Coinbase has made yet another addition to its C-suite. The cryptocurrency trading platform has hired Brian Brooks, the former executive vice president, general counsel and corporate secretary of Fannie Mae, as its chief legal officer. The hiring is part of the company’s effort to expand its legal, compliance and government affairs teams. Mike Lempres, who […]
Coinbase has made yet another addition to its C-suite. The cryptocurrency trading platform has hired Brian Brooks, the former executive vice president, general counsel and corporate secretary of Fannie Mae, as its chief legal officer.
The hiring is part of the company’s effort to expand its legal, compliance and government affairs teams. Mike Lempres, who until now held the chief legal and risk officer title, will transition into the role of chief policy officer.
“From the time it was founded seven years ago, Coinbase has been a leading advocate for the adoption of cryptocurrency,” Coinbase CEO Brian Armstrong said in a statement. “We’ve engaged proactively with regulators as we built products and services that allow people to buy, sell and use cryptocurrency all over the world. In recent years, the industry expanded faster than we could have imagined with an explosion in customer demand and entrepreneurial activity pushing the capabilities of the ecosystem forward. As this trend continues, it is more important than ever that we contribute to a public policy and regulatory environment that fosters innovation while protecting investors.”
Brooks joined Fannie Mae in 2014; before that, he was the vice chairman of OneWest Bank and a managing partner at the law firm O’Melveny & Myers.
The rollercoaster-get-rich ICOs of 2017 are over — crypto companies are waking up to the idea that VC investors aren’t so bad after all. Companies used initial coin offerings (ICOs) to raise some $5.5 billion in cryptocurrency-based funding last year. As an emerging investment system with no regulation, nearly anyone was allowed in. The knock-on effect […]
The rollercoaster-get-rich ICOs of 2017 are over — crypto companies are waking up to the idea that VC investors aren’t so bad after all.
Companies used initial coin offerings (ICOs) to raise some $5.5 billion in cryptocurrency-based funding last year. As an emerging investment system with no regulation, nearly anyone was allowed in. The knock-on effect was that many who rode the wave made huge profits, often into the millions of U.S. dollars, as a 10X return seemed to become the minimum standard among those getting crypto-rich.
The trend went into overdrive in 2018, when the price of Bitcoin hit a peak of nearly $20,000 and Ethereum notched $1,200. ICO funding hit $6.3 billion in only the first three months of the year, as noted by Coindesk, but, fast forward six months and a new trend has emerged. Public ICOs, which allow anyone to invest, are increasingly replaced by a new approach of limited, private sales that consist only of accredited investors and close connections. Many ICOs today include no public sale component, with retail investors forced to wait until a token is listed on an exchange.
ICOs in 2017 began to include a private pre-sale before the ‘open’ public sale stage, the idea being to attract big bucks and in some cases give incentives like discounts. But Telegram opted to keep its entire sale public. It also stuck to accepting money from accredited investors in the U.S. — those who are legally certified to make investments — rather than opening its doors to anyone wanting to own a piece of its token sale.
That’s a trend that has been repeated in other ICOs, including the recent $32 million “seed” round for Terra and its stable coin project. Terra co-founder Daniel Shin explained to TechCrunch that it will hold a second round of private sale investment, but that’ll be reserved for investment professionals and others in the network.
Legally, of course, this makes absolute sense.
The SEC is steadily increasing its crackdown on ICOs, and it has long been standard for companies planning ICOs to overlook citizens of the U.S, China and often other countries where the legalities are unclear from taking part in the sales. But, actually, the rationale of private sales goes beyond legalities.
Professional investor benefits
The crypto industry has woken up to the reality that getting your capital from a handful of professional investors can be more advantageous than a bunch of regular people.
For one thing, dealing with a dozen investors is far easier than a Telegram group that numbers tens of thousands. Professional investors are more accustomed to giving a company money and letting it use it independently, but retail investors in the crypto space tend to be more demanding and unrealistic as they seek a quick return on their money. While liquidity is a major appeal for all in an ICO, VCs tend to hold a longer-term approach than retail investors who look to flip and move to the next money-making opportunity. Or, in times of downturn such as right now, investors have deeper pockets to ride out recessions.
