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On October 24, 2022, Coinbase Prime announced entering into a partnership with MakerDao to become a custodian of USD1.6 billion worth of USDC, of which MakerDao is the largest holder. In return, MakerDao will earn a 1.5% reward on its USDC holdings while holding funds with a “trustworthy” institutional custodian. Through this deal, Coinbase regained control of the tokens held by its investors and utilized the tokens for re-lending
Analysis
Contrary to popular belief, Coinbase is a crypto asset broker/dealer, not an actual exchange. This misunderstanding is not through duplicitous actions of Coinbase, though. The term “cryptocurrency exchange” was most likely originally used by a software developer/tech enthusiast who did not understand the actual meaning of the parlance, and its usage has simply stuck over time.
Broker/Dealer: A broker is an individual or financial services company that enables the trading of assets for other individuals. A dealer is an individual or financial services company that enables the trading of assets for themselves. Coinbase does both of these:
3.21 Coinbase, Inc., which owns and operates Coinbase Pro and Exchange, also trades its own corporate funds on Coinbase Pro and Exchange – Coinbase help site.
Exchange: Exchanges and brokerages are different types of markets with unique functionality. Exchanges match traders, allowing them to execute orders with each other. Brokerages transact with their clients directly.
See pdf Coinbase/MakerDao USDC Rehypothecation Analysis (1.45 MB) for the full report.
