Coinbase is working to square regulations with decentralized finance (DeFi) as it moves to attract institutions to the space.
The exchange’s asset management arm recently debuted Project Diamond, a platform for mirroring debt instruments used in traditional finance by tokenizing them on Base, Coinbase’s layer-2 Ethereum network.
Project Diamond is pitched to help institutions create, buy and sell their own native digital assets. Coinbase says under 0.25% of global assets are currently represented on blockchains, and the effort is geared towards boosting that figure.
Coinbase is a public company regulated by the US Securities and Exchange Commission, and through its new real-world asset (RWA) platform the firm is looking to solidify its position as a middle ground through which institutions can explore crypto.
“Institutional investors are expected to favor compliant platforms like Coinbase and Gemini,” said Danny Lim, a core contributor at MarginX. “Organizations will look to lower the barrier to entry for DeFi activities, potentially broadening the market base.”
Although, for now only registered institutional investors outside the US will be able to use Coinbase’s tokenization platform.
Coinbase has previously noted in a blog post that it views tokenization as an “industry shift from focusing on pure decentralization to a practical combination of centralized entities and semi-decentralized networks that can onboard additional users.”
Coinbase sees regulation improving decentralization
Stablecoins are some of the most ubiquitous RWAs in the crypto space.
Robert Leshner, founder of RWA-focused blockchain startup Superstate, previously noted at the Real World Asset Summit in New York that non-volatile assets — such as stablecoins — are much easier to program than volatile assets.
This makes stablecoins and other tokenized pegged assets a key entry point for the transition from traditional finance into blockchain.
Stablecoin supplies have grown by more than $2.2 billion over the last quarter alongside increased activity in crypto markets. Tokenized treasures, another relatively stable asset, have also experienced significant growth by over 450% over the past year.
The growth in RWAs and their implementations have drawn criticism over centralization, particularly around reliances on oracles.
“Decentralization and regulation are not in conflict, in many instances they can inform and improve each other,” a Coinbase spokesperson told Blockworks.
“At this stage in the development of blockchain technology we support responsible DeFi development because it grows the crypto ecosystem as a whole.”
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