If you’re like me, you always have a problem wrapping your head around a cryptocurrency exchange.
The first mantra of the crypto community is decentralization. Down with the establishment man! Decentralization leads to freedom from large institutions!
Yet the exact function of an exchange is centralization. Aggregating buyers and sellers in a free market economy to set equilibrium prices.
Coinbase (NASDAQ:COIN) by its very nature seems to be a self-conflicting entity when you look at it this way. But there’s more to it than that.
A hot topic as of late is decentralized finance (DeFi) which is the new-age version of traditional finance (TradFi).
A lot of this movement is built from decades of distrust and rent-seeking from the incumbent big banks. When you look at just how much money these big corporations make from transaction fees it’s a no-brainer to say, “Ok, this can be disrupted in order for consumers to capture a larger share of the value chain” AKA cut out the middleman.
We’ve also seen the largest payment players Visa (NYSE:V) and Mastercard (NYSE:MA) enjoy almost a cartel-like status when it comes to clipping coupons on every transaction. With deep moats come high margins.
With high margins, comes Jeff Bezos-type thinking:
Enter DeFi.
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- The Incumbents