Inside Coinbase’s Executive Turmoil: Conflicting Visions
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Coinbase's expansion into regulatory gray areas threatens their main competitive advantage as the safest and most stable large regulated crypto business. If they keep chasing that sweet ICO scam money instead of focusing on compliance and institutional investment it will destroy them in the end.
On the other hand, the size of their business shrinks (relative to the crypto market and Binance in particular) once you depend on regulators and the regulation landscape is unclear. You can argue that financial institutions should follow the Coinbase way to be complain but if in the future there is a huge crypto market (with less scams), financial institutions will find a way to connect to the crazy crypto world. This is an hypothesis based on what some VCs are doing: using crypto hedge funds as a vehicle to invest in crypto projects.
Would you mind elaborating? Genuinely asking, I can't find much about this from Googling, most of the coverage is around the acquisition.
[1] https://techcrunch.com/2015/05/18/what-is-21-co-really-doing...
[2] https://techcrunch.com/2017/09/20/21-co-announces-a-token-sy...
[3] https://www.coindesk.com/meet-earn-com-21-rebrands-social-ne...
There's nothing wrong with a failed startup, but this was a poor copy of miners and mining chip producers with much less funding and in some cases bootstrapped to profitability. The only thing that set 21 apart was an amazing ability to razzle-dazzle VCs.
After failing to mine Bitcoin profitably themselves, 21 came out of stealth mode with a staggeringly stupid product: mining chips for toasters. The idea was that you would buy a toaster (or lightbulb or something) with one of 21's mining chips and it would waste energy while mining miniscule amounts of Bitcoin. This was ridiculous on its face, since the amount of Bitcoin that could be mined on these chips was far less than you could simply buy for the cost of the electricity (not to mention the chip itself). Also, this amount was too small to even be transferred, given Bitcoin's transaction fees!
I'm not exaggerating, this product was never, and could never be viable. Still Balaji was able to razzle-dazzle the tech press into trumpeting it as some sort of innovation.
Once this failed, they re-branded as Earn.com and started making a grab-bag of Bitcoin hackathon projects, such as paying you Bitcoins for reading spam, or answering quizzes. This was always an extremely uninspiring and ultimately non-viable product, but at least it wasn't complete vaporware.
Then Coinbase, a very successful and competent company, threw away $100 million to help 21's VCs recoup their failed investment. The only explanation that seems rational is that Balaji had some very compromising footage of Brian Armstrong at the a16z holiday party.
I'm not sure about his past career (some biotech thing), but Balaji's legacy in crypto is to waste enormous amounts of money on blatantly ridiculous boondoggles. It's unfortunate that Coinbase wasted so much time and money perpetuating this.
People, keep being stupid and confident. Sometimes it pays tremendously off.
One addition I had to check on, which confused me at the tilt was how Balaji was so closely involved in 21 yet also a partner at Andreesen Horowitz, which I had read about their daily and weekly routine and was clearly a full time job.
Balaji went from founder to "advisor" of 21 pretty quickly, becoming a partner of a16z in the interim. After things went to shit at 21 he went back as full time CEO. Reasons for how that went down are speculative. The results are not though. The exit is real but wow is it questionable. Conflicts of interest seemingly all over the place. I don't know who else is on Coinbase's cap table but I'd love to hear their takes on the acquisition.
You can read Balaji's congratulatory take in his own words on what he did here. [0]
I also recall Balaji positioning himself for a position in the Trump administration which saw him scrub his entire twitter history. If anyone recalls more details from that episode feel free to add them.
Wouldn't the device simply mine as part of a mining pool? The pool can then manage custody of the funds, similar to what NiceHash and other mining pools do. Granted, if the amount is small then it would never be withdrawn on the main chain.
- Stellar anounced a 1B XLM deal with Coinbase Earn, worth >$120M, which is more than the reported acquisition price of $100M [1]
- The founders of Zcash, Stellar, Brave, and 0x have all given positive reviews of Earn [2]
- Coinbase Earn appears to be getting a lot of organic positive attention on Reddit [3] and Twitter [4]
- It appears that Coinbase Earn has dramatically improved MakerDao adoption, with a huge surge in new CDPs created [5]
- The COO of Coinbase stated that the company and the board seem to think of Earn as a very valuable acquisition [6]
Emilie Choi: With the Earn acquisition, I think we can
very confidently say and I think the board and the
management team would agree with us 100 percent is that
the Earn acquisition more than paid for itself multifold
in the course of this year. We’re going to continue to see
massive amounts of value from it.
