As the DeFi ecosystem continues to grow, it comes as no surprise that the narrative of composability – or applications being able to connect and build off of one another – continues to expand in parallel. We’ve seen various products such as DeFiZap built specifically for composability, effectively allowing users to take advantages of different services all through one dashboard and a couple of clicks.
For those unfamiliar with either of these projects, we encourage you to read up on Set Protocol and Compound. To provide a quick summary, Set Protocol allows users to purchase complex trading strategies in the form of ERC tokens through their trading platform – TokenSets.
Similarly, Compound provides a mechanism for users to lend and borrow popular Ethereum assets, effectively earning interest relative to which assets are being used. In recent months, Compound has expanded their stablecoin support from Dai to include USDC with the expectation to support other notable assets in the near future.
The introduction of cTokens into TokenSets comes through the introduction of a new Set called the ETH RSI 60/40 Yield Set. Here’s a summary of what this Set does:
“The ETH RSI 60/40 Crossover Yield Set attempts to capitalize on trends by detecting the speed and change of price movements for ETH. ETHRSIAPY automatically triggers rebalances if the Relative Strength Index (RSI) crosses below support at 40 or above resistance at 60 to indicate the price momentum. If the ETH RSI falls below 40, the Set will rebalance from ETH into Compound USDC and automatically accrue interest on your dollars when the market is bearish.” (More details here)
What’s interesting to note is that this Set is not being designed around Compound’s cUSDC, but rather leveraging it as a mechanism to earn interest whenever the Set is positioned in the stable-asset state.
Why Does This Matter?
The introduction of cUSDC serves as a great primer for what will likely be the introduction of cUSDC (and other cTokens) across many other Sets on the platform. We also expect Set Protocol to play around with the notion of a fully cToken based set, in which all underlying assets are earning interest.
Furthermore, this move signals strong recognition of consumer value. Whereas TokenSets could very easily leave their Sets in the form of USDC and simply capture the interest revenue themselves, it’s great to see that they are passing it directly down to the end-user.
With this in mind, it now becomes easier for a consumer to know that by using a Set like the ETH RSI 60/40 yield, they are not missing out on the interest they *could* be earning by keeping it in Compound.
A Composable Future
Tying this all together, it’s become clearer and clearer that DeFi products are quite fond of collaboration. Coming from an age of ICOs where we saw many “partnerships” that never really amounted to anything, these kinds of updates go to show that DeFi companies are experimenting with each other’s tools.
With this notion in mind, it’s only a matter of time before we find a combination of legos that truly speaks to an audience beyond the specialized users we’re seeing today. Even in the event that we don’t see mainstream adoption, it’s reassuring to know that it’s becoming easier and easier for non-technical users to capture the upside across multiple products through a few simple clicks.
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Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.