Crypto vs US: How Will Coinbase Combat Regulators?
Crypto Headwinds | Latest Chronos Updates | Fantom Payments Product?
GM, this is your Daily Bolt briefing.
In today’s edition, we bring the latest info on Chronos, derived from their recent Discord AMA with Liquid Driver, as well as some interesting developments on Fantom's new product in the payments infrastructure space.
And later; read our Note of the Day to get a deep dive on Coinbase CEO Brian Armstrong's thoughts and convictions on regulation, business, his solution to the blockchain scalability issues, and more, as he continues to make the case for crypto on capital hill.⬇️
Stay vigilant in the markets.
1/ Liquid Driver x Chronos Finance Discord Call
Preview: In this Liquid Driver Discord AMA, Satsy, Levy, and Unified join to discuss Chronos Finance, Chronos’s launch plan, and answer questions from the community! Click here to listen to the full episode (70 mins).
Read our Note (8 mins) and save 62 mins.
Here are some key takeaways:
Satsy and the other two co-founders of Chronos are friends with experience in the crypto space.
They formed the team with team members Apollo as an advisor, Unified for his expertise, and Levy for his insights on the no-rebasing model. The team includes more than 10 people, including designers and smart contract developers.
The Chronos team aims to address the mercenary capital problem in DeFi and other ve(3,3) models by introducing a more efficient way of incentivizing liquidity and ensuring sticky liquidity.
Unified explained that their success in forming partnerships comes from offering a solution for projects, particularly those unhappy with their current liquidity solutions. They have partnered with both large names in the space and smaller projects that were unknown before.
The focus of Unified's offering is on building a solution for protocols, which has been well-received by potential partners. He mentioned that some partners have shared their dissatisfaction with current liquidity solutions, making Chronos’s offering more attractive.
Q&A
Q: How does the team feel about the larger share of airdropped or team-owned tokens in the Chronos protocol compared to other Solidly forked protocols? Will this influence the level of bribery among protocols?
Satsy explains that most tokens are dropped on veCHR and not sold. He also mentioned that the airdrop is part of the team's strategy to give partners and protocols an allocation. Bonus programs were also developed to open up to more users and partners.
Levy adds that the airdrop is a positive-sum outcome and a strategic way to engage more users and partners in the ecosystem. The airdrop is being strategically given to partner protocols' user base, already experienced users in other forks and chains, and community members to educate them about the model, pull them into Chronos, and participate in the future. The airdrop distribution reflects the team's aim to decentralize the protocol by distributing ownership to a wide range of defi users.
Q: Does paying a premium for people to stay indicate that one is paying more per dollar, and does paying anyone a higher APR means paying more for liquidity regardless of rent or lease?
Levy addresses the implementation of the reliquary and its intention to promote a healthy protocol. He clarifies that the reliquary allocates 10% of votes and emissions to a pool or gauge each week. However, the emissions remain the same, and the adjustment lies in rewarding users with longer stake durations and a larger share of the emissions within their respective pools. This approach ensures that the protocol does not pay more overall but rather provides greater rewards to those who stake for a longer duration.
Q: Has the team considered blocking sniper bots on launch?
Unified stated that bots are always present during launches, so they added liquidity during epoch 0 as a solution and recommends buyers to be cautious.
Levy agreed and mentioned that they have discussed different strategies with external counsel, but ultimately, they cannot control people buying and the market's behavior, so buyers should be aware and make their own decisions.
2/ Blockbytes - Across The Chains Ep. 31
Preview: In this episode of Blockbytes, which took place on April 28, 2023, host Clay Kilgo is joined by Mark Jeffrey, Nick Drakon, Justin Silver, and Souvlaki to talk about Fantom’s crypto-friendly bank that was mentioned by Andre Cronje on Twitter, the collapse of First Republic Bank, audit troubles in crypto and the public response of Coinbase to SEC’s Wells Notice. Read our notes below to learn more. Click here to watch the full episode (109 mins).
Read our Note (8 mins) and save 100 mins.
