IPO model of compliant Coinbase

Soon after the news of Coinbase's application for IPO (initial public offering) came out, the US Securities and Exchange Commission (SEC) got into trouble with Ripple, accusing the latter of raising huge amounts of money by issuing unregistered digital asset securities (XRP) funds.

Two things that seemed unrelated at first glance have touched Coinbase's nerves. XRP, which ranks fourth in the market value of encrypted assets, is one of the 44 currencies on the "shelf" of Coinbase. In the current IPO plan, Coinbase did not dare to neglect, and soon announced that it would suspend XRP trading.

Since its establishment in 2012, Coinbase has been marked by a strong "compliance" brand. It is keen to collect various licenses including electronic currency licenses, BitLicense, MSB, etc., and is not eager to expand its business and market. For example, the most obedient "class representative" in the "exchange class": Coinbase does not issue platform tokens and does not Engaged in derivatives trading, only 44 currencies are on the shelves, and USDT trading is not even provided.

Compared with other exchanges' public chain and ecological activities, Coinbase is more like a "trading workshop", trying to use IPO to explain "less is more", and at the same time low-key expansion of the territory to investment, asset storage and custody, Businesses such as wallets tell a richer story for capital operations.

As an encrypted asset exchange, Coinbase has always been regarded as a part of emerging finance, and it has actively "invested" in the traditional capital market and has also suffered some controversies. However, under the ambition of other crypto asset trading platforms to benchmark against Nasdaq, Coinbase's IPO road has been interpreted as a cross-border attempt by emerging financial platforms and regulatory and traditional capital markets.

If successful, Coinbase will provide model meaning to other exchanges in the industry, which includes both compliance and capital operation options.

The IPO process currently suspends XRP trading

One week after the US Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, San Francisco-based crypto asset exchange Coinbase took action and announced that it will suspend Ripple (XRP) at 2 a.m. Beijing time on January 20, 2021 Transactions, and will continue to monitor legal developments related to XRP.

Among all the mainstream crypto asset exchanges on the market, Coinbase was the first to make the decision to suspend XRP trading. Then OKCoin and Binance US followed up. So far, OKEx and Huobi, which are more familiar to Chinese-speaking users, have not made business adjustments to XRP.

As the U.S. regulation stepped up its scrutiny of the crypto asset industry, Coinbase's nerves were extremely keen, and this is also in line with its character that has always been in the eight years since its establishment-not to go beyond the supervision of the mine pool.

As a compliant exchange under the US regulatory framework, Coinbase's suspension of XRP trading seems to be a routine operation, and this swift response is also closely related to its most important event at the moment-IPO.

On December 17, 2020, Coinbase released the IPO news through its official blog, announcing that it had submitted a draft registration statement for the S-1 form to the SEC. The S-1 form is expected to take effect after the SEC completes the review process.

Coinbase Announces Submission of Draft S-1 Form Registration Statement to SEC

The S-1 form is the initial registration form for new securities required by the SEC for U.S. listed companies. Any securities must be filed with S-1 before being listed on a national exchange in the United States. In other words, Coinbase has taken the first place in the initial public offering. step.

In the current blockchain and encrypted asset industry, there has never been a successful listing of an encrypted asset exchange. The well-known listed companies in the industry are mainly mining machine manufacturers Canaan Technology and Yibang International, which have successively landed in the US stock market.

Now Coinbase, 8 years after its establishment, wants to become the first "crab-eating" exchange, aiming at the opportunity of the upsurge in the crypto asset market, and directing its capital operation to the traditional securities market.

In October 2018, Coinbase reported the launch of a $500 million IPO, but in the end this plan was shelved. At the time, crypto industry analysts valued Coinbase's market at approximately $8 billion. So two years later, what is the valuation of Coinbase today?

In a report in July 2020, some analysts believe that Coinbase's market valuation has jumped to approximately $28 billion. Data shows that the number of Coinbase users has increased from 200,000 in 2012 to 45 million in 2020, a 225-fold increase. In October 2018, the price of BTC was approximately US$6,300. Now BTC has broken through the US$30,000 mark, which is more than 5 times higher than it was then.

