Coinbase is putting its digital dollars where the traction is. 

Announced Wednesday, Coinbase has deposited $1.1 million in USDC stablecoins into the pools powering two of the most popular decentralized finance (DeFi) applications on Ethereum: Uniswap and PoolTogether. The investment comes via the USDC Bootstrap Fund, which the company launched in September 2019.

"With USDC, we hope to provide critical infrastructure that will enable DeFi to grow and increasingly compete with existing financial products," Coinbase wrote in a blog post shared with CoinDesk in advance.

Uniswap is an automated market maker and PoolTogether gamifies the saving of money. DeFi platforms Compound and dYdX were the Bootstrap Fund's initial investments.

The latest move by Coinbase is a vote of confidence in DeFi at a time when the sector could certainly use it. In February, there was $1 billion worth of ether (ETH) locked in various DeFi applications, but that's down to $629 million as of this writing, according to DeFi Pulse. The sector's leading platform, MakerDAO, suffered a major crisis earlier this month when coronavirus fears crashed crypto markets (though the DeFi leader has since bounced back).

As for the Coinbase funding for Uniswap and PoolTogether, it's worth noting these aren't so much investments in either company but deposits into the underlying liquidity pools that make them work. 

Coinbase is putting $1 million into the liquidity pool for USDC/ETH on Uniswap. When the pools are bigger, the app works better.

"It provides a significant improvement to prices on that pool. The pool can support larger trade sizes and more volume," Hayden Adams, founder of Uniswap, told CoinDesk in an email.

Uniswap works by setting up matched pools where an ERC-20 token is paired with an equal amount of value in ETH. Users trade one token for ETH and that ETH for the other token, with the user never touching the ETH in the middle.

Increasing the amount of funds in each pool expands the bandwidth of any given ERC-20 token.

Smaller pools are easier to get out of line with the broader market. Larger pools are much less likely to, which means other apps will integrate it and "a larger percentage of these price-sensitive trades are more likely to be executed over Uniswap compared with other liquidity sources," Adams wrote. 

"Uniswap is extensively used for liquidations and arbitrage in DeFi, and liquid exchanges are a critical building block to decentralized finance, " Nemil Dalal, of Coinbase, told CoinDesk in an email.

Coinbase has contributed $100,000 to the sponsored pool backing PoolTogether's USDC daily prize. 

PoolTogether is pretty counterintuitive so here’s a quick recap. It's a lossless lottery. People get their lottery tickets by depositing DAI or USDC. Those tokens go into Compound, where they earn interest. Each week or each day (depending on the token), one depositor wins all the interest earned by everyone's crypto over that period. 

No one ever loses their principle, and that’s the appeal (if you can stomach the opportunity cost). People can withdraw their tokens at any time and all they will lose is their shot at winning the next pool. 

PoolTogether sweetens the deal with "sponsored pools," where funds go into the pot without the possibility of winning the prize.

"We do see a lot of players – especially larger ones – tracking the sponsorship," founder Leighton Cusack told CoinDesk. "Since a significant portion of the prize pool is sponsored it makes a pretty big impact on the expected value and return players see."

PoolTogether could use a boost. The daily prize in USDC is down from $45 in early March to $2 as of yesterday. That said, the whole DeFi sector is down dramatically and deposits of USDC on Compound are paying about 0.46 percent right now.