Good morning defiers! Here’s what’s going on in open finance:
Coinbase invests $2 million of its USDC Bootstrap Fund in two DeFi platforms
TokenSets releases new token tracking an ether trading strategy
UMA launched on testnet a platform that lets anyone create synthetic assets
Coinbase is Pouring 2 Million of USDC Into DeFi
Coinbase is splitting 2 million of USDC, or $2 million, evenly between money market protocol Compound and margin trading platform dYdX. But much more liquidity will be needed to attract non-speculative borrowers.
It’s the first investment of Coinbase’s USDC Bootstrap Fund, which has the aim of increasing liquidity in decentralized finance with the stablecoin it launched together with Circle last year. The main impact on DeFi is it could lower borrowing costs for USDC-denominated loans, but it’s unclear whether 2 million will really move the needle. Just in the past month, 33 million of USDC was supplied into major DeFi platforms, according to LoanScan. This investment would be about 6 percent of that.
For context, USDC is already offering more competitive rates than Dai, the stablecoin dominating DeFi loans this past year. Borrowing costs for USDC are at 10.6 percent and 9.5 percent on Compound and dYdX, respectively, compared with 15.3 percent and 12.9 percent for Dai. And rates have been edging lower, though with tons of volatility on dYdX. Lower rates are helping USDC increase its share of DeFi loans, from 10 percent of the total year-to-date to 16 percent in the past three months, according to LoanScan.
Interest rates to borrow USDC. Image source: LoanScan
Interest rates are still high though, considering it’s a dollar-based asset, and it explains why DeFi is probably more attractive for lenders than for borrowers at the moment. Anyone can get on board with double-digit interest on deposits, but probably only speculators will want to borrow at these rates. Maybe that explains why the system is over-collateralized by about 330 percent, more than the roughly 150 percent required to back loans in these platforms.
Efforts like Coinbase’s help, but a lot more liquidity will be needed to lower borrowing costs enough that they’ll start to become attractive for someone taking out a consumer loan or maybe later on, a mortgage. For now, speculators will continue driving use.
A New Trading Strategy Wrapped in a Token Just Launched
TokenSets, which makes single digital assets that track complex trading strategies, released a new token that rebalances based on ether’s 12-day exponential moving average.
The ETH 12 Day Exponential Moving Average Crossover token will automatically rebalance all its ETH into USDC if the price of ether crosses below the 12 EMA, and will rebalance its USDC into ETH if the price of ETH crosses above the 12 EMA. The goal is to capitalize on short-term price movements. Based on back testing in the past three years, the strategy outperforms in flat or downtrending markets, not in bull markets, according to a TokenSets post.
TokenSets has two other tokens, called Sets, based on moving averages –tracking ether’s 20-day and 50-day moving average. It also has “range-bound” Sets, intended for neutral or bearish markets, which automatically buy crypto when prices fall and sell when prices rise, and “buy and hold” Sets for traders who want to hold both ETH and BTC, the strategy will automatically rebalance to keep a ratio between the two cryptos.
Since launching in April, the platform has attracted $2.3 million. It’s non-custodial, meaning users are in control of their funds, anyone anywhere in the world can use it, and there are no trading minimum. All that’s required is a phone number, which means nobody is holding sensitive information either.
Not too long ago, there was an investment revolution in the U.S. with ETFs. They lowered fees and trading minimums, and they provided individual investors with a better way to access the stock market, through baskets of securities, rather than riskier, single stocks. But to trade ETFs, you still need a broker, a clearinghouse, a trading minimum and, while fees are lower than for a mutual fund, they’re not negligible. On top of all that, Robinhood, which was supposed to make trading easy for millennials, sells its users’ trades to high-frequency traders.
Digital assets like Sets are many, radical steps forward.
Soon Anyone Will be Able to Build Synthetic Tokens
It’s not just about anyone being able to trade complicated strategies. Soon, anyone will also be able to build those tokens. UMA launched a platform that lets anyone create tokens tracking the price of anything on Ethereum’s Rinkeby testnet.
With the Token Builder, you can create tokens that track the price of anything (the S&P 500, the # of Twitter/IG followers someone has, the # of upvotes your meme has…). All you have to do is choose the price feed and deposit DAI.
Think about that. This is finance for the new generation. If you’re an aspiring influencer, certain that you’re about to get a million followers in Instagram, you’ll be able to create a digital asset that tracks your follower count and potentially profit from it, as well as with your posts.
To create a token, users deposit Dai so that their asset is over-collateralized and provide a price feed (in the case of the influencer the price is the follower count).
Synthetic assets, or assets that replicate the price movement of another instrument, can increase financial access. Someone who lives outside of the U.S. would have to go through many steps to be able to buy Tesla stock. Now, they can just replicate Tesla shares. In fact, somebody just did.
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