As of December 29, 2020, by multiplying the stock price per share and the total share capital, the market value of Canaan Technology is US$623 million, and the market value of Ebang International is US$680 million. Although it is impossible to accurately estimate Coinbase at present, it is almost certain that its size will far exceed these two listed mining machine companies.

Only 44 currencies will be listed in 8 years, USDT is not supported

According to The Block news, Coinbase has hired an investor relations director from Facebook to lead the company's investor relations work. According to CryptoBriefing quoted insiders, Coinbase's IPO will be led by Goldman Sachs, the world's largest investment group.

After the opening of Coinbase's IPO, a series of professional asset operations are underway. According to Gu Yanxi, a researcher in the blockchain and encrypted digital asset industry, Coinbase, which has been developing in accordance with the compliance path, has a high chance of becoming a part of the mainstream financial market in the United States.

Since its establishment in 2012, Coinbase has demonstrated a style that is very different from other crypto asset exchanges. Throughout its 8 years of development history, compliance has always been the most valued by Coinbase.

According to Coinbase CEO Brian Armstrong, Coinbase began to apply for a remittance license in the United States around 2013. Since then, Coinbase has successively obtained Electronic Money licenses in Europe and BitLicense (for virtual currency) in New York. Activities business license), and registered with the US Financial Crime Enforcement Agency (FinCEN) MSB license (which can provide currency transactions and other services), and also began to apply for additional licenses from other regulatory agencies.

Coinbase is one of the crypto asset trading platforms that are most obsessed with collecting licenses, and the "history of collecting cards" is also longer than that of exchanges such as Binance. Today, Coinbase can provide OTC and currency trading services in more than 100 countries and regions including the United States and Europe. It supports U.S. dollar (USD), euro (EUR) and British pound (GBP) deposits, and is approved by the SEC to provide wallet services.

For Chinese-speaking users, Coinbase is not as used as the three major "HBO". If you lack the concept of the dazzling license, then enumerating some of the characteristics of Coinbase may subvert your "common sense" and better reflect how Coinbase has become in order to meet compliance.

So far, Coinbase has not issued platform tokens. This makes it look like a different kind. You must know that not only the three major HBOs, but most of the small exchanges that have been established recently, are also keen to raise funds in the fast-issue platform currency. Recently, the popular decentralized exchanges Uniswap and SushiSwap have issued governance tokens.

Coinbase does not issue platform currencies, which should be related to the regulatory requirements of the SEC. In most cases, platform currencies are closer to the definition of security tokens. In the United States, security tokens need to be registered with the SEC and traded in the securities market. Coinbase, which is bent on issuing shares in the US stock market, is reasonable not to issue platform currency.

Coinbase trading page

The other data is surprising enough. In the past eight years, Coinbase has only listed 44 currencies, more than half of which have been newly added in the past two years, mostly DeFi assets. The 44 currencies include mainstream assets such as BTC, ETH, and LTC, as well as new assets such as UNI, FIL, YFI, and DAI. In addition, Coinbase does not provide derivatives trading services such as futures contracts.

According to non-small numbers, as of December 30, 2020, Binance has 269 currencies, Bitfinex has 131 currencies, and MXC matcha has 335 currencies. In contrast, Coinbase's listings are only a fraction of other exchanges. In particular, in contrast to some emerging exchanges that frequently list more than 10 new coins a week, Coinbase's listing actions are particularly cautious.

Industry analysts believe that the assets listed on Coinbase have relatively strong decentralization attributes and are less likely to be certified as securities tokens by the SEC, which is beneficial to avoid regulatory risks.

Also considering compliance reasons, Coinbase does not even provide USDT transactions. In today's ranking of the market value of encrypted assets, the market value of the US dollar stable currency USDT issued by Tether ranks third, and almost all major trading pairs on the trading platform are priced in USDT.

Coinbase, which does not list USDT, appears to be unique. The anchored U.S. dollar stablecoins on the platform are USDC and DAI. The former is a compliant stablecoin, and the latter is a DeFi-type asset issued by decentralization. Coinbase chose to shy away from USDT issued by Tether, which has been caught in the haze of litigation.

Become NASDAQ or land on NASDAQ?

If ranked according to trading volume, according to Coinmarketcap data on December 30, 2020, Coinbase's 24-hour trading volume only ranks 26th among global exchanges. This ranking is not counted out, but there will not be any peers who will underestimate it.

