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November 10, 2020

Market Spotlight

Why institutions remain very far away from DeFi with Coinbase

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Coinbase recently acquired Tagomi for its institutional trading business, where the exchange has been growing its business. Nisa spoke with Brian Foster and Ben Floyd, institutional coverage and head of OTC sales at Coinbase, respectively. Coinbase recently published an institutional review for H12020. Ben Floyd fielded a question about changes in sophistication in terms of trading, saying:

(35:25) “We’re getting a whole new customer segment coming into now. And I think…it’s been a long time coming. They needed good custodians, they needed to get comfortable from a regulatory perspective. But now that they are into this space, they are demanding a lot of the same tools that they would get in traditional markets…And I think that the conversations that we’re having with these more sophisticated traditional asset managers, it might be a global macro hedge fund or a pension or endowment, is much more typical of the conversation that we would have had in traditional finance when dealing with these kinds of participants. So I think it’s been a huge step forward.”

Fidelity recently published an investor survey that showed an increase in direct crypto asset exposure in comparison with derivatives. Nisa asked how it compares with Coinbase clients, in response to which Ben Floyd said,

(40:40) “With regards to volumes and derivatives growing, a lot of the traditional funds have access to CME futures by their FCM already. So the step for them to trade bitcoin is just another [tick up?]. So it’s very, very easy for them to do that. Trading spot is a very different conversation. And it’s one that requires their security team to get involved, their compliance, a whole range of different people. So we’re seeing fantastic growth in the spot side of the volumes.”

Nisa asked the type of involvement they’re seeing in institutional investor experimentation across areas like DeFi, staking and stablecoins, in response to which Brian Foster said:

(44:31) “I would say that DeFi in particular, I think there’s a lot of buzz around this category right now. For the institutional players, I think they’re very far away from DeFi. So this is a super interesting phenomenon and we’re excited about it at Coinbase and supporting these protocols and everybody that we can…
(45:52) I think stablecoins are super interesting. We’ve seen very strong growth there. USDC is something that we’ve invested in a bit at Coinbase…What’s encouraging to me is that when given a choice, we basically see that crypto traders and investors will use stablecoins rather than exiting the crypto economy back into fiat.”

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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