New Partnerships Aside, Cardano Is Still All About Utility
The first sees the Nexo Exchange listing Cardano’s native cryptocurrency.
This means owners of ADA can buy and sell through the exchange, earn interest on their existing coins, and borrow against the coins in U.S. dollars or one of the other 40+ fiat currencies.
The second partnership is a collaboration with Decentralized Financed (DeFi) liquidity aggregator Orion Protocol. As far as I can tell, Orion allows you to get the best price on your crypto buys and sells across all the global crypto exchanges.
Of the two partnerships, I’m going out on a limb to argue that the latter is more important to Cardano than the former.
Cardano and Celsius Network
Let’s assume that I own 30,000 ADA. Assuming a price of $1.42 (it’s trading just shy of that this morning) that’s about $42,600.
The first partnership means I could take my ADA and transfer it to my Nexo wallet. I would then receive interest up to 12% on the value of my assets.
At the same time, I could use the assets as collateral to borrow U.S. or Canadian dollars or any of the other fiat currencies available.
So, based on the $42,600 in ADA, I could borrow $18,073 at an annual percentage rate (APR) of as little as 6.95%. Let’s say that doubles to $85,200, my line of credit available would increase to a little more than $36,000.
Just for holding my crypto in a Nexo wallet.
I could use Nexo. Or, I could go with the undisputed crypto exchange champion and put my $42,600 of ADA in a Celsius wallet.
The only problem is ADA is not yet available as collateral on Celsius. Furthermore, at the same rate of 6.95%, I could only borrow $14.058 based on a 33% loan-to-value ratio.
So, ADA being added to Nexo is a bit of a deal for Cardano lovers.
What About Orion Protocol
Imagine if you had 10 investment accounts with 10 different stock brokers. Only each one had its own independent pricing of securities.
You could buy 10 shares of Stock A at all 10 businesses, and no two quoted prices would be the same.
That’s the problem crypto buyers have. It’s referred to as the Kimchi Premium.
The issue first came to light at the end of 2017 when the price of Bitcoin (CCC:BTC-USD) in South Korea was 30% higher than on crypto exchanges in other countries, including the U.S. This opened the door to arbitrage plays by traders.
“The key to Orion’s value is its built-in liquidity aggregator, which automatically allows its users to access multiple exchanges in order to obtain the best spot price for any supported cryptocurrency, embodying the best features of both centralized and decentralized exchanges,” states Orion Protocol’s white paper.
So, theoretically, I could use Orion Protocol’s price aggregator to buy some ADA and then transfer it to my Nexo wallet to earn interest or borrow against it.
From where I sit, it’s a lot like the chicken or the egg argument. I want to own Cardano, but I don’t want to pay an outrageous price based on some exchange’s higher-than-average rate to buy.
The Orion Protocol ensures that this doesn’t happen to me. The same can’t be said if I buy through Nexo or Celsius.
The Bottom Line
Unfortunately the two partnerships, while important steps in Cardano’s development, are by no means vital to its future.
Cardano’s success will be all about smart contracts and utility. If it provides utility, ADA’s value moves higher. If it doesn’t, ADA’s price will retreat.
Cautious optimism is the way I would look at the recent developments at Cardano. Neither of the partnerships, in my opinion, are game-changers. That said, they’ll be useful as case studies for future Cardano applications.
I continue to believe ADA is the cryptocurrency not named Bitcoin or Ethereum (CCC:ETH-USD) with the most tangible opportunity. The partnerships ought to be good for convincing others this is the case.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.