Last week Coinbase made a long-awaited announcement that they will soon be supporting ERC20 tokens on their platform. While they made no statement on what digital assets they would be adding in the upcoming months, 0x, the decentralized exchange protocol’s coin surged on the back of former Coinbase employees assisting on the project. But in the grander scheme of things, is there more than meets the eye?

Coinbase’s objective of building an “Open Financial System” is neither secret nor small target. The exchange looks to support a decentralized financial market whose offering range from micro-loans and index funds, to venture capital debt. But remaining an isolated exchange would hamper such ambitions as evidence by the company’s Protocol Team who released a statement last month saying that “building an open financial system isn’t something we can do alone.”

|| ZERO CONNECTION? ZERO CHANCE

0x, a decentralized exchange protocol, where three former Coinbase employees sit on the board of advisors has caught the attention of the crypto community. The fourth advisor on the project is Joey Krug, founder of Augur, a forecasting platform project that seems to have merit for a Coinbase listing (Diar, 26 March). The overlap between project advisors and investors could make for a compelling case alone. Indeed, most projects building on top of 0x are interconnected one way or another (see chart).

|| THINK BIG

But while 0x connections deep, the decentralized applications (dApps) being layered on top of the protocol could possibly be the answer the popular exchange is looking for to achieve its overall big picture plans. In fact, these projects could tie together a decentralized financial industry on their own merit.

|| …THINK REALLY BIG

Trading volume on decentralized exchanges remain low, and liquidity humble at best (Diar, 5 February). But 0x has, at the very least, opened up the possibility of pooling liquidity, globally, across markets and exchange relayers. The protocol looks to address inherit speed constraints on Blockchain networks, as well as future interoperability between different Blockchains, Alex Xu, 0x Director of Operations tells Diar. And the protocol also aims to minimize the costs of the vast amounts of volume that would happen on mass scale adoption for the trading of tokenized assets and instruments. Still, 0x is only a potential conduit, not the sole answer towards an encompassing financial ecosystem.

The customer facing use of 0x will, for the most part, come from dApps that adopt the protocol. And there are, currently, only a dozen or so projects that are being layered on top of 0x, or are being developed. But they are unique open-source projects, that could potentially tie-in together to create a wide-range of decentralized financial products with self-governing principles. And 0x themselves have identified areas of interest for dApps (see table 1). Perhaps coincidently, perhaps not, some dApps could potentially be fitting options for Coinbase’s grand plan also (see table 2).

|| BANKERS BAD KARMA

Dharma, which was founded by former Coinbase engineer Nadav Hollander, looks to be addressing a few markets on his former employers checklist– collateralized debt obligations, credit swaps, savings accounts and “Initial Debt Offerings.” And they will be tradable, tokenized debt instruments that could be complimented by another 0x project, dYdX, also founded by a former Coinbase engineer, by leveraging positions with financial derivatives.

But current collateralized loan offerings are facing issues due to the high volatility of cryptocurrencies. And Maker has taken the opportunity to address this issue with its US Dollar pegged stablecoin Dai. And already operational, it is possible to take out a Collateralized Debt Position with Dai against Ether through Coinbase’s Ethereum and ERC20 token compatible wallet and browser Toshi.

|| FINANCIAL NIRVANA IN BLOOM

Bloom, who has partnered up with various Blockchain projects extending its own reach, also looks to tie in Dai for loans. And while not a 0x project, Bloom is setting up shop on District0x – which is. Notably, Bloom is one of few projects that is currently working towards facilitating a credit score and assisting lenders in minimizing non-performing loans – a space that is currently monopolized by FICO – and even that is only insightful for US based operations (Diar, 20 November 2017).

2 of 3 launched districts on District0x, Ethlance and NameBazar, are already available on the marketplace of Coinbase’s Toshi. More districts are bound to keep popping up, including Digital Currency Group (DCG) backed Decentraland. DCG also has an ownership stake in Coinbase. District0x might be the answer in creating new markets and companies around the world through Coinbase's client facing app Toshi, as CEO Brian Armstrong looks to emulate Chinese mega app WeChat.

|| THINGS BEGIN TO COME TOGETHER….

When a marketplace is setup on District0x, a corresponding Aragon entity will also be created as the governing protocol. The partnership between the two companies was struck a little less than a year ago. Aragon aims to remove any form of jurisdiction in regards to company setup, structure and bylaws. Effectively, Aragon is a digital Blockchain jurisdiction – how regulators, courts and tax authorities will respond remains unclear. But considering the potential of raising capital through venture rounds and issuing shares on the platform, silence from watchdogs would be unlikely.