An institutional offering from decentralized finance (DeFi) platform Compound is getting mixed marks from S&P Global Ratings.
"The outlook is stable," S&P said of Compound Prime in a statement.
Despite the poor marks, Compound heralded the rating as DeFi first. It appears to be the first time an "institutional DeFi" product has been scored by one of the major credit rating agencies.
"[This] signals tremendous progress in the crypto industry's maturity, as traditional institutions begin to judge the risks of digital asset powered financial offerings," Compound Treasury's general manager, Reid Cuming, wrote in a blog post.
Cuming described the rating to CoinDesk as a "translation mechanism" for institutions looking to dip their toes into DeFi.
"What is really interesting and important about this is it really does show that DeFi can be measured, weighed and incorporated into more traditional financial risk methodologies, and additionally, also understood by traditional finance," Cuming said in an interview.
Launched in June 2021, Compound Treasury is designed to be appealing to crypto-savvy enterprises hunting for yield on their cash reserves. Accounts throw off 4% APR on deposits of the stablecoin USDC, are classified as securities and are offered only to accredited institutional customers, according to the product's website.
In its assessment, S&P said Treasury has yet to find its footing, "with only 20 customers and $180 million invested at the end of April." By comparison, Compound's primary DeFi lending platform currently boasts a total value locked (TVL) of over $5 billion in crypto assets.
Wrote S&P: "Major rating weaknesses include, in our view, the company's very low capital base, regulatory risk associated with cryptocurrencies, considerable operational risk and complexity, convertibility risk between private stable coins and fiat currency, and the potential hurdles to generate a 4% return."
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.