Clearly DeFi has supplanted stablecoins as the theme-de-jour! This is now our 3rd piece on the exciting area of decentralized finance, after DeFi Expectations: Game-changer For Modern Finance and The Evolving DEX market – Uniswap & DeFi.
Crypto lending and borrowing, which is an important component of the DeFi stack is exploding. Over $26 million has been issued in loans over the Ethereum blockchain, with MakerDAO being the top loan origination platform (97% in the last 30 days). Newer platforms such as Dharma and Compound have at present lower market shares as compared to MakerDAO, but are steadily gaining traction, with their current run rate reaching $40-60k per day. We covered MakerDAO in some detail yesterday.
DAI is the highest borrowed cryptocurrency with 96% market share, perhaps due to MakerDAO’s dominance. The platform can be used to borrow DAI (only DAI) by staking ETH as collateral (multi-asset collateral is planned in the near future). Excluding MakerDAO and DAI, WETH and USDC are the most borrowed assets on Dharma; WETH and BAT are the most borrowed assets on Compound.
We might be still far away from having a full-fledged debt markets for cryptocurrencies, but we are definitely progressing in the right direction as the demand for crypto loans is slowly gaining popular demand. For now, leverage is one of the biggest use cases that is driving the growth of DAI and MakerDAO. One of the inconsistencies that we would like to highlight is the high disparity between borrowing and lending rates for ERC20 tokens. For example, examining the interest rates on Compound,we realize that the current yields for lending ERC20 tokens are very low as compared to the borrowing rates. We could put this down to a few reasons. This could be partly because of users’ reluctance to use a nascent platform; it could also be a lack of confidence with the security of the entire crypto borrowing and lending stack.
“Gold-backed Token by Paxos”Blockchain trust company Paxos’ digital token backed by precious metals will be launched “definitely this year.” Cascarilla, CEO of Paxos, said that the firm’s status as a financial institution allows the firm to utilize the banking system to ensure that they hold backing assets “in the real world” that correspond to the number of assets on a blockchain. While the company is planning to launch its precious metal-backed coin this year, Cascarilla said that Paxos has not set the exact date yet.
“Blockchain ETF on London Stock Exchange”Investment management company Invesco is launching a blockchain exchange-traded fund (ETF) on the London Stock Exchange today. For the effort, Invesco has partnered with London-based Elwood Asset Management, an investment firm specializing in digital assets, to launch the product called the “Invesco Elwood Global Blockchain UCITS ETF.” Elwood announced the news Monday, saying the ETF is designed to target companies with the potential to generate “real earnings” from blockchain technology. The ETF carries an annual management fee of 0.65 percent and aims to deliver the performance of the Elwood Blockchain Global Equity Index. The index, calculated for Elwood by German provider of financial indices Solactive AG, currently has a portfolio of 48 companies.
“Kakao’s Crypto Arm Raises $90 million”Kakao Corp.’s crypto unit raised $90 million through a private coin offering and is planning another round targeting a similar sum starting March 12, as it gears up to launch its blockchain platform in June. The initial funding round, from October to December, reached its target despite the plunge in bitcoin prices, according to Jason Han, the chief executive officer of Kakao’s blockchain unit Ground X Corp. Venture capital and private equity funds including IDG Capital, Cresendo Equity Partners and Translink Capital participated in the round.
“Colorado Passes a New Crypto Act Into Law” The governor of the State of Colorado, Jared S. Polis has signed the “Colorado Digital Token Act” into law. The act — which was initially proposed in January and sponsored at the state Senate level by Republican Jack Tate and Democrat Steve Fenberg — provides limited exemptions for securities registration and traders, as well as salesperson licensing requirements for persons dealing in digital tokens. The bill identifies a “digital token” as “a digital unit with specified characteristics, secured through a decentralized ledger or database, exchangeable for goods or services, and capable of being traded or transferred between persons without an intermediary or custodian of value.”