Coinbase’s new venture capital fund has announced a strategic investment in Compound, a startup that is building money market accounts for cryptocurrency investors.
Compound is the first project to receive venture funding from Coinbase as part of the company’s new efforts for fostering blockchain innovation. As CCN reported, Coinbase announced the new venture fund to incubate early-stage startups in the exploding industry.
Coinbase’s funding is part of a larger $8.2 million seed funding round, which pools other backers including Bain Capital Ventures, Andreessen Horowitz and Polychain Capital, with participation from Transmedia Capital, Compound Ventures, Abstract Ventures, Danhua Capital.
While other coin and token projects have debated ways to generate interest or dividend income, Compound has run with the idea. In a blog update, Salil Deshpande, Managing Director at Bain Capital Ventures, he states that current lending solutions for cryptoassets “are not good enough: they are either centralized and have substantial counterpart risk, or require robust order books for each type of cryptoasset, which generally do not exist.”
Compound’s mission is to put cryptoassets to work that now “sit idle on exchanges and in wallets, yielding no interest,” according Founder Robert Leshner in a blog update about the funding announcement.
“…when Compound launches it’s [sic] first money markets on the Ethereum blockchain, individuals, institutions and applications will earn interest on Ether, stablecoins and utility tokens, with complete liquidity — similar to the overnight rate for dollars and government currencies.”
The core technology behind Compound is a decentralized blockchain infrastructure that is centered around a series of open-source smart contracts. As part of the smart contracts, the interest rates for each asset adjust dynamically in response to the borrowing demand for that asset. An algorithm makes these adjustments in real time, according to the project’s whitepaper.
Compound hopes to attract borrowers such as hedge funds, sophisticated speculators, and other Ethereum applications.
As Compound’s technology aligns closely with Coinbase’s entrenched status as a company that is revolutionizing traditional finance, it is no small wonder why it has received the firm’s backing. The company’s target market of institutional investors is in line with Coinbase’s recent rolling out of a suite of tools for only these clients, as CCN reported on May 15.
Compound’s core technology also eases reporting, since each money market is transparent, auditable, and completely predictable. Coinbase itself has also worked hard on institutional-grade reporting as part of efforts for becoming an SEC-regulated brokerage.
Brian Armstrong: Institutions Moving Hundreds of Millions of Dollars in Crypto to Coinbase Every Week
Coinbase CEO Brian Armstrong says institutional players are depositing huge amounts of crypto into the company’s custody platform.
In a new tweet touting the company’s acquisition of the crypto custody platform Xapo, Armstrong says institutional customers are sending $200 to $400 million in crypto to Coinbase Custody every week.
Coinbase unveiled a push to bring billions of dollars of Wall Street money into Bitcoin and crypto late last year, with the launch of Coinbase Custody and its over-the-counter (OTC) trading desk.
Vice president and general manager Adam White talked about the company’s master plan for institutions in an interview with CNBC.
“We think this can unlock $10 billion of institutional investor money sitting on the sideline. We’re seeing a rapid increase in attention awareness and adoption in the cryptocurrency market.”
The new numbers from Coinbase coincide with a recent report from Grayscale, the world’s largest cryptocurrency asset manager.
The firm reported a new all-time high in volume in Q2 2019 and hit $2.7 billion in assets under management, thanks in large part to institutional investors.
“Grayscale assets under management (AUM) nearly tripled: Grayscale AUM grew from $926 million at the end of Q1 2019 million to $2.7 billion at the end of Q2, and all ten investment vehicles included in the Grayscale family of products generated positive performance, net of fees for the first time…
Inflows nearly doubled quarter-over-quarter, from $42.7 to $84.8 million, demonstrating that the recent rally in digital asset prices is supported by fresh investment and despite the fact that the Grayscale Bitcoin Trust was temporarily closed to new investment throughout May and June…
This quarter, institutional investors comprised the highest percentage of total demand for Grayscale products (84%) since we began publishing this report in July 2018.”
Since hitting the all-time high, Grayscale AUM dipped along with the price of Bitcoin, with the figure now standing at $2.5 billion.
Dash Core Group’s Ryan Taylor laments communication gap between Coinbase and DCG
Coinbase, the San Francisco-based cryptocurrency exchange, recently announced that the organization was “exploring” the idea of adding new virtual assets to its platform, a proposal which included Dash among 7 other cryptocurrencies.
In a recent Q&A, Ryan Taylor, CEO of Dash Core Group, was questioned about the development of Dash in 2019 and his views on the current situation that was developing between Dash and Coinbase, after the exchange made the announcement.
According to Taylor, Coinbase has dragged itself into a complicated situation after the listing of Bitcoin Cash. The Brian Armstrong-led exchange had been accused of insider trading with internal investigations being carried forward. However, all investigations were inconclusive.
The CEO of Dash Core Group said,
“What I can tell you is that I think Coinbase’s publicly facing communication changed substantially after that point in time. I think that their compliance department may have really attempted to address this issue. What it means for teams like us is that the communication tends to be very one-way with them relative to other exchanges.”
Taylor added that there was not a lot of information coming from the exchange’s side at the moment regarding the time frame Coinbase was aiming for. The exchange did not even give any indication of whether it wanted to implement Dash or not. Taylor conceded that the community and the DCG will get to know at the same time if Dash is ever integrated to Coinbase’s platform in the near future.
“All I can disclose really is that we’re communicating with them and replying to their requests but I don’t think that we will get a lot of feedback from them on how that is going, whether they would list us, when they would list us.”
Coinbase Custody Acquires Cryptocurrency Wallet Xapo
Cryptocurrency exchange Coinbase has announced that it has acquired cryptocurrency wallet and custody service provider, Xapo.
In a Medium post, the exchange said that in just one year Coinbase Custody has grown to over $7 billion in Assets Under Custody (AUC) stored on behalf of more than 120 clients in 14 different countries.
The exchange said, “Through our consumer products, Coinbase has helped more people experience their first crypto transactions than any other company. Like Xapo, we share the goal of making Bitcoin and other cryptocurrencies accessible in a way that’s secure, safe and compliant with local laws. Through the acquisition of Xapo’s institutional businesses, we’re now proud to act not only as the gateway for millions of people to cryptocurrency, but also as the world’s largest and most trusted steward of digital assets.”
Coinbase Custody has only gone from strength to strength. In June this year, Coinbase Custody Chief Executive Officer (CEO) Sam McIngvale and Coinbase Chief Information Security Officer (CISO) Philip Martin, visited the United Kingdom, to discuss “the institutional cryptoeconomy with a range of prospects and clients.”
They were quoted as saying, “There’s a narrative out there that institutional-grade services don’t exist in crypto. This isn’t true. Coinbase Custody is a regulated, insured and secure custodian. We have $1.3bn Assets Under Custody (AUC) and expect to hit $2bn soon. We have no intention of stopping there.”
Discussing security, Martin said, “We really built our security by drawing on a range of different technologies and systems. We’re always adapting, that is what gives us this strong security foundation.”
Last year, in October, the New York State Department of Financial Services (DFS) had approved the license application for Coinbase Custody Trust Company LLC, a Coinbase subsidiary to operate as a limited purpose trust company.