Fireblocks to ‘Bridge the Gap’ Between Institutional Traders and DeFi
Institutional digital asset security platform Fireblocks has announced an integration with decentralized finance (DeFi) lending platform Compound — currently the second-largest application built on Ethereum.
Entities storing assets with Fireblocks can now generate passive income by accessing Compound — an algorithmic interest rate protocol currently managing $163 million in interest-earning digital assets including cryptocurrencies and stablecoins.
The partnership will allow institutions like market makers, hedge funds and exchanges to put assets on Compound.
Fireblocks to make things easier for institutions
Speaking to Cointelegraph, Compound CEO Robert Leshner explained that the partnership with Fireblocks will make it easier for institutional entities to use the network.
Leshner said, “So right now, to access this financial market, you have to be pretty technically competent and sophisticated because you have to interact with smart contracts on the Ethereum blockchain. There's some basic interfaces that we've built and that third-party developers have built, but almost all of them require you to store a private key in your browser using something like Metamask.”
He stated that, while this system may work fine for a retail investor, “it's not great for an institution with security procedures, multiple members of the organization, and deploying funds that aren't necessarily theirs — [where] people aren't keeping private keys in an unsecure structure.”
Instead, institutional players will use a multi-party key system that Fireblocks has built to put funds on the network.
Fireblocks CEO Michael Shaulov said, “You can now put governance in place. For example, if someone wants to deploy a million dollars or half a million dollars into Compound, multiple users within the fund would need to approve that transaction.”
Shaulov further explained how integrating with Compound will allow its customers to benefit from holding assets that would otherwise lie dormant:
“Think about the average OTC desk or market maker, [...] first and foremost, they usually use top five, top ten assets — so they don’t [hold] assets that you can stake. And also the time frames that they hold on to an asset is not always suitable for staking. But they are still sitting on millions and millions of dollars, and it will be really beneficial for them to earn interest on those stablecoins and other assets that they hold even for a short period of time in their custody.”
Shaulov added that smart contracts on the Ethereum blockchain provide an added layer of security, saying, “The most interesting part is that [...] you need to put assets into the smart contract [and] you actually don't have the counterparty risk that you're exposed to if you're using other services that are not decentralized — so arguably you have less risk using Compound than putting your money in JP Morgan or Bank Lehman Brothers.”
Leshner said, “Firebox has very financially sophisticated users that don’t have to or don’t want to interact directly with smart contracts on a blockchain, and this integration bridges the gap.”
Can decentralized finance hold fast in a bear market?
As the price of all assets, including cryptocurrencies, tank in the face of the coronavirus crisis, some have doubted the resilience of certain DeFi networks. MakerDAO, the biggest player in decentralized finance on the Ethereum network, is reportedly mulling a possible, though unlikely shutdown.
Others remain more optimistic. Leshner said, “[Compound] held up flawless, but it’s been crazy to watch how DeFi sustains itself amidst fifty percent price declines.”