Compound opens USDC market with up to 87% LTV

Compound Foundation has launched a USDC lending market with loan-to-value ratios of up to 87% as part of its $52 million plan to attract institutional capital.
Summary

• The market supports ETH, wstETH, WBTC, and cbBTC as collateral for USDC borrowing.
• Loan-to-value ratios range from 81% for Bitcoin collateral to 87% for ETH.
• Compound said DeFi Saver, K3, KPK, and Yearn joined the oversubscribed launch.
• A Compound delegate has questioned whether the DAO retains final control over the market.

Compound Foundation said in a Sept. 9 announcement that its Institutional Market runs on Compound v3 and separates selected collateral into a lending pool designed around specific liquidity and risk conditions.

Borrowers can use Ether (ETH), wrapped staked Ether, Wrapped Bitcoin, or Coinbase Wrapped BTC to access USDC. The market gives ETH an 87% loan-to-value ratio, while wstETH carries an 85% ratio. WBTC and cbBTC each have an 81% ratio.

Each collateral asset has a $10 million borrowing cap. Liquidation factors range from 86% for WBTC and cbBTC to 93% for ETH, while penalties begin at 5% for ETH and rise to 10% for both Bitcoin-backed assets.

Compound promoted the product as an institutional-only market in its announcement. However, its official market page states that anyone can borrow, while approval applies to suppliers seeking additional incentives.
You might also like: Compound approves $52M institutional DeFi program

Compound market pairs higher LTVs with a narrow collateral list

By limiting the market to four liquid collateral assets, Compound said it can offer terms based on their individual risk and liquidity profiles instead of applying one set of conditions across a large group of tokens.

Institutions often manage larger positions and follow internal risk controls that differ from those of retail users, according to the foundation. Compound said the new structure provides increased borrowing capacity, defined collateral parameters, and direct operational support.

A dedicated contact will assist participating institutions with onboarding, market updates, and other operational matters. Compound also said USDC suppliers will receive the standard market yield, while approved lenders can qualify for extra incentives.

The rewards program will distribute as much as 200,000 USDC on a pro-rata basis over three months. Applicants must supply at least 100,000 USDC, and only the first $20 million in eligible deposits will count toward the program.

Compound said the market was oversubscribed when it opened, naming DeFi Saver, K3, KPK and Yearn among the participants. The foundation did not provide the amount committed or explain how much demand exceeded the available capacity.

"With today's Institutional Market launch, we are taking the first step toward building infrastructure to meet institutional client demands, including better capital efficiency, clearly defined risk, and a much higher standard of service," Compound Foundation Executive Director Aaron Schnarch said.

According to Schnarch, early demand encouraged the foundation, which plans to release more capabilities over the coming months.

KPK co-founder and CEO Marcelo Ruiz de Olano said direct access to a team familiar with institutional requirements made the market attractive to his company.

"Compound is combining the capital efficiency of onchain markets with the level of service institutional participants expect," Ruiz de Olano said.

Institutional market follows Compound's $52 million program

Three weeks before the product launch, crypto.news reported on Compound's new management team and its DAO-approved, two-year development program.

COMP holders approved $28 million for operations and another $24 million for growth and incentives. The package represents the largest development allocation in the protocol's history, according to the foundation.

Only $14 million was moved to the foundation's multisignature wallet at the start of the program. The remaining $38 million stayed in reserve, with future releases linked to delivery targets such as assembling an engineering team and producing a Compound v3 integration kit.

Along with Schnarch, the management group includes Chief Operating Officer Christopher Donovan and Chief Product Officer Steven Liu. Team members brought experience from Coinbase Custody, Anchorage Digital, Near Foundation, Maple Finance, HSBC, and Broadridge Financial.

The program covers institutional lending, real-world assets, and tools that allow financial companies to connect with Compound's infrastructure. Improving capital efficiency also forms part of the plan, as does building credit products around traditional finance requirements.

Founded in 2018, Compound helped establish blockchain-based borrowing and lending through permissionless markets governed by COMP holders and delegates. The foundation says the protocol has processed about $480 billion in cumulative deposits and borrowing volume, although the figure does not represent current assets held on the platform.

Data cited by The Defiant placed Compound's total value locked near $1.53 billion around the launch, with approximately $638 million borrowed. Ethereum accounted for about $1.42 billion, or 93%, of the protocol's locked assets.

US financial firms are also expanding crypto-backed credit

For US institutions, Compound's use of USDC and Bitcoin or Ether collateral places the product alongside several recent crypto-backed lending programs, although the legal structures and access models differ.

In August, JPMorgan's collateral program was reported to allow institutional clients to pledge Bitcoin and Ether for US dollar loans through its Kinexys digital asset platform. Fidelity Digital Assets and Coinbase Custody were named among the custodians holding the pledged assets.

Kraken and Maple also introduced a USDC-funded lending facility in June. Their structure uses a bankruptcy-remote special purpose vehicle to fund overcollateralized loans backed by Bitcoin and Ether, with Maple providing senior financing and Kraken servicing the loans.

Retail access to onchain credit has expanded through centralized platforms as well. Coinbase added an Ethena-linked USDC vault in June, using Morpho markets and allocations managed by Steakhouse Financial.

Unlike bank and special-purpose-vehicle lending arrangements, Compound's new market operates through its v3 smart-contract infrastructure. The foundation described Compound v3 as having completed four years of production use without an exploit, a performance claim made by Compound rather than an independent auditor.

Compound delegate questions who controls the market

While the product was open, Compound delegate ugurmersin submitted a governance proposal asking for the DAO to receive ultimate authority over the Institutional Market.

The delegate said Compound governance did not appear to have approved the market's current control structure. According to the proposal, the Treasury Management Committee administers the product, while a separate multisignature wallet holds authority over its collateral settings and other parameters.

Ugurmersin also said the committee's existing DAO mandate covers treasury management rather than the operation of a lending market. The delegate could not identify a mechanism allowing COMP holders to withdraw the administrators' permissions under the present setup.

Under the proposed changes, the foundation and committee could continue handling daily market operations. Administrators would have 10 business days to publish a full map of their permissions and 30 days to transfer final authority to Compound governance.

The Compound Foundation had not posted a public response to the governance proposal at the time of publication.
Read more: Coinbase expands Morpho-powered USDC lending to Brazil