Coinbase Investing $2 Million USDC in DeFi and dYdX

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Coinbase is the largest cryptocurrency exchange in the U.S. They announced on Tuesday, September 10th, 2019 that they would invest 1 million USDC each in lending protocols Compound and dYdX. Coinbase calls it the “USDC Bootstrap Fund.” This fund will apparently be used to support the ecosystem by “investing USDC directly in the protocol.”

For those who don’t know — USDC is a dollar-pegged stablecoin much like USDT. It was launched to the public in 2018. USDC comes from a partnership between Coinbase and Circle — a recent crypto startup. 

Circle is a startup backed by Goldman Sachs with nearly 400 million USDC tokens on the market. Each token is apparently fully backed by a dollar. This fact can be attested to by Grant Thornton who examined Circle and USDC and noted its examination “was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.”

Putting these USDC tokens into DeFi platforms is a novel form of investment. According to Coinbase product manager Nemil Dalal:

The USDC tokens we deposit cannot be used for items like salaries or user acquisition. It simply provides more liquidity in the protocol, making it easier to attract borrowers (for decentralized lending protocols) and takers (for decentralized exchanges),” said Dalal, adding:

The USDC Bootstrap fund’s goal is to make the supply side easier, allowing the protocol to grow.

So there you have it. Coinbase is not just throwing money around — they are helping an ecosystem thrive. According to dYdX Head of Operations Zhuoxun Yin.

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It’s a totally different kind of investment,” said Yin. “They are supplying funds in a protocol to help bootstrap liquidity on that protocol and drive usage of USDC.

Of course, it’s not all from the goodness of their hearts. This investment is financially beneficial for Coinbase too. After all, returns are promised to all users of these DeFi applications – including and perhaps especially Coinbase.

The current interest rates on USDC accounts are 5.03 percent and 5.35 percent on Compound and dYdX. No wonder that Leshner called this investment a “prudent financial decision for Coinbase.” Then again, Yin also said:

Any interest [Coinbase] can earn on the side is potentially helpful. But if you think about Coinbase’s revenue, the earnings on interest is a drop in the ocean.

I suppose that makes sense. It sure is a big ocean out there.