Crypto exchange OKCoin has been on a tear over the past week, listing multiple new DeFi assets despite turbulence in traditional and crypto markets. The volatile crypto subsector known as DeFi has seen torrid growth this year, with one measure of assets in the protocol products known as total value locked (TVL) having increased from $675 million in January to over $9.5 billion today. That growth has left analysts, investors, traders, and the exchanges that service them at times breathless — and struggling to keep up.
In that pursuit, OKCoin announced on September 14th that they were exploring listing up to 18 DeFi assets, with the first three listings of COMP (Compound), DOT (Polkadot), and YFI (yearn.finance) announced two days later. Further listings were announced this past Monday, with the main headline being OKCoin following some of their peer exchanges in a quick listing of UNI, the native token of the flagship automated market maker (AMM) exchange Uniswap. However, the announcement also included both cUSDT and cUSDC, two of the most important cTokens on the Compound platform that drives a significant portion of the current DeFi market.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The creation of UNI and overnight airdrop on September 17th has taken the industry by storm, with Coinbase Pro listing UNI within hours of the announcement and Binance.US not long after. While OKCoin has been quick to react along with their peers, it is the decision to list the cTokens which is perhaps more indicative of the continuation of their overall DeFi strategy. As tokens specific to the Compound protocol, the listing by OKCoin can bring the ability to access the utility available to savvy users in the DeFi markets to a much wider audience who may not be as comfortable or proficient engaging with DeFi protocols yet.
The proliferation of the DeFi ecosystem with decentralized exchanges like Balancer and Uniswap and lending protocols such as Compound and Aave that connect users directly has forced centralized exchanges to re-examine their value propositions and areas of focus. As far back as 2018 Coinbase purchased decentralized exchange Paradex as part of its exploration of the market and technology. Last April, Binance became one of the first cryptocurrency exchanges to launch its own DEX using its own blockchain. Centralized exchanges have also listed numerous DeFi assets for trading this year, offering a way for users to onboard to the decentralized ecosystem directly from fiat. But there is no question that a tension exists between the regulated, centralized nature of centralized exchanges and the at times wild west nature of DeFi, with the ultimate aim of many in DeFi to completely bypass any need for centralized infrastructure by connecting users directly.
Although a centralized (CeFi) exchange, OKCoin has been actively exploring, participating, and servicing the DeFi system all year. In July, they announced a public price feed oracle with signed price data. The oracle, which is designed to Compound’s Open Price Feed specification, is a major step in centralized players using their resources to support critical infrastructure allowing DeFi to peacefully coexist and grow over time. Almost every DeFi application relies to some degree on oracle data in determining prices for products on their platforms, making the integrity of these feeds perhaps the single biggest potential fail point for DeFi as a whole.
When formulating their strategy going forward, CEO Hong Fang is focused on the entire ecosystem and where OKCoin can provide liquid markets. Of the types of projects she is focused on and why she is interested in DeFi specifically, she says “When we think about Bitcoin, it’s not just the underlying protocol, the quote on quote blockchain technology. Blockchain technology in itself, it doesn’t stand for anything. It’s the technology plus the economic incentive mechanism that you build into it.”
As of now though, there is still a bifurcation in the market. While it may seem hypocritical for a centralized exchange to be so focused on a supposedly decentralized system, they aren’t opposites so much as complements. There will always be a need for fiat onramps in crypto, and the regulated centralized exchanges have done an excellent job at making onboarding and custody for the average user much easier. While the vision for DeFi is an entirely new financial system, any semblance of achieving more interoperability and exposure can be positive for the space. Underlines Fang:
“If there are high quality projects that we really like we want to make it easy for people to access it. Because right now there is utility being offered by DeFi but there’s an extremely high threshold for people to really understand and to use it. To see DeFi continue to grow I think it’s necessary to enable more convenient access to the ecosystem, introduce more people to this concept and help people understand how to access it and use it.
One way for us to enable that as an exchange is to provide liquidity, provide a listing and a venue for people to trade and discover price. But there are obviously other ways for us to participate and we’ll continue to explore that, and we have other things going on internally that we are exploring.”
While they aren’t the only exchange spending time on DeFi right now, Fang’s continued commitment to the space and appreciation for it based on underlying crypto principles is refreshing. Along with their multiple developer grants both to individuals and in support of secure private payments like BTCPay server, Fang sees DeFi as another brick in the long road that underlies bitcoin, and crypto.
“[DeFi is] a continuation of the experiment that Bitcoin has started years ago, and the gist of it is really permissionless. And that way we can hopefully recreate the whole financial ecosystem in an end-to-end tech stack instead of building on top of the legacy financial system as we have seen with all the traditional fintech companies. Like Bitcoin has been trying to do with the monetary layer, DeFi is trying to create the financial system on top of the monetary layer.”
Although she admits that no one has a crystal ball as to which projects will ultimately succeed or fail (and many will fail), her willingness to participate in the ecosystem on behalf of OKCoin ensures that the sector has another perhaps unexpected ally in the form of a centralized exchange. While it’s certainly in OKCoin’s interest to list tokens that can generate trading revenues, the holistic approach taken by providing developer grants, oracle development, and a willingness to widen access to specific but important parts of the ecosystem tell a tale of a continued commitment to the principles of DeFi and crypto as a whole.
Disclaimer: Rory is an active trader and investor holding positions in several cryptocurrencies as well as equities and other private investments at any point.