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Posted on June 24, 2022web3 on the platform of your choice — a closer look at Coinbase Wallet’s multi-platform approach
web3 on the platform of your choice — a closer look at Coinbase Wallet’s multi-platform approach
Tl;dr: The replatforming of Coinbase Wallet’s mobile app reflects our commitment to improving access to web3. In this blog, we discuss why the transition to React Native marks a critical turning point for both our users and our technical teams.
By Chintan Turakhia, Director of Coinbase Wallet Engineering, and Dan Coffman, Coinbase Wallet React Native Lead
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This week, we announced the debut of Coinbase Wallet’s new mobile iOS and Android apps built using React Native. This launch marks a critical inflection point for Coinbase Wallet and its users, and we’d like to shed light on the motivation and journey to get here.
Our goal with Coinbase Wallet is to be the default gateway to the web3 ecosystem. We debuted a mobile app on iOS and Android in 2017 to make the benefits of crypto, self-custody, and the nascent dapp ecosystem accessible to all — regardless of network or blockchain, country or currency, crypto savvy or crypto beginner.
In 2021, we saw an uptick in web3 engagement via desktop, driven largely by NFTs and DeFi dapps. This led us to launch a Coinbase Wallet browser extension using React, providing users with the option to engage with the crypto economy on a desktop platform. This also gave our product, engineering, and design teams an opportunity to entirely rethink how a self-custody product should look and feel for power users as well as newcomers to web3.
Launching the browser extension unfortunately meant that our engineering teams now needed to code the same features for three different platforms, since Wallet’s browser extension, iOS, and Android apps leveraged different codebases. And as a consequence, our shipping velocity on extension far exceeded our pace on mobile. We knew that this wasn’t a viable long term solution to keep up with the innovation in web3. In order to maximize efficiency of our developers and designers as well as ship a consistently reliable, safe, and simple multi-chain wallet on all platforms, we would need to migrate our mobile products into a common framework.
Enter React Native.
Build once, ship everywhere
We embrace the mantra of build once and ship everywhere. Replatforming Coinbase Wallet’s mobile apps to React Native means we can more easily ship new features to Wallet’s browser extension, iOS, and Android apps in tandem, streamlining workflows and allowing us to deliver the same great user experience across desktop and mobile.
In 2020, the Coinbase app successfully transitioned from native mobile to React Native, a software framework which allows us to ship the same TypeScript code and React UI on both iOS and Android. Our goal since then was simple: leverage those paved roads to ship a highly performant mobile app while affording users a consistent design experience using the Coinbase Design System (CDS). We were able to quickly leverage paved roads including react navigation, deeplinking, and configuration in code.
By unifying our Coinbase Wallet mobile app and browser extension into a single data layer that handles all business logic, we can continue to ship products quickly across three platforms. We moved away from class-based RxJS and shifted to functional context-based repos to enable greater leverage of React core libraries. The additional challenge was migrating the data layer while continuing to build and ship features on the Extension. Web3 pauses for nobody, and so we carefully orchestrated the replacement of our entire Wallet engine while still flying.
Wallet will also be able to bring new features to market in a fraction of the time. A recent example of this is our DeFi portfolio, which took two months to build for the Wallet browser extension and only five days to port to our new React Native mobile app. The majority of complex logic resided in the data layer, and since these are now shared between all platforms, we were able to build it once and ship it to all platforms. Only client UI for mobile was remaining, and fortunately, with a common CDS, porting UI elements to mobile was simple. Thanks to these types of efficiencies, we expect to see the velocity at which Wallet launches new products continue to increase in the months to come.
Not only will users benefit from Wallet delivering features faster, the mobile experience as a whole will be snappier, more responsive, and more reliable.
Bridging the gap
Several of the features we released over the past year were built for the Wallet extension and have yet to be introduced to the Wallet mobile app. With our migration to React Native, we’re launching now ready to launch several great features in the mobile app for the first time, including support for storing, sending, and receiving Solana and SPL tokens, real-time price charts, an in-app dapp browser, token management, and a DeFi portfolio view.
