonds.&nbsp;



On the plus side, they’re virtually risk-free, barring a monetary apocalypse that would make <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> maxis salivate. Bonds now offer decent short-term returns as central bank interest rates appear to be inching toward <a href="https://blockworks.co/news/fed-minutes-markets-dipping">a potential peak</a>.



If a crypto-focused company wants to hold their funds in something relatively safe, <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> have been the go-to solution. But just like the <a href="https://blockworks.co/news/fiat-defi-stablecoins-blockchain">fiat currencies</a> upon which they are pegged, any such holdings fall victim to inflation and slowly bleed away value.



Robert Leshner is looking to bring the boring but safe world of government bond funds to the hyperactive <a href="https://blockworks.co/tag/crypto">crypto</a> space, addressing a niche that has flown under the radar in the industry.



The Superstate CEO spoke to Blockworks on the Empire podcast (<a href="https://open.spotify.com/episode/46CecPItfimjwlZoQVuogc?si=865335f16eaa4f8e">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038?i=1000620759936">Apple</a>) about his plans for a registered investible mutual fund that will bridge the gap between the industries.



The key difference between Superstate and other mutual funds is its blockchain component, Leshner explains. Shareholders can “request to have a record of their ownership sent to a blockchain address” under their own custody or held at a qualified custodian.



A crypto venture or hedge fund could create “parallel infrastructure between crypto investments and trad-fi investments,” keeping it all under one roof at the same crypto custodian.



This provides a “distinct advantage” to shareholders in the form of greater transparency, Leshner says.&nbsp;



“This would give you a tool to be an investor in a very specific mutual fund, but also see it alongside your other investments at a custodian or be able to track it in a single portfolio management approach.”



<h2 class="wp-block-heading">This is chapter one</h2>



Leshner says the service offers a unified architecture for storing, managing and monitoring investments across a portfolio. It’s the first step for the tokenization of traditional assets, he says, bringing them “on-chain in some capacity.”



“This is chapter one of — as a whole society and a whole industry — this shift of bringing assets on-chain.”&nbsp;



“And the advantages, long term, of having assets on-chain are numerous,” he adds.



Among the key advantages, Leshner lists composability with other on-chain systems, as well as a “massive increase in transparency, in automation, [and] in the speed and permanence of settlement.”



“All of the reasons that people love <a href="https://blockworks.co/tag/defi">DeFi</a> are eventually going to exist for traditional assets.”



Superstate is aimed at providing a “very specific narrow piece to usher in the future,” Leshner says.&nbsp;



Leshner reflects on the early stages of <a href="https://blockworks.co/tag/tokenization">tokenization</a> technology, recalling the naive world-changing optimism that was so prevalent years ago.&nbsp;



“I was like, oh man, we&#8217;re just like one step away from all of the bonds and all of the equities and all of the currency and commodities and real estate being tokens on a blockchain!”



“Six years later,” he says, “we&#8217;ve seen very little demonstrable traction and proof of assets coming from traditional markets onto the blockchain.”



<h2 class="wp-block-heading">The chicken and the egg</h2>



Leshner explains that it’s a chicken-and-egg sort of problem. “There has to be demand from end-users to have things brought on-chain or a giant economic invisible hand that&#8217;s pushing them on-chain.”



The main draw for crypto users has been assets that are unique to crypto, according to Leshner. “All the most popular crypto assets for traders in crypto, for hedge funds, for venture funds, for whatever, are crypto-native assets.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG1737056279" width="100%"></iframe>







Most people in crypto are excited because it’s different from real estate or equities, he says. But he sees a change coming with the attractive returns offered by short-term interest rates.&nbsp;



“The biggest pull is going to be people who are on-chain,” he says, who want the yield that is<a href="https://blockworks.co/news/superstate-rwas-to-blockchain"> now provided by traditional finance</a>. “T-bills are 5% plus. Who doesn&#8217;t want that? It&#8217;s one of the greatest assets of all time. It&#8217;s an incredibly safe short-term investment.”



“Everybody wants that and it doesn&#8217;t really exist on-chain right now.”



“It&#8217;s the time for there to be a giant magnet pulling assets from off-chain, on-chain. The opposite existed three years ago where rates in DeFi were like 8%.” 



“It’s the inverse of <a href="https://blockworks.co/news/will-defi-summer-return">DeFi summer</a>, when TradFi was zero.”



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Empire

Traditional assets to head on-chain as DeFi summer fades, says Superstate CEO Leshner

Venture capital firm <a href="https://blockworks.co/tag/a16z">a16z</a> voted against a governance proposal on Friday that, if passed, would deploy Uniswap V3 to Binance’s BNB Chain, connected to Ethereum via the cross-chain bridging solution Wormhole.



