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Coinbase Institutional H1 2021 in Review - 22 27

The document discusses the growth of stablecoins Tether and USDC in the first half of 2021, with their market capitalizations growing significantly. It also discusses Coinbase's efforts to support the stablecoin market by adding support for Tether and lowering fees for stablecoin transactions. The document then summarizes DeFi growth in the first half of 2021 and Coinbase's commitment to supporting DeFi.

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27 views6 pages

Coinbase Institutional H1 2021 in Review - 22 27

The document discusses the growth of stablecoins Tether and USDC in the first half of 2021, with their market capitalizations growing significantly. It also discusses Coinbase's efforts to support the stablecoin market by adding support for Tether and lowering fees for stablecoin transactions. The document then summarizes DeFi growth in the first half of 2021 and Coinbase's commitment to supporting DeFi.

Uploaded by

leon.camilo91
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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7.

Stablecoins
The stablecoin market continued its growth streak in H1 2021, with Tether and USDC
retaining their dominance. Tether’s market capitalization swelled to $64 billion at
the end of the period, up 526% from $10 billion at the midpoint of 2020. USDC grew
to $24 billion, up 2,308% over the previous 12 months.21

Tether and USDC growth

Source: Coin Metrics

Coinbase made two major advancements to help bolster the stablecoin market in H1,
first by adding support for USDT (Tether) in May, and second by lowering pricing for
stablecoin/fiat conversions across all major stable pairs we support (DAI-USDC,
DAI-USD, USDC-EUR, USDC-GBP, USDT-EUR, USDT-GBP, USDT-USDC, USDT-USD, and
WBTC-BTC). Effective June 1, all Coinbase Exchange stablecoin fees moved to 0 bps
for maker volumes and 1 bps for taker volumes, across all volume tiers.

Our institutional practice sees stablecoins delivering significant value to users, and
we want to help make fiat currency in its improved tokenized format as widely
available as possible within the crypto economy. Stablecoins provide crypto users
with lower transaction costs, faster settlement, and compatibility with DeFi, and are
the preferred format for many of our clients, offering them an alternative to “exiting”
crypto altogether when they have a need to de-risk their positions or quickly
and cheaply transfer cash.

Coinbase Institutional H1 2021 P22


8. DeFi
DeFi’s momentum also continued in H1, as more crypto investors and users around
the world saw the benefits of programmatic, decentralized, global markets for
financial services built on open-source software.

While DeFi was defined by retail investors for the majority of 2020, in H1 2021, we saw
a surge in DeFi interest among our institutional client base. Many of our largest
clients and partners, including traditional hedge funds and global investment banks,
looked to our institutional practice for advice on navigating DeFi, and a growing
portion of our clients built direct positions in the most prominent DeFi protocols’
native tokens.

We continue to monitor key DeFi metrics closely. Wallet address growth and
decentralized exchange (DEX) volumes are top of mind for many of our clients.
Total DeFi Wallet addresses grew to 2.9 million in H1, up 1,131% over the previous
12 months.22

Total DeFi wallet adresses

Source: Dune Analytics by Richard Chen

Decentralized exchange volumes also accelerated, providing investors and traders


with a wide range of supported assets and the ability to trade from non-custodial
wallets with lightweight onboarding. Aggregate volume across the major venues
reached $468 billion for the period, up 7,715% from $6 billion in H1 2020.

Coinbase Institutional H1 2021 P23


8.1
Trading volume by DEX

Source: Dune Analytics by Fredrik Haga

Coinbase is committed to supporting DeFi via our institutional practice. Today, we


do this by enabling compliant trading and custody of major DeFi assets on our Prime
platform. We see two primary risk factors keeping further institutional capital from
entering the DeFi markets, and are actively working to help mitigate these factors
and drive further adoption of DeFi: (i) a lack of clarity from regulators on how DeFi
protocols can be accessed and used; and (ii) smart contract security risk.

Coinbase will continue to take a proactive approach towards educating regulators


about DeFi, highlighting how this new frontier can help create more financial
inclusion and drive badly needed innovation in capital markets. We are also
monitoring the maturation of smart contracts, and expect the trajectory of trust in
DeFi smart contracts to mirror that of leading custodial platforms — i.e. improving
with time, investment, and competition.

Coinbase Institutional H1 2021 P24


9. Coinbase M&A
M&A continues to be a core focus for Coinbase and we were active in the first half of
the year, completing five acquisitions — including Bison Trails, a leading crypto
infrastructure provider, and skew, a leading institutional data analytics platform. We
have known both companies for some time, having invested in Bison Trails in 2019
through our venture arm and partnering with skew in 2020. After witnessing their
growth and strong reviews from our most demanding clients, it made sense to join
forces, bringing these world-class management teams who share our long-term
vision for crypto to Coinbase. The two companies substantially deepen our product
capabilities and support our mission to grow the crypto economy.