How do you port 110+ features on a new React Native tech stack, while adding new functionality to the existing Chrome Extension platform all the while maintaining the existing Native mobile product? The common data layer was a force multiplier which enabled the team to keep building features for extension which would seamlessly port to RN mobile. We also prioritized feature parity of our existing mobile product while maintaining a high bar for quality and performance through benchmarking.
The team built foundations for a scalable and extensible performance monitoring system to measure client-side performance of the new app, including page load, UI thread blocking time and app responsiveness for every commit. We optimized loading and screen render times using a bespoke incremental rendering solution, memoizing components, and optimizing expensive hook computations. We also shipped countless improvements to the data layer through batching state updates and optimizing caching strategies, which benefited asset and NFT loading on both the new react native app and extension.
More than a fresh coat of paint
If you’ve noticed the new look-and-feel of the mobile app, it reflects much more than a fresh coat of paint. Coinbase Wallet is now an integral part of the Coinbase Design System.
Coinbase’s Design System is a robust architecture of reusable design and motion components built within React. We’ve found that the CDS enables our product, engineering, and design teams to focus on building high-quality product experiences while ensuring a consistent experience for users across Coinbase products. Beautiful design elements, like the motion-driven “warm welcome” that greets new users, are just a small preview of how we are providing a visually rich experience for a global audience.
Since Coinbase Wallet’s browser extension was built using this design system, desktop users will now enjoy a more consistent experience within Wallet’s mobile app. As an added bonus of this consistent approach, users who are familiar with Coinbase’s flagship app will immediately feel at home in Coinbase Wallet’s new mobile experience.
Another exciting result of this work is Wallet users now have an opportunity to personalize their mobile experience. Our research showed that users prefer dark mode, so the mobile app will open in dark mode by default. We’re also adding the ability to select a theme color for Coinbase Wallet, which can be selected in the Settings tab.
Looking ahead
The new Coinbase Wallet mobile app began rolling out globally across iOS and Android this week, and we expect the rollout to be complete over the next few weeks. Make sure your app is up to date by visiting the App Store on iOS or Google Play on Android, and follow @CoinbaseWallet on Twitter for the latest news and updates.
Coinbase Wallet is a self-custody wallet providing software services subject to Coinbase Wallet Terms of Service and Privacy Policy. Coinbase Wallet is distinct from Coinbase.com, and private keys for Coinbase Wallet are stored directly by the user and not by Coinbase. Fees may apply. You do not need a Coinbase.com account to use Coinbase Wallet.
web3 on the platform of your choice — a closer look at Coinbase Wallet’s multi-platform approach was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 23, 2022Coinbase Derivatives Exchange to make nano bitcoin futures available through leading brokers
Tl:dr:
- Coinbase Derivatives Exchange (formerly FairX) will launch its first listed crypto derivatives product on June 27, 2022: Nano Bitcoin futures contract (BIT), with each contract sized at 1/100th of a bitcoin.
- Upon the June 27th launch, BIT futures will be accessible for trading via several leading third-party retail brokers and clearing firms.
- Coinbase Financial Markets is awaiting approval for its license to operate a futures commission merchant (“FCM”) to be able to offer futures directly to our clients.
By Boris Ilyevsky, Head of Coinbase Derivatives Exchange
Coinbase Derivatives Exchange, a CFTC regulated Designated Contract Markets (DCM) futures exchange, will launch its first listed crypto derivatives product on June 27: Nano Bitcoin futures (BIT). Initially, BIT futures will be available for trading via several leading broker intermediaries, including retail brokers EdgeClear, Ironbeam, NinjaTrader, Optimus Futures, Stage 5, and Tradovate, and clearing firms ABN AMRO, ADMIS, Advantage Futures, ED&F Man, Ironbeam and Wedbush. Coinbase is awaiting regulatory approval on its own futures commission merchant (FCM) license so we can offer margined futures contracts directly to our clients.
Transforming FairX into Coinbase Derivatives Exchange married a world-class team with deep expertise across product development, market structure, compliance, market-leading exchange technology and a proven ability to deliver listed futures, with Coinbase’s commitment of building products that are easy-to-understand, fair, accessible, efficient, and transparent.
