As one of the oldest (started in 2011) and biggest cryptocurrency exchange in the world, Coinbase is now taking the charge to support quality blockchain projects. Today, they have launched a new fund to help various decentralized finance (DeFi) projects.
The fund has been named USDC Bootstrap Fund, and it will invest in promising DeFi (Decentralized Finance) projects that are solving real-world problems. It has already made its first two investments, and they’re $1 million each in two decentralized lending protocols: Compound and dYdX. In total, the fund has raised $2 million investment.
According to the Coinbase’s blog, these protocols can also generate a return of more than 5% on the amount invested.
But these returns are not the only reason why Coinbase has setup this fund. Its USDC stablecoin, launched last year, is still far behind the leading stablecoin Tether in terms of adoption. According to CMC data, there are only 438 million USDC tokens in circulating supply right now. Tether, on the other hand, has a circulating supply of more than 4 billion tokens. By investing USDC into DeFi projects Coinbase aims to boost its adoption. That is more important to them.
What’s The Risk?
There’s a little bit of risk involved for everyone in this arrangement. For Coinbase, there’s a risk of DeFi projects not following proper security procedures. If they invest in any project, and that project fails to protect the funds of its users, it may bring bad press for Coinbase too.
That’s why Coinbase product manager Nemil Dalal has already said that any investment from USDC Bootstrap Fund shouldn’t be seen as an endorsement of the project.
For DeFi projects, on the other hand, there’s the risk of Coinbase withdrawing USDC in future. Such an event can cause liquidity issues, and no project would want to go through it.
At the moment both dYdX and Compound have decided to accept this Coinbase money on the basis of good faith. Now it’ll be interesting to see how well Coinbase maintains this faith.