Coinbase effect triggers massive volume spikes for key DEX dapps

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The Coinbase effect is back!

The Coinbase effect is back as the popular cryptocurrency exchange announces it may be soon be listing specific DeFi tokens such as Aave, Bancor, Compound, and Synthetix.

Coinbase currently boasts 30M users, 8M of which joined in 2020 so this move is a real positive for the growing DeFi space. Already we can see the announcement has triggered the so-called ‘Coinbase effect’ within the top DEX. 

Using DappRadar OpenData we can see that popular exchange protocols Uniswap, Kyber, and IDEX have seen a significant increase in daily trading volume with spikes appearing in tandem with Coinbase’s announcement. 

Coinbase effect

On the 8th of June 2020, Uniswap had a trading volume of 4.2M USD. One day later on the 9th of June, the trading volume more than doubled to 9.6M USD.

On the 7th `June 2020 IDEX had a trading volume of 3.1M USD. Three days later on the 10th of June, the trading volume had more than tripled to 11.3M USD. 

A similar yet lesser effect could be seen for Kyber whos trading volume on the 8th June was 2.7M USD. Once again just a few days later the trading volume had jumped to 5.7M USD. 

What’s happening?

These surges are the effect of tokens being listed on Coinbase that serve the DeFi ecosystem. Traders are hedging their bets that those tokens will see a marked increase in the near future due to them being listed on Coinbase.

As such, traders want to secure tokens at the current price – before they are listed. Therefore driving the daily trading volume wild on the top exchanges such as Kyber, IDEX, and Uniswap.

What is the Coinbase effect?

The Coinbase Effect first became apparent in 2017 when the exchange-listed Bitcoin Cash and Litecoin. Subsequently in the days and weeks that followed, both coin’s prices doubled. 

The term broadly refers to the price effect felt by tokens once they become listed on the Coinbase exchange. As previously mentioned, with such a huge user-base Coinbase demands respect and authority in the crowded exchange space and has built trust with its users. Overall, there is simply something quite significant about being instantly visible to millions of users in multiple countries around the globe. 

In mid-2019 Chainlink, a relatively unknown cryptocurrency received a healthy price surge after landing on Coinbase. LINK was worth just over $2 before its listing was announced and has doubled in price since.

Coinbase effect
Chainlink was listed on Coinbase the 26th June 2019

Another token that felt the effect was MakerDAO‘s MKR token. Coinbase officially added the Maker (MKR) token to the supported assets on the exchange’s professional trading platform, Coinbase Pro. MKR, as a result, saw a reported 37% increase.

The DeFi effect

Coinbase was one of the earliest players in the space and as such has seen much success, but lately, that success has been questioned more and more. It has lost favor with the hardcore cryptocurrency community.

This latest move is a clear attempt to capitalize on the growth of the bulging DeFi sector audience. By adding new DeFi tokens they are tapping into this market and will become a key home for some tokens in the future.

However, this move could be damaging to the space overall as by adding DeFi tokens to its liquid exchange, Coinbase could potentially steal market share from DEX’s that dominate trading volume for those tokens. It is possible the move is more about jumping on the DeFi bandwagon as oppose to supporting the growing industry. 

The bigger picture

Overall, the move is positive as it can bring about some much-needed awareness of DeFi dapps and what they can offer users. Increased awareness and use could potentially lead to further adoption. Furthermore, the listing of tokens on the N.American Coinbase exchange could also open up some tokens to the USA market for the first time. 

We will continue to watch this space. Make sure you bookmark DappRadar and sign up to our newsletter below to get updates direct to your inbox.

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