Here are some key takeaways:
Andre Cronje came out on Twitter and commented on a tweet shown below asking “Need a card, or just payment infra?”.
From what Clay understands, it will be an Australian-facing bank, not retail facing, it’s probably a year out and the Fantom team has obtained a banking license.
Based on the email that Nick received from Andre’s team, what Andre’s team is doing is they have set up some kind of payment processing service, it’s got nothing to do with crypto and it’s for people in business.
According to the email sent to Nick, Fantom’s new product does not include deposits or loans.
It is exchanging between currencies, handing in stablecoins and receiving 1-to-1 USD in exchange for a small fee.
It does mention a credit card if required.
The company is based in Bahrain and Dubai and has got banking partnerships in Europe, Middle East and America.
Andre mentioned publicly that they’re already doing $100M in volume a month.
It sounds like First Republic Bank will be moving into receivership of the FDIC very shortly.
First Republic Bank has $223B of assets on its balance sheet and $173B of that is in loans.
These loans were made at low rates.
Now, as interest rates have gone up, the market value of those loans if they’re going to sell has gone down.
A lot of their loans are related to commercial real estate.
In December 2022, they wrote down their assets by about $27B.
They got $160B in insured deposits and another $50B of uninsured deposits.
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Bankless - Outlook of Cyrpto in 2022, Regulations, Future for Coinbase
In this episode, Bankless invites Brian Armstrong, CEO of Coinbase to discuss crypto in 2022 in general, Coinbase’s approach to regulations in the US, current and future products of Coinbase, and expectations for the future of cryptocurrencies. Read our notes below to learn more.
Background
David Hoffman and Ryan Adams from Bankless (Host) - David and Ryan are the co-founders of Bankless and frequently share their market insights and interview project founders in the crypto space.
Brian Armstrong (Guest) - CEO of Coinbase.
Coinbase - Coinbase is the first and only US-listed crypto exchange.
Brian Armstrong's Reflections on 2022
For Brian Armstrong, 2022 was a tough year for crypto particularly due to market volatility and scams.
However, he also thinks it was also a year of growth for Coinbase as it continued building its platform.
He states that crypto is resilient and can outlast any administration or official with the wrong ideas about it. The building is important regardless of good or bad periods in the market.
Lessons Learned in 2022
Armstrong admits that Coinbase grew too quickly during an upmarket and that he got caught up in the moment. Doubling headcount in a year can strain a company's culture, making decision-making unclear and communication difficult.
Coinbase exceeded its growth expectations around early 2022, hitting almost 3x over a 12-month period.
Armstrong says that despite growing pains, Coinbase remained focused on compliance, trust, and security from its inception.
FTX has taught Armstrong that if something seems too good to be true, it probably is. He emphasizes that Coinbase is not trying to get rich quick or cut corners but rather build a foundation for generations to come.
Armstrong’s Best Advice for Settlers and Builders During Crypto Winter
Armstrong believes to survive in crypto, you need certain qualities such as resilience and focus on building.
Armstrong says he has been able to make it through market cycles because he has been laser-focused on building Coinbase.
Armstrong’s best advice for settlers and builders during crypto winter is to keep building and staying engaged in the community. It is important to focus on the long-term potential of cryptocurrency and not get discouraged by short-term market fluctuations.
Regulatory Situation in America
Brian Armstrong states that the current regulatory environment is challenging for crypto companies like Coinbase due to uncertainty around regulations.
SBF (Sam Bankman-Fried) has been influential in shaping policy around cryptocurrency regulation. He has been successful in getting his views heard by legislators.
According to Armstrong, to undo the damage caused by SBF and win over legislators, it is important to educate them about crypto and its potential benefits. This can be done through lobbying efforts and building relationships with lawmakers.
Armstrong thinks centralized actors should be brought within the regulatory perimeter.
He says there's a misconception that people in crypto don't believe in regulation or want to do KYC AML. It's important to repeat basic messages like this to people outside of crypto who may not be familiar with it.
Thoughts on FTX's Rise and Sam Bankman-Fried
Armstrong found it difficult for Coinbase, when companies like FTX came onto the scene and seemed to be moving so fast after only two or three years.