There’s a popular refrain that ICOs mean not having to deal with “Evil Venture Capitalists”, but a community of retail investors is demanding in its own way. Plenty of ICO projects waste time and precious resources putting out mundane press releases that are devoid of news just to produce something that they hope will placate their thirsty community of retail investors, and miraculously give their token a price jump. For example, inking a “strategic partnership” with the American Chamber of Commerce Korea isn’t news — getting actual sales is.
This kind of distraction and allocation of resources makes no sense when you are setting out building a company or a product, which ultimately the founders of these projects are doing. As any experienced founder or investor will say, retaining focus is key in those early times.
Added to that, professional investors can actually help with the building by leveraging their network. Whether that is assisting on hiring in the competitive blockchain industry, introducing potential customers — American Chamber of Commerce Korea eat your heart out — bringing on other investors, etc.
That’s why in the aforementioned case, Terra opted to bring four crypto exchanges into its private sale — no doubt their influence will be key in building what remains a hugely ambitious project. Other companies that raised large ICOs, including TenX and MCO, have publicly expressed interest in holding new investment rounds to bring in professional VCs. That’s because money alone won’t open doors, but often connections can.
To recap: professional VCs can be more trusting, less of a distraction and more useful, but there are some instances in which a more open public approach should be a part of an ICO. That’s when it comes to building a community.
The term “community” has been thoroughly bastardized by ICOs, but there are some projects that — at least on paper — can benefit by allowing specific types of people, people that will use the product, to get involved early.
Huobi, the exchange, developed a token for its users earlier this year, while chat app Line is also minting a token that it hopes will be used as part of its messaging platform. In both cases, neither company held an ICO, but they did use a crypto token to build a community.
Civil, the startup hoping to ‘fix’ media using the blockchain, is holding an ICO that’s open to members of the public. That’s also a community play, as the CVL token will be required to create newsrooms on its platform, and also to interact with them, such as challenging stories written by reporters.
Other technical projects out there are doing the same — focusing squarely on the community they are building for and adopting lower target figures for their ICO fundraising.
The technology space is so vast that there are exceptions, but it is certainly notable that there are relatively few credible projects planning ICOs that include retail investor participation. A report co-authored by PwC shows that the general pace of ICO investing settled in Q2 2018. If you ignore outliers such as Huobi, Telegram and EOS — the $6 billion project that fundraised for a year — then activity has certainly settled down after an explosive 12-months of growth.
Increased stability is likely to mean that the trend of private sales continues. Traditional VCs are launching dedicated crypto funds and those in the crypto space are formalizing investment vehicles of their own, all while the SEC and other regulators across the world intensify their gaze on ICOs. VC capital is likely to play a more pronounced role in funding ICOs than ever before.
That’s not to say that the retail investment phase is over. Speaking at TechCrunch Disrupt last week, Coinbase CEO Brian Armstrong sketched out his vision of the future in which all company cap tables are “tokenized.”
He foresees retail investors across the world being free to invest in security tokens that operate as a more accessible offshoot to traditional investment systems like the New York Stock Exchange, the NASDAQ etc. Whether that extends to participation in ICOs themselves remains to be seen.
Coinbase CEO Brian Armstrong believes retail investors have a big future in the crypto market
Disclosure: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.
The future of Coinbase looks something like the New York Stock Exchange. That’s according a vision laid out by CEO Brian Amstrong who was interviewed on stage at TechCrunch Disrupt in San Francisco today. Coinbase is known for being the most popular exchange for converting fiat currency into crypto — most of the largest traded […]
Coinbase is known for being the most popular exchange for converting fiat currency into crypto — most of the largest traded exchanges are crypto-to-crypto — but he foresees a future in which it plays host to a growing number of cryptocurrencies as it becomes standard for companies to create their own token, which runs alongside equity as an alternative investment system.
“It makes sense that any company out there who has a cap table… should have their own token. Every open source project, every charity, potentially every fund or these new types of decentralized organizations [and] apps, they’re all going to have their own tokens,” Armstrong said.
