Bitcoin rules the roost on Coinbase. But there are dozens of other coins repped by companies most of … [+]
To the layman, today’s Coinbase direct listing means everyone wants Bitcoin and they can go on this thing* called Coinbase (*a crypto currency exchange) and buy it.
But if that was all that Coinbase had going for it, it wouldn’t be valued at over $100 billion. Yes, Bitcoin has the star power, but Coinbase is bringing retail investors — over 40 million of them worldwide — into other cryptocurrencies that represent companies most of us have never heard of.
A growing number of people are buying and holding Bitcoin for longer periods. To make money on trading fees, Coinbase needs “alt-coins”. Those are held for speculative bets that generally run two weeks. That will change. As investors find companies they believe in, in sectors of digital finance they believe are poised for growth, they will buy and hold for longer.
Face it, crypto is the new stock.
I have a Coinbase account. I own at least three other cryptocurrencies other than BTC and am on the lookout for more. What I have in Coinbase today is equal to roughly 10% of what I have in E*Trade. A year ago, it was 0%.
Companies like Coinbase make buying and selling those new companies possible.
“Bitcoin is ceasing to be the center of gravity,” says Nikita Zuborev, marketing chief at BestChange.com, a free Russian aggregator designed to help cryptocurreency investors find the best rates at exchanges. “We notice the shifting of the focus from Bitcoin to other coins not only in information gathering, but also in the preferences of users for what exchanges they are looking for. Decentralized finance (DeFi) is gaining more popularity. The majority of crypto investors think that the future is in decentralized exchanges (DEX), systems of crypto lending, decentralized games, systems of betting and forecasting, decentralized synthetic actives and lots of other things. We can add here non-fungible tokens (NFT) now as a logical evolution of what blockchain technology can do for investing,” Zuborev says.
“At the moment, it is just a lot of hype and an attempt to earn on a trend. We can draw a parallel with the dot.com boom. Most technologies, tokens and companies are likely to cease to exist by the end of this decade,” he says, adding that companies like PayPal
The cryptocurrencies people are investing in on Coinbase could be similar. Such is the hope of what Coinbase has to offer the market: a digital-era Nasdaq
Beyond Bitcoin: DeFi is the Buzz
Currently, DeFi is most popular in the U.S. and China, and currently being used for financial derivatives such as loans, options, futures, insurance and other financial products moving on public and private blockchains.
DeFi products like Maker and Uniswap are some of the most popular DeFi products on the market. “We’ve seen a significant rise in demand for DeFi cryptos, which includes yield farming services, as institutional investors from Asia and China more specifically are looking for new ways to grow their wealth and investment into these services are a great way to generate steady returns of up to 10%,” says Changhao Jiang, co-founder and CTO at Cobo, a cryptocurrencies custody service based in Singapore.
“We’ve seen with DeFi projects like Sushi Swap that even a single person can create a new product,” Jiang says. “Although DeFi is limited to financial products, NFT collectibles and entertainment applications, this segment of the market is only just getting started.”
Decentralized finance is a shift from today’s traditional, centralized financial system to peer-to-peer finance built on decentralized blockchain networks. DeFi does not rely on centralized financial intermediaries and uses smart contracts (code) to execute transactions, which eradicates middlemen.
“Thought leaders such as Compound, EQIBank, Yield, Uniswap, Chainlink and Maker are helping to drive the DeFi industry from a market cap of $1.8 billion in March 2020 to over $92 billion in just one year,” says Jason Blick, CEO of EQIBank. “That’s a meteoric rise. You’re looking at over 5,000% growth.”
EQIBank entered the DeFi market through fixed-term, floating rate, and interest rate swaps to institutional and high net worth investors.
Financial industry professionals are increasingly jumping on the crypto bandwagon with some, like … [+]
Crypto’s Wall Street-Like Financial Products
Most of the financial products available in the traditional financial system are being recreated in DeFi. Some of these companies list on Coinbase.
I found a newcomer: 1inch. They run an exchange where you can do all sorts of Wall Street tricks, like swaps contracts (a derivative). Last week, they listed on Coinbase Pro.
The initial protocol of the 1inch Network is a DEX aggregator that searches deals across multiple liquidity sources, comparing rates among exchanges. This protocol incorporates the Pathfinder algorithm which finds the best paths among different markets over more than 49 liquid sources on Ethereum and 12 on Binance Smart Chain. That’s their claim to fame. Their founder, Anton Bukov, is also an investor in other blockchain DeFi startups.
“The most action is happening within DEXes and farming programs – this is the driver of the whole market since mid 2020,” he says. “The more we dive into 2021, the more (DeFi) projects are appearing.”
Wowswap is one of the players in this space and good luck getting your head around it. It may be something that only a Barclays leveraged back derivatives trader understands. It allows for 5x leverage trades. On their website, they describe their financial service as a decentralized leveraged trading protocol that runs on top of Pancakeswap DEX, based on the Binance Smart Chain.
Some of the DeFi names that investors often toss around include Aave – a decentralized bank whose Coinbase ticker is the same as its name. They offer up to 24% yearly interest rate on dollar stablecoins, which is pegged to the dollar. You have to buy them through Aave and Aave’s price can tank. But by comparison, any U.S. bank would be paying you less than a quarter percent for deposits.
Built on the Ethereum blockchain, Aave is a decentralized money market for lenders to lend digital assets and for borrowers to borrow without intermediaries. By borrowing extra capital, borrowers can open leveraged positions or use it to arbitrage interest rates from different DeFi protocols. Lenders can in turn earn a regular return on their idle capital, and that lender can be you.
0x is another DeFi play on Coinbase. It does peer-to-peer transactions on Ethereum based crypto-assets. It also works as an aggregator between exchanges. I don’t own these, but I’m learning about them. It’s not easy.
Just wait for the Amazon coin. It’s in the works (Photo by Jaap Arriens/NurPhoto via Getty Images)
Everything Crypto
Companies are trying the DeFi blockchain model for other types of transactions that speak more to day-to-day business operations, perhaps easier to understand what they do.
Logistics solutions company Obortech, based out of Estonia, thinks blockchain systems can make for a more secure supply chain, eliminating fraud and contraband for importers and exporters who use it. They have a coin. It’s not on Coinbase though.
“It’s DeFi for the digital supply chain,” says Tamir Baasanjav, CEO of the three year old Obortech. “Members of the network can use the OBOT token when performing transactions on the platform, escrowing contract bonuses, launching crowdfunding activities to the network community, exchanging services in the network’s marketplace, voting on governance policies and activities of the network, and getting rewards based on their performance ratings in the network,” Baasanjav says.
Will it survive another three years? Who knows. But will Phunware, a mobile application services company out of Austin survive? It trades on the Nasdaq (and I own it). What about Nio — the Chinese EV maker listed on the NYSE? Nobody knows.
The only difference is that people understand that Nio is a car, and Phunware makes apps. The market is still learning the language of the “stocks” listed on Coinbase. But give it time, they’re already figuring it out more and more each day.