As FTX peaked and everyone loved the product, Armstrong says he questioned whether Sam Bankman-Fried was just an insane operator or if something felt wrong.
Armstrong learned that it's important to focus on what you know best and not get caught up in the hype.
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The Impact of FTX Collapse on Coinbase
During the crisis, there was contagion and other dominoes fell as a result of FTX going down.
Armstrong says the importance of risk controls inside companies has proven itself incredibly important.
According to Armstrong, Coinbase has an incredible Finance team and CFO who built a risk function within the company over prior years.
The Importance of Crypto in Updating the Financial System
Armstrong believes that the financial system doesn't work for everyone because it's too slow, fees are too high, and it doesn't serve everybody equally.
Coinbase has been messaging externally and internally with everyone interested/responsible about how crypto can update the financial system.
According to Armstrong, crypto is a technology that can improve financial services in various ways but is not a financial product itself per se.
Backlash Against the Crypto Industry
According to Armstrong, there has been increased hostility towards the crypto industry since November 2022, with things like Operation Choke Point (20:24) to choke out the banking sector in the US.
Armstrong feels that this backlash is worse than it has ever been in the US, but other places like Europe are still moving forward. He says crypto deserves more scrutiny.
According to Armstrong, people who are only tangentially aware of crypto and those who get their news from traditional media channels may be more skeptical if they see bad headlines about crypto.
Armstrong says engaging with both new and traditional media channels can help get messaging out there and ensure fair coverage.
Organizing Crypto Holders to Elect Leaders Who Believe in Crypto
Coinbase put out a post called "Crypto435" to get the community of crypto holders organized to elect leaders in the elections who believe in crypto.
This involves getting donations from crypto holders or showing up at town halls to ask questions.
According to Armstrong, electing representatives who believe in economic freedom will help protect against bad actors and ensure sensible regulation for centralized players in crypto.
Building a Crypto Lobby
Armstrong believes that the crypto community has the potential to create a powerful lobbying effort similar to other industries like banking or oil and gas.
He says if even just one million people in the US who have used crypto become politically active, it could make a significant impact on Congressional races.
Coinbase is already building tools into their app to help people find out what rating their local politicians have regarding crypto.
Coinbase is willing to provide support and be a megaphone for any organized and effective crypto lobbying efforts.
Armstrong says while some people may be cynical about political activism, there is still hope that it can work effectively over time.
Armstrong believes business can play a role in championing policy changes and organizing individuals to create an effective lobbying effort.
Coinbase's Approach to Politics
Armstrong says Coinbase is taking an engineering approach to solving regulatory issues related to crypto adoption.
They are trying to funnel people who care about crypto values into being able to connect with politicians that resonate with those values.
Armstrong believes by adopting crypto protocols, people adopt crypto values, which can help them find politicians that align with their beliefs.
Crypto435 Platform
Crypto435 is a third-party platform that provides information on political candidates' stances on crypto.
Users can sign up for more information about key races and opportunities for advocacy such as donating, calling representatives, or showing up at town halls.
Armstrong says advocacy efforts such as calling representatives can have an impact by getting issues on their radar.
Armstrong believes the crypto community is likely to be a single-issue voter when it comes to crypto-related issues.
Armstrong thinks that there are opportunities to use NFT badges or other crypto-native tools to incentivize political engagement.
Regulatory Impact on Product Development
Armstrong says the regulatory environment in the US limits what companies like Coinbase can do with their products.
Specific examples of regulatory limitations include staking, which is allowed by Coinbase but not Kraken.
Coinbase is working proactively with regulators to help them understand their products.
According to Armstrong, derivatives trading is a huge percentage of crypto trading, but Coinbase has been unable to launch a derivatives market in the US due to a lack of clarity in regulations.
The SEC and CFTC have been debating over what constitutes securities, and new legislation may be needed to clarify this issue.
Armstrong thinks companies should be able to raise money through crypto by registering it as a security in the US and having securities trading platforms.