The vote is active for a total of one week, ending Feb. 10.



Wormhole, initially created by Certus One, is an interoperability protocol that allows users to bridge assets across blockchains.&nbsp;



The <a href="https://www.tally.xyz/gov/uniswap/proposal/31">proposal</a> will later seek to provide Uniswap V3 users the ability to partake in Uniswap DAO’s Ethereum-based governance on BNB Chain.



The bridge built atop the Wormhole protocol, previously lost <a href="https://blockworks.co/news/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether">$325 million</a> in DeFi’s second-largest-ever exploit, at the beginning of last year, and <a href="https://wormholecrypto.medium.com/wormhole-protocol-vs-portal-bridge-whats-the-difference-a9ad98696e64">rebranded</a> to Portal.



Portal is a major competitor to LayerZero’s offering — an a16z-backed company whose solution the venture capital firm is hoping will handle the job instead. A16z, Sequoia Capital and FTX <a href="https://www.crunchbase.com/funding_round/layerzero-labs-series-a--7212c4e5">led</a> a $135 million investment round into LayerZero in March of last year with a valuation of $1 billion.



A16z’s 15 million votes cast against the measure has led some <a href="https://twitter.com/ChrisBlec/status/1622201701921964035" target="_blank" rel="noreferrer noopener">skeptics</a> to question the ability of Uniswap governance&#8217;s ability to act in the protocol&#8217;s best interest.



Typically, those holding more tokens have a greater share of voting power and are able to greatly affect the direction of a given proposal.



In a16z&#8217;s case, the firm owns roughly 64 million UNI, but many of those tokens are delegated to third parties. For instance, the venture fund <a href="https://twitter.com/UMichBlockchain/status/1402832670191669255" target="_blank" rel="noreferrer noopener">has delegated</a> to a blockchain group at the University of Michigan, which was one of the governance representatives voting in favor of the proposal.



The ‘for’ votes outnumber the ‘against’ by 62% to 38% as of Monday at 9:00 am ET, but a quorum threshold has not yet been reached.



Blockworks attempted to contact a16z, but did not receive a reply by press time.



<h2 class="wp-block-heading">Bridging Uniswap</h2>



After a prior debate and <a href="https://snapshot.org/#/uniswap/proposal/0x6b8df360fdf73085b21fdf5eef9f85916fbde95621a3d454cb20fbe545ffc852" target="_blank" rel="noreferrer noopener">Snapshot vote</a>, the community selected the Wormhole bridge for the Uniswap V3 deployment on the BNB Chain, receiving 28 million votes. The solution provided by the LayerZero team came in second at 17 million.



Uniswap’s aim is to capitalize on the growing interest in DeFi within the Binance ecosystem by allowing more capital to flow across various ecosystems, according to the proposal on Tally. Wormhole is designed to shore up the security involved in the bridging of digital assets, despite its exploit woes last year.



Total value locked on BNB Chain has ballooned roughly $1 billion this year to $5 billion, data at <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFi Llama show</a>. That still pales in comparison to Ethereum’s $29 billion claim to the overall $48.5 billion locked across leading DeFi protocols. Still, authors of the proposal said Friday that Uniswap should be pursuing the more than 750,000 weekly users on BNB Chain.



BNB Chain has a large and growing user base, fast transaction speeds, low fees, staking, cross-chain support and an active community making it a suitable platform for Uniswap v3, they said.



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a16z

A16z Delegated to Group that Opposed Its Vote on Uniswap for BNB Chain

<div id="highlights-block_6308dd97b6629" class="highlights">
 <ul>
 <li>In Compound III, collateral will remain the property of the supplier</li>
 <li>Users can borrow USDC using ETH, WBTC, LINK, UNI, and COMP as collateral</li>
 </ul>
 
</div>



DeFi developer Compound Labs has officially launched Compound III, a streamlined version of the protocol emphasizing security, efficiency and user experience.



The governance <a href="https://compound.finance/governance/proposals/116" target="_blank" rel="noreferrer noopener">proposal</a> to initialize Compound III was first submitted on August 18, 2022, and received overwhelmingly positive support from governance, receiving 100% approval.



“The most profound change was to move away from a pooled-risk model, where users can borrow any asset,” Robert Leshner founder of Compound Finance <a href="https://medium.com/compound-finance/compound-iii-is-live-a7983dee7e60" target="_blank" rel="noreferrer noopener">wrote</a> in a blog post.



