Compounding Crypto
My experience at Coinbase and why I’m joining Compound
Today is my first day at Compound.
Compound is creating money markets on the Ethereum blockchain and at the time of this writing, has over $39MM of assets earning interest. It may be crypto winter to some, but in my eyes it’s a DeFi spring in full bloom. But before we get too deep into Compound and DeFi, let’s first understand how we got here, and how Coinbase played an integral part in making this moment possible.
Along came cryptocurrency
Similar to many, I got my start in cryptocurrency thinking of it nothing more than speculating on nascent assets that I really didn’t know much about. Fascinated, but shallow in my understanding, I left my already dystopian future job (working on self-driving semi-trucks at Uber) and went to Coinbase to immerse myself in magic internet money.
That‘s the Coinbase mission. But you’re probably thinking, “how exactly do you go about doing that?” First and foremost, Coinbase has enabled the crypto world to exist by building trusted bank relationships that enable fiat onramps into the cryptoeconomy. Once you solve that, the next step towards an open financial system would be to re-create the pillars that compose Finance 1.0: Brokerages (Coinbase), Exchanges (Coinbase Pro), Custodians (Coinbase Custody) and replicate.
During my time at Coinbase I saw:
- a company grow from 250 to over 700 employees
- a design team grow from 3 to 22
- that same company try to understand how to work efficiently at this new scale
- a business close a $300M funding round at an $8B valuation
- the launch of the USDC stablecoin
- re-launching a product from GDAX to Coinbase Pro & Coinbase Prime
- an engineering team execute staking in cold storage at scale
- an institutional-focused team launch both a Custody and OTC offering
- a product expand to 21 additional countries
Product Optimization
The majority of new products address their predecessor’s problems in the same way: iterate on the speed of the current process (faster 🐴 horses problem), rather than re-think the process itself (👋 iPhone + Uber). I found this to be true in both the trucking industry, designing Uber Freight, and then as the design lead for Coinbase Pro and Coinbase Custody.
We relaunched GDAX as Pro to serve individual traders, and launched a net-new product: Coinbase Prime, to serve Institutions. Core product challenges needed to be designed around such as:
How do you design for liquidity?
Thinking about liquidity, stop-limit orders, exchange arbitrage, algorithmic trading, market making, and tiered pricing by trade volume were just a few of the new concepts I was now grappling with. While every trader and Institution wanted all the features, through user-interviews, we generally believed that these users would prefer to use Pro and Prime over other exchanges because they valued simplicity, ease-of-use, and the security of the platform.
Decentralized Finance — DeFi
While building Coinbase Custody, I had an “ah-ha” moment about crypto’s role in financial services. While traditional Custodians are not all that different from a more secure, fancy bank for your assets, crypto (and Ethereum in particular) offers programmability, autonomy, and transparency for digital assets. This enables entirely new financial products to be created, and existing products to be completely reinvented.
With DeFi, we are seeing the first real utility in cryptocurrency in terms of capital injection from users ($410.4M locked up as of this writing). Moreover, these DeFi companies are not just seeing value move around, they are building true crypto-primitive products and functions that will become the building blocks of the open financial system.
The magic of DeFi is the experience of using crypto for something you never were able to do with your fiat currency. For example, try predicting if the Avengers will gross over $270M in opening weekend while earning interest on those assets in your prediction until the market settles without using cryptocurrency 👀. These are all net-new things that can be remixed and mashed-up to create even more unique experiences. Remember, no one thought the internet was going to change how packages showed up at our door (Amazon) or how we got around town without a car (Uber). That’s the magic of DeFi, net-new things.
It’s vital for the cryptoeconomy to have fiat on and off ramps, crypto simply wouldn’t work without them. However, to me, the realization of a global currency system, free of borders (like your email), doesn’t start to really pay off until there is utility behind it all.
What is Compound?
Compound is an open-source protocol for algorithmic, efficient Money Markets on the Ethereum blockchain. The idea is to seamlessly earn interest or borrow your crypto without managing an order book. This global liquidity pool is a huge improvement to general UX. A world of individual positions is much more complex, as well as restricting in terms of how others can build new products on top of Compound. A single source of liquidity, accessible by anyone provides large network effects over time: increased capital in the liquidity pool ➡️ increases the user-value of the protocol ➡️ causes more products who want to integrate with the protocol ➡️ which brings more capital into the liquidity pool, wash, rinse, and repeat.
Net-new: cTokens
Compound’s latest net-new product is the introduction of cTokens. In v2 of Compound, balances are represented as ERC-20 cTokens; meaning you can now send your balance to cold storage, and earn interest offline 📈👀🤯. How could cTokens work as collateral for loans? What does the future market of a cToken look like? 🤷♂ No one knows yet, and that’s what makes it exciting.
A people-focused approach
In DeFi, an open sourced approach is both a priority and principal of existence for any company in the space. This means that there’s an open, and continuous, feedback loop between the people building the product and those who are using it. That magical feedback loop is how you build the best, people-focused products that people love to use.
When I first engaged with Compound, Robert Leshner explained his vision for the community to eventually drive new features and the overall shape of the Compound protocol over time. This sparked my interest as the once walled garden of working inside Coinbase and Uber was no longer a constraint. What does a product roadmap look like when the same community who uses your product today, helps create tomorrow’s version of it with you? Compound has already put this principal into action by allowing the community to decide which stablecoin should be added to the protocol.
Help build the future
Compound v2 is currently running on all three Ethereum testnets, and is designed to be a foundation for any product you can imagine.
- Check out our documentation for developers
- Join our Discord to chat with the team
- If you’re ready to join the DeFi revolution, see our open recs