“We want to be the bridge all over the world where people come and they take fiat currency and they can get it into these different cryptocurrencies,” he added.
That tokenized future could see Coinbase host hundreds of tokens within “years” and even potentially “millions” in the future, according to Armstrong. That’s a big jump on the five cryptocurrencies that it currently supports today, and it would make it way larger than financial institutions like the New York Stock Exchange, which is actually a Coinbase investor and is getting into Bitcoin, or the NASDAQ.
One of the critical pieces of making this vision a reality is, of course, regulation. This week at Disrupt, others in crypto space have argued that a lack of clarity around crypto regulation is costing the U.S. as innovation and startups are being developed in overseas markets. As the founder of a U.S.-based crypto startup that is valued at over $1 billion and is hiring hard, Armstrong doesn’t subscribe to that thesis but he did admit that there is “a big open question” over whether the majority of the new rush of tokens he foresees will be securities or not.
“We do feel a substantial subset of these tokens will be securities,” he said. “Our approach has always been to be the most trusted [exchange] and the easiest to use. So we want to be the legal compliant place where you can start to trade these tokens that are classified as securities.”
“Web 1.0 was about publishing information, web 2.0 was about interaction and web 3.0 is going to be about value transfer on the internet because now the web has this native currency and so applications can be built that instantly tap into this global economy on the internet,” Armstrong added.
How international can crypto become? The Coinbase CEO thinks that the total number of people in the crypto ecosystem can reach one billion within the next five years, up from around 40 million today.
You can watch the full video from Armstrong’s interview below.
Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.
Brian Armstrong, the CEO of cryptocurrency trading platform Coinbase, wants to take his company public — maybe on the blockchain. Onstage at TechCrunch Disrupt SF 2018, Armstrong dished on his ambitions for the future of Coinbase. “We are self-sustaining,” Armstrong said. “You know, we’ve been profitable for quite a while. We don’t have any plans […]
Brian Armstrong, the CEO of cryptocurrency trading platform Coinbase, wants to take his company public — maybe on the blockchain.
Onstage at TechCrunch Disrupt SF 2018, Armstrong dished on his ambitions for the future of Coinbase.
“We are self-sustaining,” Armstrong said. “You know, we’ve been profitable for quite a while. We don’t have any plans to raise additional capital at this point, but never say never … Someday I’d love to run a public company.”
“I think it would be very on mission for us to do that because, of course, we are creating an open financial system,” he said. “Companies could list their stock, which are really tokens, and instead of a cap table, you tokenize the cap table. But I don’t have any decisions on that to share at the moment.”
An innovative exit would be very on-brand for Coinbase. As one of the earliest players in crypto-mania, the company has certainly had to make things up as it goes. It’s worked, as Armstrong said; the company is profitable and was the first-ever cryptocurrency startup to garner a billion-dollar valuation.
Crypto skeptics rejoice! A new way to short the cryptocurrency market is coming from dYdX, a decentralized financial derivatives startup. In two months it will launch its protocol for creating short and leverage positions for Ethereum and other ERC20 tokens that allow investors to amp up their bets for or against these currencies. To get […]
Crypto skeptics rejoice! A new way to short the cryptocurrency market is coming from dYdX, a decentralized financial derivatives startup. In two months it will launch its protocol for creating short and leverage positions for Ethereum and other ERC20 tokens that allow investors to amp up their bets for or against these currencies.
To get the startup there, dYdX recently closed a $2 million seed round led by Andreessen Horowitz and Polychain, and joined by Kindred and Abstract plus angels, including Coinbase CEO Brian Armstrong and co-founder Fred Ehrsam, and serial investor Elad Gil.
“The main use for cryptocurrency so far has been trading and speculation — buying and holding. That’s not how sophisticated financial institutions trade,” says dYdX founder Antonio Juliano. “The derivatives market is usually an order of magnitude bigger than the spot trading or buy/sell market. The cryptocurrency market is probably on the order of $5 billion to $10 billion in volume, so you’d expect the derivatives market would be 10X bigger. I think there’s a really big opportunity there.”
