Coinbase is putting money to work as part of a bid to grow the decentralized finance (DeFi) ecosystem.
Announced Tuesday, the US cryptocurrency exchange is investing 1 million USDC each in lending protocols Compound and dYdX. Called the “USDC Bootstrap Fund,” Coinbase says the new fund will support developers by “investing USDC directly in the protocol.”
USDC is a dollar-pegged stablecoin launched last year by Coinbase in partnership with crypto finance startup Circle. According to data from Etherscan, there are currently $443 million USDC tokens in circulation.
Putting USDC tokens into DeFi protocols is a novel form of investment for the San Francisco-based startup. The move differs in important ways from the typical investments made by Coinbase Ventures, 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.”
Doing so is mutually beneficial for both Coinbase and the participating DeFi platforms, according to dYdX Head of Operations Zhuoxun Yin.
“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.”
Compound CEO Robert Leshner added that the USDC Bootstrap Fund can also be seen as “the starting point for the legitimization of open finance.”
“Coinbase is a financial institution and the fact that it’s engaging with open financial applications is going to be seen as a rallying cry for other institutions to [do the same],” said Leshner.