Siam Commercial Bank Is Chasing DeFi Yield Through Compound

Bangkok-headquartered Siam Commercial Bank (SCB), the oldest and one of the biggest banks in Thailand, has entered the decentralized finance (DeFi) realm via Compound Treasury, the lending platform’s institution-focused service.

The digital venture arm of the bank, a subsidiary called SCB 10X that was launched at the beginning of 2020, will deposit funds into Compound Treasury, a kind of institutional wrapper that leverages custody firm Fireblocks, the companies said.

The service converts U.S. dollars into fiat-backed USDC on Compound, which allows institutions to earn fixed annual yields of 4%. The size of SCB 10x’s allocation into Compound Treasury was not disclosed. An S&P Global rating of the platform earlier this month revealed that the platform had “only 20 customers and $180 million invested at the end of April.”

Read more: Compound’s Enterprise Arm Receives S&P Credit Rating in DeFi First

Large institutions including banks have been eyeing the DeFi space, with services like Compound Treasury and Aave Arc offering a serviceable entry point.

SCB 10X has been an avid VC investor in crypto and is also involved in building infrastructure in the space. The bank’s digital division has been ironing out how to actually take part in DeFi since July of last year, explained Mukaya Tai Panich, chief investment officer at SCB 10X.

“Not only are we an investor and a builder, we also wanted to adopt these types of disruptive technology to use, especially to use inside a bank,” said Panich in an interview. “We think Compound has created a regulated instrument that’s very easy to understand: U.S. dollar in, U.S. dollar out with a fixed 4% interest rate, so institutions don’t have to worry about how to interact with crypto.”

SCB DeFi

It was a heavy lift getting the board of SCB, as well as the bank’s rather risk-averse treasury management team, confident enough to participate in DeFi, Panich said.

One wrinkle, she said, concerned the question of principal guarantee (when a fixed-income security guarantees a minimum return equal to the investor’s initial investment, regardless of the performance of the underlying assets).

Panich, who had gotten to know Compound CEO Robert Leshner in recent years (SBC 10X has hosted a couple of virtual DeFi conferences), was able to get a dialogue going to try and meet the bank’s requirements.

“We talked to Compound about the ‘principal back’ guarantee, that it was a request from our treasury team. At the beginning Compound didn’t offer that. But, lo and behold, after many months they offered a ‘principal back’ guarantee,” she said.

A security and compliance layer was provided by crypto custody firm Fireblocks, which also facilitates the whitelisted Aave Arc DeFi service for institutions, and has been working with Compound Treasury since late last year.

“We are seeing more high-end institutional clients tapping into the DeFi,” Fireblocks CEO Michael Shaulov said in an interview. “We believe things like Compound Treasury and Aave Arc are definitely stepping stones to make them comfortable with DeFi, and SCB has always been on the forefront of innovation so we were happy to see them moving forward.”

Compound interest

Compound Treasury is not a permissioned lending pool per se, like Aave Arc, said Shaulov. Rather, it’s an operational layer that on-ramps USDC into the permissionless Compound protocol, which is monitored by analytics software to ensure nothing malicious happens in the lending pools, he said.

SCB’s Panich said this is clearly an important step within institutional DeFi, but the mood has damped of late, particularly by the collapse of Terra’s UST stablecoin and lending protocol Anchor. (SCB 10X invested in Anchor’s seed round.)

“It’s very unfortunate that this whole thing happened,” said Panich. “But the education of regulators, board members and the people at the top level of management got accelerated by several years. So, I guess that's a silver lining.”