&#8220;Safer risk management in crypto has been a thesis that is emerging as a result of opaque financial practices in CeFi,&#8221; Paul Veradittakit, General Partner at Pantera Capital, told Blockworks. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;Continued enhancement of DeFi risk practices will continue to demonstrate DeFi&#8217;s resilience in this bear market and in the next bull market,&#8221; Veradittakit said.</blockquote>



<h3 class="wp-block-heading">Building on past Compound versions</h3>



Compound was first launched in September 2018 and is an interest rate protocol which pioneered the on-chain borrowing and lending concept. Users can earn interest on deposited funds without a third party intervening. Borrowers can take out loans against their cryptoassets deposited with the protocol. 



The second version of Compound launched in May 2019, introducing liquid tokenized collateral in the form of cTokens to the protocol. It was also the turning point for the protocol to become community-governed via COMP, with a governance system that has been widely adopted by other protocols and DAOs.&nbsp;



In the first two versions of the protocol, with a pooled-risk model, one single bad asset could theoretically drain all assets from the protocol because collateral could be re-used. That’s why Compound has always limited the number of asset types it supports.



In the latest version, cTokens are no more, and collateral remains the property of the supplier, Leshner said.



“Compound III features a single borrowable asset. When you supply collateral, it remains your property. It can never be withdrawn by other users except during liquidation,” he said.



The latest version of Compound will allow its users to borrow USDC using ETH, WBTC, LINK, UNI, and COMP as collateral.



“While you won’t earn interest on collateral anymore, you’ll be able to borrow more; with less risk of liquidation and lower liquidation penalties; while spending less on gas,” Leshner said.



The new version launched with a Business Source License (BSL), which is meant to limit the ability of other teams to fork the protocol’s open-source code without governance approval. This scheme has been effective for Uniswap Labs which launched its V3 under the same license. Both Uniswap and Compound saw dozens of forks using their second iteration with more permissive licensing.



Jeremy Allaire, CEO of Circle, <a href="https://twitter.com/jerallaire/status/1563185488131149829" target="_blank" rel="noreferrer noopener">praised</a> Compound III on Twitter as “simpler, safer, more efficient, and provides one of the best possible platforms for USDC borrowing.”



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Borrowing

With Compound III Launch, DeFi Pioneer Emphasizes Security

Casey Wagner

<div id="highlights-block_6284fef873148" class="highlights">
 <ul>
 <li>Permissionless speakers today are focused on building, not market conditions</li>
 <li>Regulators are on high alert and bad actors should be put on notice, industry executives said</li>
 </ul>
 
</div>



As the aftermath from this month’s <a href="https://cms.blockworks.co/terra-halted-again-exchanges-delist-spot-trading/" target="_blank" rel="noreferrer noopener">TerraUSD meltdown</a> continues to unfold and cryptocurrency markets extend their sell-off, industry executives are urging their communities to stay strong.



“One of the benefits of a bear market is other sources of validation go away,” Mary-Catherine Lader, chief operating officer of Uniswap Labs, said during a panel discussion at the Permissionless conference in Palm Beach. “All you really have is whether what you&#8217;re building is going to work and whether people are going to use it.”



Other conference speakers agreed, choosing the opportunity to focus on what developers are building and excited about right now as opposed to negative narratives surrounding the industry.&nbsp;



Stani Kulechov, founder and CEO of Aave, said he was shocked at how quickly the industry has grown. Having billions of dollars of value locked into smart contracts is no small feat, and it’s happened in only a few years.&nbsp;



Decentralized finance (DeFi) industry leaders are looking beyond today’s market conditions, and rightfully so, the speakers said. Uniswap Labs’ key focus right now is simplifying the user experience, Lader added.&nbsp;



“To get out of a bear market, we need excited people, and we need capital,” Robert Leshner, CEO and founder of Compound Labs, said.&nbsp;



The source of capital he’s betting on? Institutional investors.&nbsp;



“Historically, DeFi has been individual-led…but our focus right now is how do we get an entire class of users in the system,” Leshner said.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We’re focused on enabling institutions with billions of dollars to safely deploy capital into DeFi”</blockquote>



Even amid the panelists’ optimism, the question of how the <a href="https://cms.blockworks.co/what-comes-next-for-terra-ecosystem/" target="_blank" rel="noreferrer noopener">collapse of Terra’s stablecoin</a> might impact the rest of the industry remains. Regulators are on high alert, they agreed.&nbsp;



“Terra and Luna and UST are their own ecosystem, but it has a big impact on everything,” Leshner said. “I worry the nuance is going to get lost, the positives are going to be overshadowed by the risks, and the next few years are going to be about trying to differentiate the good actors from the bad.”



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Robert Leshner

Newsletter

Blockworks Research