Decentralized finance, or DeFi, is a catch-all phrase for the growing world of financial applications built on Ethereum. From lending and borrowing platforms to stablecoins and tokenized BTC, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments.
Now, with the explosive growth of synthetic assets, flash loans, and yield farming, DeFi is quickly becoming the most active sector in the cryptocurrency space.
Coinbase, the largest US-based cryptocurrency exchange, is one of the latest mainstream companies to jump on the DeFi bandwagon. In mid-September, Coinbase announced its intention to list six new DeFi tokens on its platform: AAVE, COMP, SNX, KNC, BAL, and LRC.
This move sent shockwaves through the crypto community, as Coinbase is one of the most influential players in the space.
Critics argue that Coinbase is simply trying to cash in on the DeFi hype train. Others believe that this move could legitimize DeFi and help it achieve mainstream adoption. So, is Coinbase a DeFi platform? And if so, what does that mean for the future of decentralized finance?
Coinbase Is Not a DeFi Platform… Yet
In order to understand whether Coinbase is a DeFi platform, it’s important to first understand what DeFi is. As mentioned earlier, DeFi is short for decentralized finance.
It’s a catch-all term that refers to any financial application built on Ethereum. This includes protocols like MakerDAO and Compound, as well as synthetic assets and flash loans.
The defining characteristic of DeFi is that it’s built on Ethereum. That means that all of its transactions are processed on the Ethereum blockchain.
This gives DeFi applications certain advantages over traditional finance applications: they’re more secure (because they’re built on blockchain), they’re more transparent (because all transactions are public), and they’re more accessible (because anyone with an Internet connection can use them).
Now that we’ve established what DeFi is, let’s take a look at Coinbase. As you might expect from a traditional cryptocurrency exchange, Coinbase does not run on Ethereum.
Instead, it runs on its own proprietary blockchain called Toshi. That means that Coinbase is not a decentralized exchange (DEX), and it doesn’t offer any DEX-like features like atomic swaps or instant payments.
So far, Coinbase has been very tight-lipped about its plans for Toshi. We don’t know much about how it works or what its roadmap looks like.
What we do know is that Toshi is not compatible with Ethereum smart contracts. That means that it can’t run any DeFi applications—at least not yet.
Coinbase Is Working on a DEX… Eventually
While Coinbase may not be a DEX today, there’s a good chance that it will be one day soon. In May 2018, Coinbase acquired Paradex—a DEX built on the 0x protocol—in an all-stock deal valued at $90 million.
At the time of the acquisition, Paradex was still in beta testing and had not yet launched its product to the public.
It’s been over two years since Coinbase acquired Paradex, and there’s still no sign of a DEX from Coinbase. That said, Paradex CEO Sam McIngvale recently told The Block that a DEX from Coinbase is “definitely something [they] are working on” and that it could launch “soon-ish™️.
” So while we don’t have an official launch date yet, it seems safe to say that a Coinbase DEX is in development and could launch sometime in 2020.
When asked about why it has taken so long for Coinbase to launch a DEX, McIngvale said that “building something like this takes time” and added that “[Coinbase] wants to make sure [they] do it right.” He also hinted that part of the delay has been due to regulators: “Anytime you start talking about decentralized exchanges there are regulatory considerations.
” It seems likely that regulators will take a close look at any DEX launched by such a high-profile company as Coinbase; indeed, SEC Commissioner Hester Peirce has already expressed her concerns about centralized exchanges launching DEXes without proper regulatory oversight.