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Guess what Coinbase will look like in three years?



Author | Jimmy Chang Happy Coinbase Day! As of this writing, it is actually Tuesday night - the night before Coinbase will open on Nasdaq. I tend to write articles a day or two in advance so I have plenty of time to submit them to various Medium publications like Startup or Geek Culture. Before we get back to Coinbase, a quick side note — the crypto market has been hot this week due to a milestone event: the public listing of a beacon-level crypto company. Source: Trading View For the first time since 2017, BTC and ETH broke through their all-time highs at the same time, at $64,000 and $2,350, respectively. And maybe by the time this article goes live, those numbers will be outdated! On Crypto Twitter, a lot of people are calling this week "Coinbase Week" (original, I know), with every coin from BTC to XRP and even DOGE is rising rapidly. Encrypted asset software company Lukka opens office in Zug, Switzerland: According to news on November 1, encrypted asset software and data provider Lukka opened an office in Zug, Switzerland to expand its international business in Europe. The new office will allow its clients to be serviced with local sales and operations professionals. According to previous reports, in January this year, Lukka announced the completion of a US$110 million Series E financing at a valuation of over US$1.3 billion, led by hedge fund Marshall Wace, Miami International Holdings, Summer Capital, SiriusPoint Ltd., Soros Fund Management, Liberty City Ventures, S&P Global and participated in the round. (PRNewswire) [2022/11/1 12:04:19] Yesterday, I talked about the bull case for Coinbase -- listing it as one of the few true "Web2.0 to Web3 bridge" companies, and will benefit greatly from it. I also took a quick look at its custody and staking business, which I believe has more room to grow and take over revenue share from Coinbase's trading business. Finally, I note that Coinbase seems keenly aware of the rising DeFi "threat" and has been taking action to become more involved in the movement - its wallet + dapp explorer product, WalletLink open source initiative and Rosetta APIs. Encrypted savings service start-up Gelt completes $4 million in financing, with Jump Capital participating: On June 8th, encrypted savings service start-up Gelt announced the completion of a $4 million seed round of financing. This round of financing was funded by NFX, Village Global, Jump Capital, Alliance and OrangeDAO participated in the vote. Gelt company wants to make it easy for those who don't understand DeFi to use savings accounts on the blockchain. The company currently mainly provides savings account services, and has also reached a cooperation with encryption insurance company Nexus Mutual to provide insurance for deposits (up to a limit of 100,000 US dollars), further improving the security of users' funds, and then driving more people to explore the encryption market. Gelt’s smart contracts are reportedly audited by blockchain security firm Quantstamp, which has partnered with market leaders OpenSea, NBA Top Shot and Solana. [2022/6/9 4:11:36] I suggest that the company is not going beyond self-disruption - if that means surviving and executing on its mission of open finance. I want to flesh out bull case #3 in more detail with today's article because -- while I don't work for Coinbase and this is pure speculation -- I believe Coinbase is in a good position to make the pivot and become a DeFi-based centered platform. I call it "what will Coinbase look like in 3 years", but in reality the time frame is super loose - it could be as fast as 18 months (a couple of earnings reports), or as far away as 5 years. DeFi risk management tool Union Finance launched a non-tradable governance token UNION: On March 24th, the Ethereum-based DeFi risk management tool Union Finance announced the launch of the governance token UNION and the establishment of DAO. The total amount of UNION is 1 billion, of which 20% is allocated to the community DAO, 46.78% is allocated to the team, and 33.22% is allocated to early supporters. 2% will be airdropped to early adopters of the protocol. UNION is a non-transferable governance token and cannot be purchased or sold. Union Finance is an unsecured loan agreement, which is currently running on the main network of Ethereum and Arbitrum. It completed the financing of 3 million US dollars in December 2020 with the participation of 1kx and others. [2022/3/24 14:14:54] The future of encrypted exchanges I believe with a fairly high degree of conviction (may announce the quantitative reasons behind my confidence in a follow-up post), the encrypted exchange market will reach two outcomes one. DEX will eat CEX and TradFi for lunch DEX will coexist with CEX in a world From an ethical point of view, result #1 is more interesting and convincing - DEX is the democratization of transactions, previously hoarded in greedy Deals with middlemen: Robinhoods, Fidelities, and most recently Coinbases. The optimist and anti-establishment rebel in me wants to believe that outcome #1 will happen. OEC is about to access the expansion and cross-chain solution BTTC: On October 30, TRON released a tweet announcing that the expansion and cross-chain solution BitTorrent Chain (BTTC) was officially released and the test network has been opened. OEC, one of the mainstream public chains in the industry, will Access was recently completed. This means that through BTTC, global users can directly transfer mainstream assets between TRON and OEC in a decentralized manner without restriction! OEC is an open source, open decentralized public chain, and anyone can freely deploy projects. It is reported that BTTC is jointly developed by the core team of BitTorrent and TRON, and is the first heterogeneous chain cross-chain interoperability protocol in the TRON ecosystem. The protocol adopts the POS (Proof of Stake) consensus mechanism, deploys multi-node verification, and expands smart contracts through side chains. It has core advantages such as heterogeneous cross-chain, fast transmission speed, low