Coinbase announced that it has deposited USDC stablecoins amounting of $1.1 million into the pools powering two of Ethereum’s most popular decentralized finance (DeFi) applications: Uniswap and PoolTogether. The investment comes through the USDC Bootstrap Fund which was launched by the company in September 2019.
“With USDC, we hope to provide critical infrastructure that will enable DeFi to grow and increasingly compete with existing financial products,” Coinbase wrote in a blog post.
Uniswap is an automated market maker and PoolTogether is gamifying money saving. DeFi platforms Compound and dYdX were initial investments made by the Bootstrap Fund.
Coinbase’s latest move is a vote of confidence in DeFi at a time when it could certainly be used by the sector. According to DeFi Pulse, there was $1 billion of ether (ETH) locked up in various DeFi applications in February, but that is down to $629 million as of this writing. MakerDAO, the leading platform in the sector, suffered a major crisis earlier this month when fears from coronavirus crashed crypto markets (although the DeFi leader has since rebounded).
Deposits in Underlying Pools of Liquidity
As for the Coinbase funding for Uniswap and PoolTogether, these are not so many investments in either company, but deposits in the underlying pools of liquidity that make them work.
Coinbase places $1 million on Uniswap in liquidity pool for USDC / ETH. The App works better when the pools are bigger.
“It provides a significant improvement to prices on that pool. The pool can support larger trade sizes and more volume,” Hayden Adams, founder of Uniswap said.
Uniswap works by setting up matched pools where an ERC-20 token is paired in the ETH with an equal value. Users trade one token for ETH and that for the other token, with the user in the middle never touching the ETH.
By increasing the amount of funds in each pool, the bandwidth of any given ERC-20 token is expanded.
Smaller pools are easier for the broader market to get out of hand. Larger pools are much less likely, meaning it will be integrated by other apps and “a greater percentage of these price-sensitive trades are more likely to be executed over Uniswap compared to other sources of liquidity,” Adams wrote.
“Uniswap is extensively used for liquidations and arbitrage in DeFi, and liquid exchanges are a critical building block to decentralized finance, ” Nemil Dalal, of Coinbase said.