Coinbase Custody Doubles Down on DeFi Governance Options

Coinbase Custody is making it easier for its clients to vote their tokens on more decentralized finance (DeFi) protocols, starting with Compound. The new tools were announced Thursday.

“A year ago, people put their assets in Custody to put them in cold storage and not interact with them much,” said Coinbase product manager Bryce Ferguson. “Now they can stake, vote or do whatever innovative thing those assets offer. … We worked really close with regulators to bring this to market.”

The move is meant to get more voter involvement from Coinbase Custody clients, since DeFi ecosystems have seen notoriously low participation rates to date. Diversification is imperative if DeFi is ever to realize its “decentralized” ethos.

Coinbase’s venture arm invested in Compound Finance starting in 2018. Compound’s 2019 Series A included the Andreessen Horowitz a16z crypto fund, Polychain Capital and Paradigm Capital, all of which are also heavily involved in the Ethereum-centric MakerDAO ecosystem. Polychain and Paradigm are helmed by members of the so-called “Coinbase Mafia.”

Thousands of people now buy assets affiliated with the DeFi ecosystem, including ether, dai, Compound’s cTokens and the MakerDAO voting token MKR. Coinbase Custody clients have been able to vote their MKR tokens without moving them out of storage since last October.

“Coinbase Custody is currently the only custody provider and the only in-app voting experience for Compound,” Coinbase said in a press statement. 

But this isn’t just Coinbase scratching its own itch. There is retail demand for staking and governance features directly in wallet or exchange accounts.

Ethereum creator Vitalik Buterin tweeted on Tuesday he’s also interested in the idea of mobile staking options for the upcoming Eth 2.0 revamp. Plus, this week the wallet startup Ledger announced self-custodied staking options for Tron’s TRX, the wallet’s second staking token after Tezos. The complementary Ledger Live mobile app went live in January 2019 and has since staked 49 million Tezos tokens, XTZ, second only to Coinbase.

Coinbase offers Tezos staking through its mobile app as well, since November 2019, and is currently the world’s largest Tezos validator. According to Ferguson, Coinbase now has roughly 60 million tokens ($120 million) staked. 

Ledger CEO Pascal Gauthier said staking and governance features, even direct smart-contract access like Compound offers, are on the roadmap some time after this sprint focused on Tron.

Among decentralized applications (dapps), Tron dapps are the most popular options in 2020. The blockchain analytics startup Dapp.com’s Q1 2020 report said Tron dapps saw an average of 21,606 users a day last quarter, with the vast majority being “high risk” gambling games. 

In terms of Ethereum users, Dapp.com estimated Compound is the third most popular dapp, garnering fewer users but higher volumes. Combined with MakerDAO, the fifth most popular protocol by transaction volume, Dapp.com estimated both DeFi systems had under 2,000 daily users on April 15.

“In the short term, we probably think about DeFi more than anything else,” Ledger’s Gauthier said. “The space is growing so much no one is really competing against anyone right now. Everyone is growing.”

Likewise, both Gauthier and Coinbase’s Ferguson said they are closely monitoring Eth 2.0 developments, as any future assets may have either voting or staking features as well.

“In the long term we think about our role toward the user, the fact that we need to make it as secure and easy as possible,” Gauthier said, adding these coin features were inspired by user demand.