Around-the-clock trading, lower upfront investment, leverage and the ease of going long and short are some reasons why futures are a popular product for traders. Our BIT Futures contract will offer the same benefits but is built with the retail trader in mind. At 1/100th of the size of a Bitcoin it requires less upfront capital than traditional futures products and creates a real opportunity for significant expansion of retail participation in US regulated crypto futures markets.
The crypto derivatives market represents $3Tn* in volume worldwide and we believe that additional product development and accessibility will unlock significant growth. It’s more important than ever to bring the benefits of futures to a broader market so that all types of traders can access regulated U.S. crypto derivatives markets to express their views or hedge their underlying crypto assets.
To become one of our supporting brokers, market makers, clearing firms, or vendors, please email futures.sales@coinbase.com.
*January 2022, https://www.ft.com/content/364dee59-fb51-400b-acd2-808d4ec41ab3
Coinbase Derivatives Exchange to make nano bitcoin futures available through leading brokers was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 23, 2022Send and receive crypto on multiple networks, starting with Polygon and Solana
TL;DR: Over the next month, eligible Coinbase customers will be able to send and receive ETH, MATIC, and USDC on Polygon, and USDC on Solana. The Polygon integration marks the first time Coinbase has enabled the ability to send and receive these assets on an L2 or sidechain.
By Nemil Dalal, Director, Product Management and Justin Blumenthal, Product Manager
Sending crypto on Ethereum has become increasingly expensive for individual users and institutions. As one of the most robust programmable blockchains, Ethereum has the largest ecosystem of developers, products, and services. But as blockchain usage has surged, gas fees (fees paid to miners to validate transactions on Ethereum) have skyrocketed, pricing out millions of would-be users. While these high gas fees have caused more affordable networks like Polygon and Solana to increase in popularity over the past 18 months, the process of funding wallets on these networks can be complex and time-consuming.
Coinbase is reducing the time, effort, and high fees of today’s experience by letting customers convert fiat to crypto and fund their Polygon and Solana wallets in minutes and at a fraction of the cost. Over the next month, eligible Coinbase and Coinbase Exchange customers will be able to send and receive ETH, MATIC, and USDC on Polygon, and they’ll be able to send and receive USDC on Solana.¹ Over time, we’ll add support for more tokens and more networks.
Access more of web3 at a fraction of the cost and time
On Ethereum, it can cost over $10 in gas fees to send small amounts of crypto from an exchange like Coinbase to a self-custodial wallet like Coinbase Wallet, and it can cost over $100 in gas to lend out larger amounts of crypto on protocols like Aave. This has driven a massive increase in development and activity on alternative networks, with over 30% of DeFi Total Value Locked now sitting outside of Ethereum. However, it’s not simple to move crypto across networks. Users must purchase crypto on an exchange, send it to their self-custodial wallet, then use a bridge to send their crypto to a different chain. As a result, it can take approximately 20 minutes, $50 in gas, and 10 protracted steps to move your assets from ETH to Polygon to purchase a NFT via OpenSea. Now, Coinbase customers can convert their fiat to ETH, MATIC, and USDC and fund their Polygon wallet at a fraction of the cost and time, making it simple to explore more of web3.
Institutional traders are increasingly active across multiple networks and dapps, but the process of bridging between networks is inefficient for them as well. Multichain asset support via Coinbase Exchange allows for seamless deposits and withdrawals across Ethereum, Polygon, and Solana, with trading and settlement in one order book regardless of the chain used to deposit funds. We’ve removed the complexity of managing different balances of a single asset across networks with one comprehensive, unified balance.