At the beginning of 2020, Brian Armstrong stated in his personal blog that Coinbase is the first digital asset company that really takes regulation seriously, "because we believe it will promote long-term development."

Before announcing the IPO plan, in order to comply with regulatory requirements, Coinbase did not issue platform tokens, list USDT, or provide derivatives trading, and did its best to avoid listing assets with greater regulatory risks. It has given up many visible sources of revenue growth for compliance, and because of this, compliance has become its lifeblood, and even its trump card, allowing it to always occupy a place in the power of the exchange.

However, Coinbase, which is positioned as a crypto-asset exchange, is itself synonymous with emerging finance. It actively "invests" in the traditional financial market and has also suffered some controversy. As early as 2018, when the IPO news came out, industry insiders commented that the listing of Coinbase was a very ridiculous thing.

An executive of a giant trading platform once expressed confusion when asked by Honeycomb Finance whether to choose to list, "It is an exchange itself, and what is the purpose of listing?"

Binance co-founder He Yizeng said more directly that Binance does not need to be listed, because Binance's future competitor is already Nasdaq. He Yi's sentence is probably also the ideal of many trading platforms.

Coinbase's IPO choice may not be favored by everyone. However, mainstream exchanges such as Binance have invariably demonstrated consensus in their development paths and external statements-pursuing compliance and embracing supervision. Coinbase can be regarded as a "class representative" in the field of compliance. If it can successfully go public, it will not only provide a compliance model for other trading platforms, but also provide another option for the capital operation of the exchange.

From some details, we can see that Coinbase has always maintained close communication with the US regulatory authorities.

In November of this year, in response to the US Financial Crimes Enforcement Agency's proposed stricter KYC rules for non-custodial encrypted wallets, Coinbase Chief Legal Officer Paul Grewal reported that it is recommended to extend the public comment period from 15 days to 60 days. Coinbase explained that the proposed rules previously issued require comments on 24 issues, plus the arrival of holidays and the outbreak of the epidemic, 15 days is obviously impossible.

"We communicate with many regulators around the world every week, hoping to become an educational resource." Brian Armstrong said.

In addition, Gu Yanxi revealed that the U.S. Office of the Comptroller of Currency, which oversees the U.S. banking industry, is advancing a new type of payment banking license. Brian Brooks, Acting Director of the U.S. Office of Inspectorate, was previously the chief legal officer of Coinbase. He has a good understanding of Coinbase's business. If this license is launched, Coinbase is likely to apply, and the chances of obtaining a license are also high.

So, can Coinbase really only tell a capital story with the compliance trading business?

It is worth noting that Coinbase also has a Coinbase Ventures fund, which has invested in 60 digital asset start-ups; and launched Coinbase Custody for the storage and custody needs of large financial institutions; in October 2020, Coinbase launched an encrypted community fund (Crypto Community Fund) is used to fund Bitcoin developers. In addition, Coinbase also provides non-custodial wallet Coinbase Wallet.

Compared with other exchanges, which vigorously engage in ecology and public chain, Coinbase's business landscape is not large. As with its usual style of doing business, every business expansion must first meet compliance requirements. Even the non-trading business of Coinbase Custody (storage and custody) services must cooperate with brokers regulated by the SEC and regulated by the New York Trust Company.

Brian Armstrong, CEO of Coinbase

In the eight years since its establishment, Coinbase, compared with other exchanges, seems to be in no rush to expand its business and market, and it does not oversee the supervision of mine pool every step. If measured by the number of currencies, business richness and transaction volume, Coinbase is more like a "workshop" in an exchange, but it seems to have been interpreting "less is more" by collecting licenses and following compliance routes. reason.

In 2017, Coinbase had just completed the D round of financing, and was valued at $1.6 billion. Brian Armstrong was full of emotion. He wrote in his blog: A great career begins with a humble beginning. Most of the success stories you have seen were just a simple idea and rudimentary prototype at first. It will take 5 to 10 years to turn it into "an overnight fame." At the same time, it will take dozens of setbacks and process corrections. "So choose something you love and start from now."

Three years later, Coinbase entered the eve of its IPO, and its valuation has more than doubled by more than 10 times. The crypto asset market has also shown a bull market. For Brian Armstrong and Coinbase, the opportunity is here.

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