Did Coinbase read my blog? Now they want to offer interest on crypto holdings

Coinbase introduces Compound (Compound Interest)

I blogged about this not long ago about how Coinbase should specifically allow holders of Ethereum to stake their tokens. I mentioned that allowing people to collect interesting on our holdings would promote Coinbase as the top regulated exchange. I had a debate with at least one commenter who thought this idea would never work.

Not even two weeks later Coinbase now announces compound interest on crypto. In my opinion if they can pull this off then it makes Coinbase the obvious choice for holding crypto. Just as keeping your assets in a bank can get you interest or keeping stocks can pay dividends it would of course depend on how much interest it is.

Coinbase offers Compound

Coinbase is offering something called compound. I'm not entirely clear how it will work but it appears to be a kind of lending to allow people who hold certain tokens to lend it out to earn interest on it. I do question whether there are safety measures such as insurance so that this lending is not "peer to peer" but is instead done in a way where if the borrower cannot pay it back that the lender doesn't risk losing all their tokens. What Coinbase appears to be offering also is a way to short and it is quoted below:

Most cryptocurrency is shoved in a wallet or metaphorically hidden under a mattress, failing to generate interest the way traditionally banked assets do. But Compound wants to create liquid money markets for cryptocurrency by algorithmically setting interest rates, and letting you gamble by borrowing and then short-selling coins you think will sink. It plans to launch its first five for Ether, a stable coin, and a few others, by October.

In my opinion I don't think the stablecoin is useful. Why not just use USD? On the other hand I do think people want to short (Bill Gates himself expressed interest).

On the other hand the person behind this idea seems to be not much of a believer in crypto at all:

While right now Compound deals in cryptocurrency through the Ethereum blockchain, co-founder and CEO Robert Leshner says that eventually he wants to carry tokenized versions of real-world assets like the dollar, yen, euro or Google stock. That’s because Leshner tells me “My thesis is that almost every crypto asset is bullshit and not worth anything.”

A lot of crypto assets probably aren't worth much. A lot of stocks also probably aren't worth much. The difference is with stocks we have ways to analyze and assess the worth by studying the underlying company. To do the same with crypto requires a deep understanding of the code as well as the community dynamics. It's harder (much harder) to assess the value of a crypto asset.

So what does this mean? It means if you have crypto assets and you hold them you may in the future be able to earn interest. If that interest is high enough you may be able to actually live off that interest or reinvest it to buy even more crypto to take advantage of compound interest. Overall it's a very good idea.

References

1. https://techcrunch.com/2018/05/16/cryptocurrency-compound-interest/