How dYdX works
The idea is that you buy the short Ethereum token with ETH or a stable coin from an exchange or dYdX. The short Ethereum’s token price is inversely pegged to ETH, so it goes up in value when ETH goes down and vice versa. You can then sell the short Ethereum token for a profit if you correctly predicted an ETH price drop.
On the backend, lenders earn an interest rate by providing ETH as collateral locked into smart contracts that back up the short Ethereum tokens. Only a small number of actors have to work with the smart contract to mint or close the short Tokens. Meanwhile, dYdX also offers leveraged Ethereum tokens that let investors borrow to boost their profits if ETH’s price goes up.
The plan is to offer short and leveraged tokens for any ERC20 currency in the future. dYdX is building its own user-facing application for buying the tokens, but is also partnering with exchanges to offer the margin tokens “where people are already trading,” says Juliano.
“We think of it as more than just shorting your favorite shitcoin. We think of them as mature financial products.”
Infrastructure to lure big funds into crypto
Coinbase has proven to be an incredible incubator for blockchain startup founders. Juliano was employed there as a software engineer after briefly working at Uber and graduating in computer science from Princeton in 2015. “The first thing I started was a search engine for decentralized apps. I worked for months on it full-time, but nobody was building decentralized apps so no one was searching for them. It was too early,” Juliano explains.
But along the way he noticed the lack of financial instruments for decentralized derivatives despite exploding consumer interest in buying and selling cryptocurrencies. He figured the big hedge funds would eventually come knocking if someone built them a bridge into the blockchain world.
Juliano built dYdX to create a protocol to first begin offering margin tokens. It’s open source, so technically anyone can fork it to issue tokens themselves. But dYdX plans to be the standard-bearer, with its version offering the maximum liquidity to investors trying to buy or sell the margin tokens. His five-person team in San Francisco with experience from Google, Bloomberg, Goldman Sachs, NerdWallet and ConsenSysis working to find as many investors as possible to collateralize the tokens and exchanges to trade them. “It’s a race to build liquidity faster than anyone else,” says Juliano.
So how will dYdX make money? As is common in crypto, Juliano isn’t exactly sure, and just wants to build up usage first. “We plan to capture value at the protocol level in the future likely through a value adding token,” the founder says. “It would’ve been easy for us to rush into adding a questionable token as we’ve seen many other protocols do; however, we believe it’s worth thinking deeply about the best way to integrate a token in our ecosystem in a way that creates rather than destroys value for end users.”
“Antonio and his team are among the top engineers in the crypto ecosystem building a novel software system for peer-to-peer financial contracts. We believe this will be immensely valuable and used by millions of people,” says Polychain partner Olaf Carlson-Wee. “I am not concerned with short-term revenue models but rather the opportunity to permanently improve global financial markets.”
Timing the decentralized revolution
With the launch less than two months away, Juliano is also racing to safeguard the protocol from attacks. “You have to take smart contract security extremely seriously. We’re almost done with the second independent security audit,” he tells me.
The security provided by decentralization is one of dYdX’s selling points versus centralized competitors like Poloniex that offer margin trading opportunities. There, investors have to lock up ETH as collateral for extended periods of time, putting it at risk if the exchange gets hacked, and they don’t benefit from shared liquidity like dYdX will.
It also could compete for crypto haters with the CBOE that now offers Bitcoin futures and margin trading, though it doesn’t handle Ethereum yet. Juliano hopes that since dYdX’s protocol can mint short tokens for other ERC20 tokens, you could bet for or against a certain cryptocurrency relative to the whole crypto market by mixing and matching. dYdX will have to nail the user experience and proper partnerships if it’s going to beat the convenience of centralized exchanges and the institutional futures market.
If all goes well, dYdX wants to move into offering options or swaps. “Those derivatives are more often traded by sophisticated traders. We don’t think there are too many traders like that in the market right now,” Juliano explains. “The other types of derivatives that we’ll move to in the future will be really big once the market matures.” That “once the market matures” refrain is one sung by plenty of blockchain projects. The question is who’ll survive long enough to see that future, if it ever arrives.