The Week: Coinbase Backs DeFi and Bitcoin Makes Premier League Debut

Over the past week, Coinbase hinted at the launch of a new platform to capitalize on interest in IEOs and STOs, Binance opened trading on its Binance Futures platform following a successful beta launch, Dapper Labs launched a new blockchain to support CryptoKitties 2.0 and English Premier League side Watford FC announced it’ll be displaying the Bitcoin logo on players’ shirts as part of a sponsorship deal.

Coinbase Ups Support for DeFi

Coinbase showed its optimism for the future of the emerging decentralized finance (DeFi) sector by announcing that it will be investing directly in two popular protocols. The San Francisco-based exchange will be providing $2 million worth of its USDC stablecoin to the lending pools of popular applications Compound and dYdX through a new initiative called the USDC Bootstrap Fund. The goal of the investment is to encourage users to borrow on the platforms.

Santander Uses Ethereum for $20 Million Bond Settlement

Proponents of Ethereum as a vehicle for institutional capital received a boost this week with the news that Spanish bank Santander had settled both sides of a $20 million bond trade on the blockchain. While no outside investors were involved, the transaction is seen as a big step forward in encouraging more institutions to use the public blockchain.

European Governments Take Aim at Libra

Regulatory reaction to Facebook’s proposed Libra stablecoin is ongoing with both the French and German governments expressing their disapproval of the project. Germany’s coalition government signalled its intention to block private stablecoins as part of the country’s blockchain strategy, while French finance minister Bruno Le Maire expressly stated that his country intends to halt Libra’s development due to concerns over monetary sovereignty.

The Long Take

Will DeFi Justify the Hype?

Last week, U.S. stock exchange operator Nasdaq announced that it is adding a new index for the budding decentralized finance (DeFi) sector to its platform. The Defix index, which will initially cover a basket of six projects including Augur and MakerDAO, follows the additions of indices for more well-established cryptocurrencies including bitcoin, ether and XRP.

The announcement adds fuel to the emergence of DeFi as one of the major areas of interest to investors so far in 2019. The promise of DeFi is for the user to essentially become their own bank.

Using a composable set of protocols and services, the user can replicate a range of services that were previously the preserve of centralized institutions, including borrowing, lending, saving and investing. Against a backdrop of declining trust in traditional finance and a global trend of growing inflation and diminishing interest rates, alternative financial services are rapidly gaining attention.

The data seem to back up the narrative. At present, there is $532 million in capital locked up in the DeFi space, of which 54% is in MakerDAO. One of the early leaders in the space, Maker enables users to lock up their ether in Collateralized Debt Positions (CDP) in order to gain access to the DAI stablecoin, which can then be used for other capital-generating purposes such as lending or trading.

Other popular platforms include investing platform Compound and trading app dYdX, both of which were boosted by investment from Coinbase as part of its DeFi Bootstrapping Fund.

The encouraging adoption achieved to date, it seems, is only just beginning. At the DeFi Summit, held last week in London, a range of emerging applications were on show. These included Coinbase-funded UMA protocol, which announced at the event the launch of its synthetic asset creation tool.

Once on mainnet, the tool will allow for the creation of a range of new derivative products, such as stocks or currencies, which can then be traded within the crypto space. Other attendees presenting their innovations at the event included Set Protocol, Synthetix, 0x and Kyber Network.

With the majority of DeFi activity happening on or around the Ethereum blockchain, it’s of little surprise that there has been renewed interest in the network, which spent much of last year detoxing from the excesses of the ICO boom. As the network pushes towards a more scalable architecture as part of ETH 2.0, investors will likely be keeping a close eye on how the space matures.

DeFi isn’t without its critics, however. Not least securitization lawyer Preston Byrne, who has long warned of the dangers of using stablecoins such as DAI. Byrne doubled down on his criticisms in a blog post by calling MakerDAO a ‘sh*tcoin’ and DAI a ‘trash fire’, which was published amid a Twitter feud with various Ethereum and DeFi advocates. Whether Byrne’s warning prove prescient or misguided, we’ll only be able to judge once the space has matured.

Tweets of the Week

Ryan Sean Adams, author of the popular Bankless newsletter, puts the growth of DeFi in context:

Moon Overlord looks for reassurance ahead of the upcoming Bakkt launch:

Empty Beer Bottle reminisces about one of the ICO boom’s most senseless projects:

The week’s best content:

Recommendation 1 – Why Bitcoin

Professional poker player Brian Rast explains why he thinks Bitcoin is valuable.

Recommendation 2 – Bitcoin, Coinbase and Maximalism

Peter McCormack hosts a discussion with former Coinbase CTO Balaji Srinivasen on his What Bitcoin Did podcast.

Recommendation 3 – Will alts survive?

Digital Asset Research offers a dark twist on the ‘when altseason?’ narrative.

Don’t miss

Crypto Reunion

Thursday 19 September - London

The London Blockchain Forum hosts its inaugural event, featuring presentations from CryptoCompare, Consensys and Bytetree, as part of its mission to ‘make London, the crypto capital of the world’. The event is limited to 100 attendees.