DeFi doesn't need Coinbase's CPI stablecoin. It has Frax (and others)

Coinbase wants in on the defi stablecoin game

Of course Coinbase already owns 50% of Circle, the issuer of fiat back stablecoin USDC, so it has some considerable skin in the stablecoin game. But USDC recently de-pegged when it's reliance on only a few banking partners was exposed as incredibly risky. Not-so-stable after all it would seem, hence Coinbase's desire to diversify it's product range.

All Roads Lead to...

My take? Frax Finance's $FPI (Frax Price Index) says: "Welcome to the party! Don't worry about being late"

$FPI Offers a bonding (aka staking) mechanism of up to 4 years, via $veFPIS, which will be very familiar to anyone who's seen the veToken model before.

It's not even the only alternate stablecoin Frax offers $frxETH is technically a stablecoin too.

You can also stake, like any other $ETH product, with $stfrxETH

Above from DeFi Flywheel's excellent explainer on frxETH

Frax's first product was a traditional fiat backed one, $FRX, which has unique twist on the traditional veToken model via $FXS (Frax Shares) which is staked/locked as $veFXS.

Above from Frax Ecosystem 101: A Beginner’s Guide to the Revolutionary DeFi Protocol and its Primitives

Hear more about Frax's concept of the "DeFi Trinity" on this episode of the Empire podcast.

And The Frax Stablecoin Thesis from Flywheel DeFi

It's fascinating stuff.

All roads lead to Frax, as someone once said (it was likely Flywheel DeFi).

Coinbase isn't wrong. But they're the wrong answer

Let's give credit where it's due: It's a decent idea from Coinbase. That's why other similar products have already launched. Though, so far, not many have had much luck (very early days though and still-very-new $FPI is looking very solid).

Recent history aside, non 100% fiat backed stablecoins are better done by decentralized protocols like Frax Finance or Liquidity, who are especially skilled at this, rather than a centralised entity like Coinbase. Defi operates at a much lower cost and lower risk to traditional finance and Coinbase has many of the same cost structures of (though not all).

Coinbase should stick to what centralized entities do well. Permissioned, regulated products. One of which is their excellent Coinbase Cloud. Coinbase are an important part of the crypto ecosystem but trying to be the everything-store (e.g., NFT marketplace, Layer 2 etc..) isn't how they help long term.

DeFi doesn't have all the answers either

Not to say decentralised finance can do everything either. Defi doesn't do KYC well and it isn't the appropriate place for fiat on and off ramps. However a strong and fair system has many participants and allows for specialisation in areas of strength and expertise that then allows the whole bigger and better.

The new financial world will look a lot like the old one, that's cause evolution beats revolution every single time.

But just leave the defi stuff to the professionals. And leave it decentralised please.


DeFi is crying out for non-centralised base liquidity layers

Something other than fiat backed centralised stablecoins (e.g., $USDC) or algorithmic casinos (e.g. TerraUSD $UST).

Olympus DAO ($OHM), in my opinion, is an interesting but ultimately failed experiment. It still limps along, but the core thesis, DAO owned liquidity, never really worked out. It did help others refine their own models.

I think what KlimaDAO is doing is an better implementation of the Olympus DAO idea (it's a fork after all).

Sidenote: In fact I think all of ReFi is pretty interesting and blockchain seems to be very a good fit for helping the carbon credits market evolve.

I think what Liquidity did with Chicken bonds is another interesting step, and $LUSD is great little stablecoin but it doesn't scale well

Frax seems to have got the balance right with $fraxETH and $FPI (as described above).

The $500-600B gorilla in the room

I'm most interested to see what Bitcoin has to say about all this. They have the right sort of value there waiting to be deployed: permission-less & decentralised. It's just locked away in really rigid technology is all.

There are a couple of interesting solutions coming though. Threshold Network with $tBTC is a self custodied wrapped Bitcoin.

and Stacks with their $sBTC project

Above from the sBTC whitepaper demonstrating the 'peg-in, peg-out' model

Both are going to have a lot to say in the near future about base liquidity in defi.

It's just not going to be Badger DAO's eBTC (sorry Badger, I do love your vaults though! Especially the GraviAural one)

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