Bison Trails
Bison Trails provides fully managed crypto infrastructure as a service. With its
Participate product, it enables staking and active network participation across more
than 20 crypto protocols. Bison Trails’ Query & Transact capability allows developers
to access blockchain data from 30 protocols to build Web 3.0 applications, validate
transactions, request transaction information, and write data including transfers
and smart contract actions.

Bison Trails full


node and validator
metrics snapshot

Coinbase Institutional H1 2021 P25


9.1
We anticipate that Bison Trails will play an increasingly important role in supporting
our clients’ activity in the market as part of our new Coinbase Cloud infrastructure
suite, as we are observing growing institutional demand for newer assets that
feature proof-of-stake consensus and on-chain governance. Bison Trails’ technology
makes it easy for individuals, investors, and companies to participate in the crypto
ecosystem across a number of protocols — whether through staking, offering
value-added crypto services to customers, or building new crypto applications and
services. We are excited to work with Bison Trails to offer Coinbase Cloud as part of
our core institutional product suite, doubling down on our commitment to make the
crypto frontier accessible and safe for the world’s largest investors, innovative
companies, and developer teams.

Bison Trails was founded in 2018 by CEO Joe Lallouz and CTO Aaron Henshaw.

Skew
As outlined in our previous reports, institutional investors are becoming increasingly
sophisticated at leveraging rich data to inform their trading and investment
strategies in crypto. Skew has rapidly emerged as a leader in institutional-grade data
over the past few years, and is universally loved by our clients for its platform’s
quality, depth, and flexibility. Our actively trading clients are particularly dependent
on skew’s wide range of analytics, which span spot and derivatives markets for both
exchanges and DeFi, exploring volume, spreads, funding rates, buy/sell ratios, and
many more customizable metrics.

Coinbase’s institutional clients will now be able to consume skew’s analytics


platform directly within Coinbase Prime, tracking cryptocurrency spot and
derivatives markets in real-time. Further, we will continue to leverage skew’s data in
our research and trading commentary to help keep clients abreast of the latest
developments in the crypto market. Skew was founded in 2018 by CEO Emmanuel
Goh and COO Tim Noat.

Skew data analytics


platform snapshot

Coinbase Institutional H1 2021 P26


10. Bitcoin and the
environment
Tesla made waves in February when CEO Elon Musk announced that the electric
carmaker had purchased $1.5 billion of BTC and would start enabling its customers
to use BTC to purchase its cars. The news bolstered investor confidence in BTC as
Tesla became the next major public company to back the leading crypto asset,
following investments from others such as Microstrategy and Square. Just three
months later, and to the surprise of investors, Musk tweeted that Tesla would cease
the payments portion of its BTC activity, citing concerns over the Bitcoin network’s
environmental impact.

Musk’s tweets incited a frenzy of interest in the topic of Bitcoin mining’s electricity
consumption, which had yet to receive serious attention from mainstream media
and most investors until the first half of this year. In our institutional practice, we
saw a spike in ESG related inquiries from traditional allocators and corporates
seeking to separate fact from fiction. Misinformation from a handful of prominent
media publications and politicians added to the confusion.

The exact magnitude of the Bitcoin network’s electricity consumption remains


difficult to quantify given the decentralized nature of mining and its rapidly shifting
make-up of participants. However, we have begun to provide our clients with a set of
observations to help them in their research on this topic. We summarize these
observations below and encourage readers to visit our Fact Check blog for more on
this topic.

• Bitcoin’s proof of work consensus mechanism requires electricity


consumption. Miners use electricity to power specialized computers (ASICS)
that compete to solve computational challenges that propagate new blocks,
extending the Bitcoin blockchain and rewarding miners with small amounts
of BTC.

• The costs associated with proof of work, in combination with its


decentralized design, directly secure the Bitcoin network by increasing the
difficulty of overtaking it via a 51% attack.

• Over the past 12 years, the market has shown increasing confidence in this
proof of work consensus and security system. Underpinned by proof of
work, Bitcoin stores more value than any other crypto asset ($657 billion as
of June 30, 2021).23

• Public views on the merits of proof of work’s consumption are polarized, and
we observe that they are generally a function of the value someone derives
from the Bitcoin network. Those who use the network to store their wealth
via BTC, send or receive remittance payments, or borrow and lend in BTC
generally believe its consumption is merited, while those who do not use
BTC (and therefore do not derive value from it) are more likely to believe
it is wasteful.

• Many commentators believe Bitcoin’s electricity consumption is linearly


correlated to transaction activity. This is untrue, as it fails to take into
account batched transactions and layer two: e.g. transactions occurring on
the Lightning Network or via crypto and fintech companies providing off-
chain peer-to-peer transfers (including Coinbase).

Coinbase Institutional H1 2021 P27

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