Switch networks in a few simple steps
We’ve made it easy for both individual and Coinbase Exchange customers to send and receive on Polygon and Solana. Here’s how it works:
For individual customers using the Coinbase mobile app or coinbase.com:
- Decide which self-custody wallet you’ll use to receive your crypto. If you don’t have a self-custody wallet, it only takes a few seconds to get started with Coinbase Wallet. Make sure you’re choosing a self-custody wallet that supports either Polygon or Solana, depending on which network you plan to select. Keep in mind that all sends to crypto addresses are irreversible. Coinbase cannot retrieve funds sent to the incorrect address or using the incorrect network
- Open your Coinbase mobile app or log into coinbase.com and tap ‘Pay’
- Tap ‘Send’, then select ETH, MATIC, or USDC. Enter the amount you want to send
- Enter your self-custody wallet address. If you’re using Coinbase Wallet, find your address by tapping ‘Receive’, then select the token you’re trying to receive and copy your address
- Preview your send, tap the arrow next to Network, and select your preferred network
- Complete your send
For users purchasing or transferring crypto from Coinbase using their Coinbase Wallet mobile app*:
- Navigate to the Settings tab and select ‘Buy or Transfer’
- Select ETH, MATIC or USDC and enter the amount you’d like to buy or transfer from Coinbase
- Tap the network icon in the top right corner of the app. Choose your preferred network
- Select ‘Continue’ to preview the details of your purchase or transfer, then tap ‘Confirm’ to complete your purchase
*If you’re using the new version of the Coinbase Wallet mobile app, refer to the instructions below.
For users purchasing or transferring crypto from Coinbase using their Coinbase Wallet browser extension:
- Click the ‘Buy’ icon (+) and choose ‘Add crypto with Coinbase Pay’
- Select ETH, MATIC or USDC and enter the amount you’d like to buy or transfer from Coinbase
- Select the network field to choose your preferred network
- Preview the details of your purchase or transfer, then click ‘Confirm’
For Coinbase Exchange customers*:
- From exchange.coinbase.com, choose Withdraw
- Select ETH, MATIC, or USDC and Withdraw to a Crypto Address
- Select the Network field and choose your preferred network
- Enter the wallet address you wish to withdraw to, and confirm your network selection
- Enter the withdrawal amount, and complete your withdrawal
*Alternatively, use your API key access and latest API documentation to add the network field to your deposits or withdrawals.
Looking Ahead
Coinbase aims to be the platform for transferring crypto throughout the cryptoeconomy by enabling users to route funds to any network, making it easier and cheaper to access web3 so that billions of people can power their financial lives with crypto rails. We’re excited to build on this foundation by adding support for more networks and assets to make it simpler for users to dive deeper into web3.
¹Multichain network availability limited by jurisdiction.
Send and receive crypto on multiple networks, starting with Polygon and Solana was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 22, 2022Hello Advanced Trade, goodbye Coinbase Pro
Tl:dr
- Later this year, we’ll begin sunsetting Coinbase Pro to migrate all advanced trading into one unified Coinbase account, bringing customers access to popular features like staking, Borrow, dapp wallet, and Coinbase Card from a single platform balance.
- Advanced Trade on Coinbase.com is already available globally, with the same volume-based fees as Coinbase Pro.
- Over the coming weeks, we’ll be rolling out Advanced Trade in the Coinbase mobile app along with other improvements to make Advanced Trade an upgrade from Coinbase Pro for every customer.
- We’ll notify customers again when we are ready to share concrete dates for sunsetting Coinbase Pro.
by Dan Stone, Group Product Manager and Andrew Herman, Engineering Manager
We launched Coinbase Pro in 2018 as a tool for advanced traders to conduct technical analysis and place trades by interacting directly with the Coinbase Exchange order book. Customers have told us how they love the power and singular focus of Coinbase Pro for buying, selling, and swapping crypto.
Meanwhile, on Coinbase.com and the Coinbase app, we have been adding advanced crypto features to foster deeper engagement with the cryptoeconomy, such as staking, Borrow, dapp wallet, and Coinbase Card, in addition to improvements to our core trading experience.
As a result, many customers rely on Coinbase Pro and Coinbase.com for overlapping sets of features, and often experience friction when transferring balances back-and-forth between the two products.
To resolve this friction and offer customers the best of both worlds, we have rebuilt the full Coinbase Pro advanced trading experience within the Coinbase mobile app and Coinbase.com. As we continue to add more features to Advanced Trade on Coinbase, we will sunset Coinbase Pro later this year.
