Compound wants to grow. One thing I’ve found with most growth strategies in DeFi recently is that they are consistently insular. They focus on getting a bigger slice of the existing TVL in the market. This suggestion is different. Let’s prioritize bringing new money into DeFi on Compound.
This suggestion capitalizes on Compounds strengths. We have one of the strongest brands in DeFi and we are a lending platform. Lending is the simplest and most common financial function. Compound is easy to sell to TradFi. Very few protocols have these advantages. When we sell the TradFi, we are stronger than most of DeFi.
I suggest we start a marketing research effort looking globally for low hanging TradFi TVL to bring into Compound. If we need to make changes in either the protocol software or the surrounding processes in order to open the taps to this new TVL, then Compound can make the changes quickly. Here we are probably more nimble than AAVE, our biggest competitor.
This effort should be relatively inexpensive and does not inhibit Compound from working with other protocols to increase our TVL as we have.
This post is a temperature check. If the community is in favor, then I can make a more detailed proposal. If you feel you could contribute, then please reach out. Let’s look up from the spinning DeFi soup and prioritize making the pie bigger.
Last June, The AlphaGrowth team attended the Fixed Income Summit in Boston on behalf of the Compound Community. The tl;dr – Institutions we met have Capital to the tune of Billions that they are looking to earn interest on, but there are systematic risks and challenges that need to be addressed before their capital can be deployed onto Compound.
3 Risks:
Our conversations with stakeholders identified three risks that we need to address prior to onboarding new TradFi Accounts:
Smart Contract Risks – Hacks & Exploits.
Institutions cannot calculate “Risk Adjusted Returns” for each strategy because they can’t quantify smart contract risk.
Solution: Remove Smart contract risk from the investment equation. Provide “Smart Contract Insurance” which returns funds to victims in the event they lose funds to a smart contract exploit. DeFi Insurance Talk at ETHDenver ‘25 by Eric Waisanen
Fixed Rate Risks
Institutions do not like variable interest rates on Lending/borrowing. A deposit of even $20M significantly impacts the Earn APR on the majority of comets. An institution looking to park a Billion dollars of liquidity would practically wipe out all APR for earning on the base asset.
Solution: Compound can Integrate with on-chain Interest Rate Derivative products to accommodate fixed interest rates one client at a time:
Legal uncertainty associated with Digital assets exists in multiple jurisdictions.
Solution: In the US, the Office of the Comptroller of the Currency [OCC] authorized Banks to engage with Digital Assets. Forbes - Shift in Banking Regulations
Expanded scope of the Growth Program- TradFi Business Unit
@RossGates dives deep into the scope and functioning of the TradFi arm of the Compound Growth Program. This was first envisioned to be an independent SubDAO within the Compound DAO, but with the community opting against the SubDAO format, this was absorbed back within the Growth Program’s Scope for 2025 Renewal.
You can read more about our objectives for TradFi here. As we move forward to propose Renewal (And Expansion) of the Compound Growth Program, TradFi will be one of our key areas of focus [AlphaGrowth] [2025 SubDAO] Road to TradFi
I do like the plan outlined in the “Road to TradFi”. It has many strong aspects. Though, I think the focus on short-term fixed debt (while a huge market) is perhaps a bit limiting. This is not what I would call low-hanging fruit. My thought was to be more global and creative in the search, to find markets where the barriers to entry are lower.
One specific aspect where I have experience is the smart contract risk. You should expand this to protocol risk. These days, most exploits are not from smart contract risk. DeFiSafety (my company) has a much more holistic perspective on protocol technical risk. I am in favour of independent audits, but they are only a partial solution. Our DeFiSafety ratings were designed for third parties to quickly assess technical risk. I might add the Compound’s score has always been high (80% atm).