- The DeFi protocol is the first to receive a credit rating from S&P Global Ratings
- Low capital base, increasing regulatory scrutiny and return requirements were areas that worried credit assessors
The first institutional DeFi firm rated by S&P Global received a rating of B- or Junk.
S&P Global Ratings has assigned a long-term credit rating of B- to Compound Prime. It is the first time that an institutional DeFi (decentralized finance) offering has been evaluated by the agency,
Compound Prime, a subsidiary of Compound Labs, has a stable outlook, but rating issuers cited uncertain regulatory conditions surrounding stablecoins and Compound Treasury’s current “very low” capital base — as well as its 4 percent yield requirement — as concerns.
Compound Prime oversees Compound Treasury, the company’s security offering that converts US dollars into stablecoin USDC and ensures a 4% yield for accredited investors, according to Reid Cuming, general manager of Compound Treasury.
The Treasury offering was first announced in June 2021.
A B rating, a junk rating six notches below investment grade, means the company is more vulnerable to adverse financial conditions, although it “currently has the capacity to meet financial commitments,” 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 an extended track record of stable performance,” Cuming said in a Explanation.
S&P’s decision to assign a rating to a DeFi protocol, which Compound says is a first, shows that greater adoption is on the horizon, Cuming said.
“Over time, traditional financial markets and DeFi will converge,” said Robert Leshner, Founder of Compound. tweeted. “Compound Treasury is one of the products accelerating this transition by offering institutions a cash management product based on the Compound protocol.”
Ratings are becoming more common, Lesher added, which will help fuel institutional demand.
In Industry First, S&P Gives Compound Prime Junk Credit Rating is not financial advice.
Source: Crypto News Austria