Try this and see how you get on: 1 Stablecoin = $1 and is backed by cryptocurrency collateral and is “overcollateralized” and covers for ETH volatility, oh and it is all built on Ethereum. Listed on a DEX and operating in a DeFi environment through a dapp.
You may have heard stories about various Central Banks around the world currently discussing a virtual version of their own currency. Are they too late?
Maybe someone has already done this…. Please stick with it, the numbers should make you want to continue reading.
COINBASE HAS BACKED DEFI
In January Coinbase published a blog about “The Decentralized Finance (DeFi) or Open Finance movement”. The blog was quite in-depth and was covering types of decentralized apps or dapps amongst other things built on smart contracts.
When Coinbase released their blog on the 6th of January 2020 they wrote on the site that: “At the time of writing, users have deposited over $600 million worth of crypto into these smart contracts.”
January 2020…. When the world was still ‘normal’. Since then we’ve all heard of Tesla booming, of the FAANG showing excellent returns. Only recently have things seemingly paused while the precipice may well be beckoning, or the next stimulus package as appears to be the case.
Not so with DeFi.
According to DeFi Pulse (whom everyone seems to be using as a benchmark amongst the niche media) there is now a whopping $11.23 billion total value locked in DeFi (the above tweet is a few days old and the value has increased in that time). A lot of that is being traded on decentralized exchange platforms or DEXes, the main one with almost 25% of the market is Uniswap.
Coinbase gave an excellent description of how the DEX – Uniswap – works in their blog:
“Uniswap is a cryptocurrency exchange run entirely on smart contracts, letting you trade popular tokens directly from your wallet. This is different from an exchange like Coinbase, which stores your crypto for you and holds your private keys for safekeeping. Uniswap uses an innovative mechanism known as Automated Market Making to automatically settle trades near the market price. In addition to trading, any user can become a liquidity provider, by supplying crypto to the Uniswap contract and earning a share of the exchange fees. This is called ‘pooling’.”
In July Vitalik Buterin, co-founder of Ethereum, explained the concept of DeFi through the following analogy: “If Bitcoin is a pocket calculator, platforms with dapps are smartphones, but ones on which automated programs run without a central operating system or server. Many of them make use of the Ethereum blockchain, a digital ledger.”
It didn’t take long for Coinbase to get involved. First, they helped to create the Stablecoin: the USD Coin which is pegged stiff to the dollar and Coinbase says about the USDC: “We participated in building USD Coin because we want everyone to enjoy the stability of the world’s fiat currency, the US dollar. USD Coin allows unbanked and under-banked individuals in any country to hold a US dollar-backed asset with nothing more than a mobile phone.”
By July USD Coin had reached $1 billion in Market Cap.
In the meantime, Coinbase also invested into Uniswap whilst USD Coin probably continues to play a big role in the trading volumes on the Uniswap and other DEXes. That was in April.
Then this happened:
Now have we caught your attention?
Coinbase has been hovering on a valuation of $8 billion since 2018 even though the assets held on the exchange have no doubt increased during the last 2 years. There is even talk of an IPO one day. Coinbase is a huge Fintech unicorn and sits side-by-side with recent success stories such as Robinhood, Adyen, TransferWise, Stripe and many others.
Has Coinbase stumbled onto the next big thing since Bitcoin? Well, the signs are promising aren’t they?
Another big Stablecoin that is pegged against the USD and used on the different DEXes is Tether. The Tweet below probably speaks for itself:
THE REST OF THE MARKET AND DEFI
So we’ve been talking about Computer code taking the place of bankers for a while now, indeed that is one of the reasons #Disruptionbanking was created back in 2018. And this is not the first time that DeFi has been covered by us. Indeed, Julian Sawyer from Gemini shared his thoughts about DeFi with #Disruptionbanking in February – little did any of us know that just a few months later we would be talking about such a leap in the popularity and value of DeFi and Stablecoins.
And the team at #Disruptionbanking are not the only ones talking about DeFi at the moment.
A DeFi app called Compound Finance which lets you lend and borrow crypto assets without any middlemen was one of the more attractive propositions that garnered new users during the first lockdown in 2020.
While the betting shops were shut and the traditional stock exchanges were going through the Second Great Depression, some people flocked to Robinhood, the more crypto-friendly of us may well have found apps like Compound Finance more attractive. The opportunities to gain kickbacks from your USD Coins and then further fees from lending out your crypto, are numerous and too long to list in this one Article. Rest assured though, the opportunities were and are there much like in the early days of Bitcoin…
In September news emerged via Bloomberg that even Andreesen Horowitz as well as a whole horde of other well-known investors were getting involved with DeFi. What is interesting is that two of the dapps that seem to have attracted the most interest were Compound and Uniswap.
It is beyond doubt that this intense activity focused on the DeFi platform will draw the eye of the regulator. When there is just a few million dollars like their was in most of 2019, the Year of DeFi according to some, this is still probably some new form of ICO in the eyes of the regulator. Today, with billions of dollars trading in the last few weeks, it might not be long before the regulator or tax office steps in much like how the HMRC did with Coinbase a few weeks ago, asking the exchange to share the details of many of the investors on the site who were based in the UK.
The tone of the media changed even more just last week, where some started to suggest that DeFi had the same level of hype today that Blockchain would have had in 2016 – 2017 when companies like Long Island Ice Tea Corp. changed its’ name to Long Blockchain Corp. This may be a little early, but the similarities between this concept and the way investors viewed Bitcoin and Blockchain in its’ early days are undoubtedly there.
In fact, since October 2020 the news about DeFi seems to be coming out on nearly a daily basis!
One interesting story that we picked up on here at #DisruptionBanking was how Charlie Shrem, one of the most influential people in the Crypto world, also threw his lot behind Deficliq, a one-stop location for all your DeFi needs.
Then there is the DeFi Alliance, an organization that helps “DeFi Startups Grow to Billions of Users Globally”. Just last week DeFi Alliance welcomed BlockFi Partners as a Mentor for Startups in the DeFi space, specifically in the areas of trading, markets and regulation:
“We’re excited to work with the DeFi Alliance’s cohort and uncover growth opportunities within the industry,” added BlockFi Chief Risk Officer and Head of Global Digital Markets Rene van Kestern. “Despite the global economic downturn caused by the COVID-19 pandemic, we’re pleased to be a part of the DeFi industry that is continuing to grow and support burgeoning organizations.”
The question in your mind should be are we at the 2015 moment for Bitcoin when it comes to DeFi and the eco-system surrounding it, or are we nearer to 2017 and the Fork moments for Bitcoin Cash and Ethereum Classic? Probably somewhere in the middle actually. And if you want an analogy then consider this:
Coinbase’s baby – Uniswap, already has a new whipper-snapper biting at its’ heels in Sushiswap. And Coinbase themselves just used the analogy about Forks in the main Cryptos in their latest blog. When Sushiswap trades on a par with Uniswap that may well be comparable to when Bitcoin and Bitcoin Cash forked, when Bitcoin was hovering around $1,000…. Today nobody needs to be reminded that Bitcoin is now firmly above $10,000 and has proved that it is resilient. DeFi has had a trailblazer to make its crypto journey a little smoother.
Andreesen Horowitz, Charlie Shrem, Coinbase to name but a few, these are not companies or people that miss a good deal when they see one. Is it as good as it seems? And how many people will consider DeFi, or indeed Sushiswap, as a household name in years to come?
Buy a USD Coin or a Tether. One has to start somewhere.
Author: Andy Samu