Negative Impact of Lack of Clarity
According to Armstrong, the negative rhetoric around crypto regulations has caused an environment of fear among entrepreneurs, leading some to move their companies offshore.
Armstrong says regulation by enforcement is causing harm as there are no clear rules or engagement with the industry on rule-making.
Armstrong states that other financial hubs like UK, Singapore, Hong Kong are open for business and want to move forward with crypto while the US risks falling behind.
Regulatory Turf Battle
The UK has one financial regulator that regulates both commodities and securities, which avoids a turf battle between regulators like in the US.
Armstrong believes the political climate in recent years has made some within the government skeptical of crypto, but most people are reasonable and want appropriate consumer protections.
Congress has not yet passed comprehensive legislation for crypto regulation like what happened with MiCA (Markets in Crypto-Assets Regulation) in the EU.
Three different groups in the parliament are drafting bills, but everyone is afraid of being associated with FTX collapse.
Stablecoins
There has been action against BUSD recently, but Armstrong feels no worry about USDC coming under pressure.
Circle has created a stablecoin, USDC, that can be regulated on-chain which is USDC.
According to Armstrong, the biggest concern is that a massive withdrawal of stablecoins from banks might create liquidity issues in traditional financial systems during times of stress.
The Importance of Digitization for the Dollar's Future
Armstrong is uncertain whether the dollar will remain the global reserve currency over the next 10-20 years considering that China is pushing its Central Bank digital currency into more aspects of the global economy, which could threaten the dollar's status.
Armstrong states China has ambitions to become a more dominant global reserve currency, which comes with significant privileges to China.
Armstrong states that USDC and other digital currencies that enable participation in the global digital economy should be celebrated from a national security and foreign policy perspective.
Coinbase's New Layer-2 Chain - Base
Base Chain is a new layer-2 chain launched by Coinbase that aims to provide faster and cheaper transactions for users. Armstrong believes that it will also help make crypto more scalable and usable for a billion people.
Coinbase has launched Base despite the adverse regulatory climate. Armstrong says this should be seen as a big vote of confidence from Coinbase to the rest of the industry since it signals support and shows that Coinbase is here for the long term.
There was a long history at Coinbase of looking at different ways to create their own coin or chain, but they wanted to ensure compliance and real value for customers.
Armstrong says when becoming a public company, they considered creating a registered security in the form of an ERC20 coin redeemable for shares, but couldn't find a legal way to do it in the US.
Unique Products Enabled by Coinbase Having Its Own Chain
Armstrong believes that there are many benefits to Coinbase having its own chain, such as:
Coinbase could build native DeFi apps or decentralized services on their own chain.
USDC payments could be integrated into the Base brand.
NFT transactions could be made with lower friction and faster on an L2 that Coinbase has input into.
Future dApps with more scalability can be created using Base chain.
By having its own chain, Coinbase can make the user interface simple so that it "just works."
Auto-exchange can be used for tokens underneath transactions so users don't have to worry about bridging between different chains or choosing the right token.
Operating Efficiently at Scale for Coinbase
According to Armstrong, Coinbase has slowed down as it grew too fast and became too bureaucratic. They are trying to fix that now.
Coinbase has reduced its headcount a couple of times. This is giving them a chance to practice operational efficiency at their current size and scale.
Future of Coinbase’s NFT Platform
Through NFTs Coinbase wants to aggregate different marketplaces so people can compare prices across different marketplaces and aggregate liquidity.
They are working on integrating NFT more directly into their main app, making it simpler for users who already have crypto in their account to buy an NFT with just one click.
Armstrong is bullish on NFTs in general over the long term despite recent market fluctuations driven by professional traders buying them in baskets through platforms like Blur.
Coinbase's Business Model and How Wall Street Understands Crypto According to Armstrong
Brian Armstrong believes that certain aspects of cryptocurrency should be natively integrated into wallets or primary financial accounts.
According to Armstrong, NFTs had a big run-up, a correction, and will slowly grow from here. There are many exciting things happening in the space.