Frank Chaparro: You guys as part of the stellar airdrop which
was something like one hundred and twenty five million dollars
going, my understanding of the strategy was let’s drop this on
on two different customer sets. One that is super hyper engaged
and one with the folks that maybe haven’t engaged in the
platform for a while, the sort of A-B test like how those sort
of influences can change behavior. I don’t know if that’s
exactly precise but I’d like to know what the strategy was and
how it played out?
Stellar: As an educational incentive, we’ve committed 1 billion XLM to
Earn, 100% of which will go to users. We’ll start by rolling
out to qualifying users in the US, and we will keep you posted
as we expand this to more areas.
[1] https://www.stellar.org/blog/stellar-coinbase-earn/
[2] https://twitter.com/coinbase/status/1129432654653222913
[3] https://www.reddit.com/r/ethereum/comments/bz0xva/coinbase_e...
[4] https://twitter.com/search?q=%22coinbase%20earn%22&src=typd
[5] https://twitter.com/RyanSAdams/status/1155842008071770112
[6] https://www.theblockcrypto.com/2019/05/29/emilie-choi-coinba...
So, is Armstrong a bad CEO or not? That is very difficult to know. Maybe someone else could deliver even more profit and more products and keep them running. But I would guess the investors are quite happy with coinbase compared to their other investment.
If the CEO has a single general job, it’s maintaining strategic cohesion. If there’s a debate, that’s fine. But it should be controlled.
While being blindsided by the man you’ve handed company strategy to is bad, it’s not under the umbrella of control. Letting the situation get to the point that your deputies are engaging in shouting matches and everyone in the company has to pick sides is where control was lost.
I'm sympathetic to the argument that cryptocurrencies represent a revolution in the financial system, that peer-to-peer digital money represents a fundamental shift in power away from traditional institutions. (I think it'll eventually be proved wrong, but I'm sympathetic to it.)
But Coinbase is VC funded, which is not unlike taking a loan from a mafia boss: It comes with very clear repayment terms that you are expected to meet, and they are not choosy about how you do it. In particular, the specific fund you get money from lives about 8-10 years, and you are expected to IPO or get acquired during that period. [1]
To do that, Coinbase, whatever revolution it might be part of, needs to pay back in fiat, because that's what investors put in and plan spend. They took their seed round in 2012 and their A round in 2013. At this point they've taken $547 million. [2] If they're going to give that beloved 10x exit approximately on schedule, then now's the time for them to be ramping up revenue hard and preparing to be vigorously profitable, because that's what it takes for a high IPO or acquisition value.
That means their desire to court the traditional finance world makes a lot of sense. As Wille Sutton says, that's where the money is. But that world comes with the need to be, in a regulatory sense, pretty safe. That's in direct conflict with the cryptocurrency world both in the long term (because it aims to be a revolution) and in the short (because it is ever mutating).
Another big source of conflict between the two worlds is that the cryptocurrency world doesn't yet really do anything useful from the perspective of normal finance. If you're a financial trader at a company with many millions in funds, you have better ways to transfer money, store value, etc. From that perspective, cryptocurrency's mainly interesting for its high volatility, which can make for lucrative gambling. But the highest-volatility parts of it are those that are the least regulated, and from the perspective of a trader, the most opaquely run.
So maybe Armstrong is also a terrible manager. But it's perfectly possible he's a decent manager trying to run a business that is desperately trying to reconcile two fundamentally irreconcilable things: an old financial order and something that aims to kill that order off.
[1] https://pitchbook.com/news/articles/the-venture-capital-life...
How is the cryptocurrency world mutating? Bitcoin works pretty much in the similar way as it worked almost 10 years ago. Also coinbases services when it comes to the basic brokerage services are pretty much unchanged in the end.
I wouldn't attach something like "revolution" to cryptocurrency any more. The blending with traditional finance industry has been happening for many years already and I think that trend will continue. In the end it is just another way of moving and storing value.
If you are offering cryptocurrency services you need to take more regulation risk than with traditional finance business. However you can still invest in regulatory compliance and try to migitate those risks as much as you can (and you probably should). However you don't need to engage to any kind of "revolution" unless you want to - you can cooperate with regulators and they are nowadays also more interested to work with you.
Sure, and I'm not sure that's a good thing. But the moment I bring up some sort of Bitcoin flaw, 20 people pop up to say, "Oh, but that's fixed in coin X with extension Y!" The X and the Y change regularly, but when the shiny wears off the old thing, there's always a new thing. And this article makes that clear; if Bitcoin were all that were necessary, Srinivasan wouldn't have had a case for expansion.