transaction costs and asset security. [2021/10/31 6:23:19] After all, DEX is native to Web3, but CEX is not. And DEX users are basically rewarded in the form of transaction fees - based on how much they contribute to the platform (such as increasing liquidity). Transaction fees, usually charged by middlemen, are distributed fairly among users of the DEX. Who wouldn't - compared to having nothing to gain by using a centralized broker like Robinhood? But, the skeptic in me yells, there will always be CEX users because they either: (a) don't understand and therefore don't trust DEX's technology; BTC falls below $51,700: BTC falls below $51,700, It is currently reported at US$51,696.07, with an intraday drop of 7.63%, and the market fluctuates greatly. Please do a good job in risk control. [2021/12/4 12:49:49] (b) too lazy to jump into the DEX circle - as it's a lot of work right now (hopefully it will be resolved over time); or (c ) value the human interaction at traditional brokers like Schwab (“What do you mean I can’t talk to people about my trades on DEX?”) Regardless, there is no world where only CEXs can succeed . At best, this pie will only be partially eaten by DeFi - at worst, completely eaten by DeFi. So, it would be smart to move into a new category before our existing one disappears -- kind of like Netflix moving from DVD delivery to video streaming. At present, there are about 500,000 DeFi users (1.8 million Ethereum addresses, with an average of about 4 addresses per user). In comparison, Coinbase has 100 times as many users, at 56 million - so it has the scale to be competitive in a nascent industry that will eat up CEXs. As a one-stop DeFi shop, Coinbase has built a brand based on trust and security in the past 9 years. Even in an industry rife with security breaches and hacks, users trust Coinbase with billions of dollars in funds on its platform. Coinbase said that as of the first quarter of 2021, the market value of cryptocurrencies held on its books on behalf of customers accounted for 11% of the total market value. So, if users trust Coinbase to manage their money, it's a safe bet that a significant portion of users will trust Coinbase with how they handle their money. Therefore, Coinbase is in an incredible position to be the preferred "on-ramp" to decentralized finance. Here's what I would do: Acquire Zapper as a platform To become a one-stop shop for DeFi, the first thing you need to do is build a GUI that allows users to easily interact with DeFi. Coinbase has its own wallet -- Coinbase Wallet, which is... not bad. It works fine if I just want to send money from wallet A to wallet B. However, in DeFi, the role of the wallet is much more than that. A DeFi wallet like Metamask is not a simple payment device, but a basic account primitive that allows interaction with other dApps - enabling users to borrow, lend and transact without funds ever leaving the wallet, a so-called "custodial depository". ". Coinbase Wallet can interact with dApps -- it has a built-in DApp browser and a tab to view NFTs, but it's clumsy. I basically have to scan a QR code with my phone to upload funds. And signing transactions is much more clumsy than using MetaMask. Needless to say, everyone uses MetaMask. Rather than dedicating resources to strengthen Coinbase Wallet, it would be faster for Coinbase to leverage its balance sheet to gain capacity. I would choose to focus on Zapper or Zerion, the two leading DeFi protocol aggregators. They are not wallets, but an aggregation and abstraction layer on top of wallets. You import your Ethereum address, and it reads all the smart contracts you've interacted with -- showing your various assets and tokens. Zerion's virtual account and its products are much more powerful than wallets like MetaMask, because the team behind it has completed the final work of integrating into more DeFi protocols, and is much stronger than the ConsenSys Metamask team. Therefore, Zapper and Zerion are essentially UI entrances into DeFi. On the left side of the Zerion dashboard, you can see that you can do more than just look at your assets - you can actively trade them in a DEX like Uniswap, invest in them in an automated fund like Yearn, and invest in them in an automated fund like Curve stake them in the pool, and so on. This is thanks to the power of the composability of smart contracts on Ethereum. Providing value-added services More than just a gateway, Coinbase can also provide value-added services to its customers who are either (a) not interested in participating in DeFi, or (b) happy to let Coinbase handle their funds for a handsome return. For those not interested in DeFi, they can still use Coinbase's traditional product: its CEX with traditional order books. It works just fine, so there's no need to change it. For those who simply don't have the interest or time to get into DeFi, they can have Coinbase basically invest in DeFi on their behalf. Here, Coinbase essentially becomes a mutual fund — offering DeFi protocols to users as plug-and-play products (e.g. lending, staking, borrowing, investing). This has huge implications. Traditionally, if Coinbase were to offer other financial products, they had to build capabilities from the ground up: building balance sheets, credit underwriting models, etc. Now, Coinbase can — with relatively low integration uplift and scale — offer these products by leveraging open-source DeFi protocols. The upside of this strategy is insane unit economics; Coinbase only needs to do a relatively simple integration with a DeFi protocol. Afterwards, it distributes users' funds among various protocols, generating returns. Coinbase could easily take 100-150 basis points from the yield of these protocols and what they give back to users. And users will be happy to pay the difference for the simplicity and trust of Coinbase...pretty good for them. In either case, Coinbase holds funds on behalf of users, which it can then use to generate returns -- similar to a bank's balance sheet. OKCoin now has a product that uses escrow funds to enter DeFi and returns the rate of return to users.


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