Binance, Coinbase but also some management companies invest in these blockchain-based financial products.
A billion dollars. This is the amount currently circulating in DeFi, this very young concept bringing together financial products and services developed on the blockchain (decentralized trading, crypto loans, stablecoins …) This symbolic threshold was reached in just two years. “This is one of the major themes of Ethereum (most of these products are based on Ethereum, editor’s note). Outside of DeFi, decentralized applications are not widely used, “notes Clément Jeanneau, co-founder of the specialized firm Blockchain Partner.
This new economy is already attracting big fish, like the main players in cryptocurrency of course. The American exchange Coinbase launched at the end of 2018 with the other giant US Circle a stablecoin called USDC, which is worth, and will always be worth, a dollar. Enough to attract certain financial professionals who must protect themselves from the strong fluctuations of the crypto markets. In September 2019, Coinbase launched a fund to invest in DeFi protocols and has already placed tickets in Compound and Dydx, both specializing in decentralized lending. “Coinbase wants to be the gateway to tokens and decentralized finance. When you want to do decentralized finance, you necessarily need tokens. And to buy it, you need a fiat / crypto platform”, explains Gabriel Rebibo, co-founder of Atka. Also note that the US exchange itself lists several stablecoins on its platform.
The Asian giant Binance (more than 2 billion dollars traded per day) went even further by launching a decentralized exchange, a stablecoin (BNB) and loans. But Hong Kong society hardly receives any income from these products. “For now, we are just trying to better understand the future of DeFi. Binance could in the future work with existing protocols to create DeFI services,” said an official of Binance Research. “Binance sees very far. It wants to take the place of leader of a new financial system while Coinbase wants to make the bridge between the traditional sphere and crypto”, decrypts Clément Jeanneau. “Binance performs at an impressive speed, it has the craziest growth and execution capacity in the crypto world. But it has a sulphurous reputation. It is frowned upon in DeFi for its aggressive methods”, adds he.
When equity meets DeFi
Some management companies are also starting to get a foothold in DeFi, and not the least. Andreessen Horowitz, one of the world’s largest venture capital funds, led the rounds of the Compound (25 million) crypto loan protocol last November and also invested in its competitor, MakerDAO. The American has had a dedicated crypto fund since the summer of 2018. “We believe that cryptocurrencies will be used more and more for a whole range of financial services in the years to come”, it is written on their site. Other funds such as Dragonfly Capital, Multicoin Capital and Fabric Venture regularly put tickets into DeFi projects. “American VCs have understood that these crypto networks are protocols and not platforms and that this new digital economy works with different rules. Andressen Horowitz has also changed its legal nature to invest in this type of project”, points out Clement Jeanneau. Investment funds cannot invest in the protocol directly, just as you cannot invest in equity in the Bitcoin network because it is not a business. There are often companies behind these protocols, but which do not have control over the network.
The involvement of large VCs does not only have financial and economic consequences. “A16z (the shortcut for Andressen Horowitz, editor’s note) has a large lobbying team that is in contact with all other investors and regulators. Having these investors in the ecosystem brings weight from a legal point of view “, underlines Clément Jeanneau.
Investors and crypto giants were able to meet at CES 2020 where there was for the first time a small pavilion dedicated to decentralized finance. Representatives of major protocols such as MakerDAO were present. In France, the DeFi France meet-up was launched last October and brings together around a hundred people from the ecosystem each month. “There are French people in almost all DeFi projects,” says Arthur Micoulet, organizer of the event. Some French banks are also learning about the subject. The Atka firm is also preparing a special Defi workshop on behalf of a large French bank. Owen Simonin, founder of Just Mining, a company offering investment solutions in cryptocurrencies, also works in French banks to popularize the concepts of blockchain. He introduced a component on decentralized finance. “I show them that I can borrow and lend without them,” he said, not without pleasure.