He says Coinbase has many potential business models beyond just taking revenue, such as staking and the NFT platform.
Armstrong says analyst reports on COIN stock are generally good, but some investors may still view cryptocurrency as a new asset class similar to gems or commodities.
He believes investors are interested in products generating meaningful revenue today rather than pie-in-the-sky ideas for the future.
According to Armstrong, there is still a lack of understanding among some on Wall Street about what cryptocurrency is and how it works. However, he says there are also many who are starting to see its potential as an asset class.
Armstrong says some on Wall Street may not fully understand what Coinbase does or how it operates. However, those who take the time to learn about it will see that it is a legitimate business with strong fundamentals.
Bullish Line Items for Coinbase
Armstrong believes subscriptions and services are becoming more predictable revenue streams for Coinbase.
According to Armstrong, trading fees will be a big part of the Coinbase’s revenue for a long time, but subscriptions and services are helping shift revenue to more predictable sources.
Armstrong says Coinbase Cloud is an upcoming product that will make internal services available to external customers through APIs. One such product is "wallet as a service," which allows companies to store crypto easily without having to figure out how to connect with dozens of blockchains.
Self-Contained Crypto Wallet of Coinbase
Coinbase Wallet is a self-contained crypto wallet that uses multi-party computation technology to split up keys and make wallets more secure.
Multi-party computation technology allows users to split up keys into different configurations, making it less likely for all funds to be lost due to one mistake or piece of malware.
The specialized team at Coinbase had to write new crypto libraries in order to build out this technology, which has been audited by multiple firms.
Armstrong says Coinbase Wallet as a service can be used across various applications like Reddit, Shopify, etc., allowing users to store balances of crypto or NFTs easily.
Institutional Play with One River Digital
One River Digital -now Coinbase Asset Management now- was recently acquired by Coinbase as part of their effort to generate more subscription services revenue -acquisitions would allow them to offer asset management services.
Armstrong believes the partnership between One River's Asset Management business and Coinbase Prime's institutional customer base could be a great thing for the ecosystem over time. Goldman Sachs, Morgan Stanley, and JPMorgan generate substantial revenue from asset management, which tends to be more predictable than trading fees.
Decentralizing Coinbase Over Time
Armstrong says the mission of Coinbase is to increase economic freedom in the world.
In the early days, Coinbase centralized its business to get fiat money into the crypto economy.
Armstrong says Coinbase is building more decentralized pieces of the economy with Base and self-custodial wallets like Coinbase Wallet. They are also contributing to open protocols and helping them evolve.
Armstrong hopes that Coinbase can become more decentralized over time.
Crypto in 2030
According to Armstrong, blockchains will be more scalable, and usability will improve with standards like ENS names for payments.
Armstrong says more countries around the world will adopt crypto as a legal form of tender, following El Salvador's example.
Armstrong believes by 2030, every startup will use crypto in some way, shape or form whether it's to raise money, collect payments from their customers, or build their community.
Armstrong hopes that by 2030 we have a billion people accessing an open financial system every day through products like Coinbase.
Potential for Decentralized Applications
Armstrong believes decentralized applications built on Web3 could help lift people out of poverty.
Armstrong says crypto payments and commerce have not moved as quickly as expected, but other use cases such as DeFi and NFTs have taken off faster than anticipated.
Reflections on His Time at Coinbase
Armstrong says he has been with Coinbase for over a decade, having started during its early days.
Before joining Coinbase, Armstrong worked at Airbnb and saw how quickly it grew. He believed that crypto had similar potential.
Armstrong says he did not predict many of the developments in the crypto space, but he is excited about the innovation happening in the industry.
Advice for Builders
Armstrong advises builders to focus on building something they believe in rather than seeking glamor or recognition.
According to Armstrong, builders should be willing to face ridicule when working on innovative ideas because disruptive ideas are often met with skepticism. The goal should be to work on projects that matter and make a positive impact on the world.
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Show Information
Medium: Podcast (YouTube)
Show: Bankless
Show Title: Coinbase CEO: How to Win in Crypto
Show Date: March 13, 2023