In April, Coinbase announced the launch of its new early-stage venture fund, Coinbase Ventures, and today the company has made its first major investment, participating in the seed funding of Compound. According to Compound’s official announcement, Coinbase was one of the 8 investors in the $8.2 million seed round for the startup building a cryptocurrency money market that allows users to earn interest on their crypto by lending it to traders looking to take out short positions.
— Compound (@compoundfinance) May 16, 2018
The funding round was led by Coinbase, Bain Capital Ventures, Andreessen Horowitz and Polychain Capital as well as Compound Ventures, Abstract Ventures, Transmedia Capital, Danhua Capital.
In the announcement, Compound highlights the reasoning behinds its first-of-its-kind crypto retail money market.
“Today, the majority of assets sit idle on exchanges and in wallets, yielding no interest — when Compound launches it’s first money markets on the Ethereum blockchain, individuals, institutions and applications will earn interest on Ether, stablecoins and utility tokens, with complete liquidity — similar to the overnight rate for dollars and government currencies.”
Compound made the decision to build its market protocol, which is a series smart contracts that algorithmically adjust each asset’s interest rate in real-time on the Ethereum blockchain, meaning that users will be able to stake or borrow ERC-20 tokens with full liquidity. The platform will allow institutions, hedge funds and other sophisticated investors to earn interest on Ether, stablecoins and utility tokens, similar to the overnight rate.
“Spot interest rates are a financial primitive, and necessary for the evolution of decentralized markets,” said Olaf Carlson-Wee of Polychain Capital in the announcement. “Compound’s goal is to become permanent infrastructure… A company that survives a hundred years.”
Compound is planning to launch its first markets by year-end 2018.