> I wouldn't attach something like "revolution" to cryptocurrency any more. [...] In the end it is just another way of moving and storing value.
In which case it has failed, in that they are apparently not better than existing solutions for traditional use cases like "buy a cheeseburger" or "pay Bob back for the cheeseburger he bought me". Let alone something like "get paid by my job every Friday" or "pay my mortgage". As far as I can tell, Bitcoin's relative value prop is only in speculation, light financial crime, and other things that most people are better off avoiding.
It sounds like this is a very myopic view. My favorite quote is quite apt here "Assigning single factor causation to the output of complex adaptive system is a triumph of hope over experience."
Here's my theory - Coinbase had explosive growth largely due to tailwind effects of the BTC craze several years ago. Since crypto trading has basically flattened coupled with competitors entering the market, then Coinbase is likely no longer growing and may in fact be doing less revenue than it was previously. Company's start to scramble when they cease to grow. Stakeholders double down. Employees start looking elsewhere. Executives make brash decisions based on emotions. etc etc.
However also similar stuff is happening in growing companies because of other factors. Also companies often survive quite well even if they don't grow that much.
To me it seems like coinbase is still in a very sweet spot. Crypto markets are not going away, and coinbase helds massive first-mover advantage. No matter how much they will fuck up on exec level, they will probably still make good revenues if they just can keep their current service running.
That is true but in the crypto scene there were many [extreme] layoffs and closings connected to the last "crypto winter". We can mention big names like ConsenSys, Bitmain, Steemit, SpankChain, and ShapeShift so it is not difficult to think that Coinbase was also impacted.
Anyway, I don't think crypto winter should be a problem for most exchanges. Unless you predicted future way off and hired too much on 2017 rally. Before 2017 volumes were minisculous compared to 2018 still - business should be good unless the company spent money like crazy.
Otherwise known as "magical thinking."
IMHO, most critiques could and should be pointed at the crypto sector in general, not specifically to Coinbase.
I left Coinbase when they gated basic payments behind an additional level of verification. They blocked you from sending crypto in Coinbase, but either forgot or ignored that you can transfer to GDAX and send it off anyway.
The problem seems more like that those executives had little people skills (empathy, negotiation, non-violent communication, etc.), or no incentives to apply them, rather than a fundamental issue with pursuing multiple goals at once.
> Unlike most other news sites, we don’t have venture capital or corporate owners. I own the publication.
Although their stories provide high value information to high value individuals / decision makers [1], I feel genuinely happy to see an example of a new good quality original journalistic platform surviving. Or perhaps even thriving.
[0]: https://www.theinformation.com/about [1]: Compared to stuff like investigative local news where the monetary value of a single story is so much lower, but perhaps requiring similar amounts of journalistic effort.
My skepticism is compounded by the fact that his startup repeatedly spammed me at an address I give only to friends, and I definitely never gave to him. I presume he pulled it out some mutual friend's address book when they signed up for his startup. But despite many rounds of discussion, they'd never tell me how they got that address. And after all that discussion, he then started spamming it from his VC fund.
I discovered it because they had my phone number and also had it confused with an ex-co-worker. After receiving several calls for that person, a recruiter finally told me what tool they were using. Connectifier did seem remove my (and their) information when I asked.
I was surprised nobody brought that up when they were the main source of negative press about Snap. But, keep this in mind when you’re reading material from The Information — it’s the publication of choice for the retired members of the Facebook Mafia.
Now, who's for robotic noodles? :)
The entire cryptocurrency ecosystem is fundamentally a grift, so it's not surprise that we see lots of unsavory behavior: power grabs, people cashing out early, an unwillingness to work together, a lack of coherent vision. And that's not even getting into the outright fraud and massive theft we've seen at other crypto exchanges.
When there is no long term, because it's all just a scam, you do whatever you've got to do to make your money in the short time available to you.
It's not that unethical and illegal activities don't happen at non-cryptocurrency companies, but you don't have to be paying a lot of attention to see that it's happening at a very different scale among cryptocurrency companies.
What would you consider vastly unethical that coinbase has done? And vastly different scale than traditional finance companies?
To me as their customer their have been always simple and transparent, the fees have been simple to understand and visible, etc. Can't say same about traditional finance companies I have been using.
I was responding to harryh's thread about the cryptocurrency ecosystem in general rather than Coinbase specifically, which I perceive to be about as trustworthy as cryptocurrency exchanges get.
That may not be a super high bar :^) so I appreciate you sharing your experience.