World class trading on one platform
After developing a better alternative for our Coinbase Pro customers, we released Advanced Trade on Coinbase.com earlier this year. Advanced Trade is equipped with all the capabilities of Coinbase Pro, but upgraded with the most seamless Coinbase experience to make informed trades, faster and easier.
Advanced Trade offers more in-depth technical analysis, advanced real-time order books, and charting powered by TradingView to help customers research and analyze crypto markets before making investment decisions.
It also offers improved order flows to make it easier and faster to place market, limit, or stop limit orders directly on Coinbase Exchange, which offers one of the deepest pools of liquidity.
All this is within a single account balance so customers can access automated staking rewards to earn up to 5% APY on eligible crypto balances like USDC, ETH2, and DAI.
Advanced Trade is also augmented by additional Coinbase-wide security infrastructure like 24/7 monitored cold storage facilities, USD held at FDIC-insured institutions, YubiKey for mobile, and vaults.
More Advanced Trade updates, coming soon
We’re excited to continue building Advanced Trade as an upgraded experience for Coinbase Pro customers, with mobile app support now launching.
We’ll also be adding mobile stop limit orders, additional charting and order form upgrades, and full REST API & WebSocket support soon. Looking forward, Advanced Trade will serve as a hub for our most advanced traders, improving even more as we launch new features. Until then, existing customers will still have access to Coinbase Pro.
Over the next several months, we will continue to launch new upgrades to Advanced Trade before beginning to sunset Coinbase Pro. We will share updates as we do so. For customers holding funds on Coinbase Pro, there is no action to take- funds will remain safe on Coinbase. Meanwhile, customers are welcome to begin using Advanced Trade on the Coinbase mobile app and Coinbase.com.
To get started, customers will need to fund their Coinbase accounts if they haven’t already by depositing funds or transferring funds directly from Coinbase Pro by following these steps:
- Log into Coinbase Pro and select “Portfolios”
- Choose “Withdraw” on the top right
- Select the cryptocurrency you want to transfer, or “All Portfolios” to transfer all assets to Coinbase.com
- Choose “Transfer to Coinbase”
- Then visit Coinbase.com/advanced-trade or tap the “Advanced Trade” drop down from the Trade tab in the Coinbase mobile app to get started with Advanced Trade
To learn more about Advanced Trade, check out the latest tips and tutorials on Coinbase Learn, and follow us on Twitter @Coinbase for more updates.
Hello Advanced Trade, goodbye Coinbase Pro was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 22, 2022Making web3 more accessible and intuitive — meet the new Coinbase Wallet mobile app
Making web3 more accessible and intuitive — meet the new Coinbase Wallet mobile app
By Sid Coelho-Prabhu, Director of Product Management, and Jeff Hinojosa, Product Manager
Tl;dr We have completely redesigned the Coinbase Wallet mobile app to be more intuitive and visually-compelling. With best-in-class multichain support that now includes Solana, one tap access to view your DeFi positions, dark mode, and real time price charts, the new Wallet app puts the power of web3 in your pocket.
Coinbase’s self-custody wallet first arrived as a mobile app in 2017. Since then, crypto has evolved into a rapidly-expanding app platform that spans multiple chains. Today we’re excited to introduce the next chapter for Coinbase Wallet with an entirely redesigned mobile app, built from the ground up to be intuitive, user-friendly, and purpose-built for the multichain world of web3.
The all-new app puts the power of web3 in your pocket and provides a unified experience for all of your NFTs, tokens, and favorite decentralized apps (dapps). The new mobile experience starts rolling out today, with more users gaining access in the coming weeks.
Familiar, yet distinct
For the new Coinbase Wallet mobile app, we leaned into our foundational design principles to build a simple, refined user experience that feels immediately accessible, intuitive, and familiar. For example, the quick action buttons on the home screen provide one-tap access to DEX swaps, sending or receiving crypto, and funding your Coinbase Wallet with Bitcoin, Ethereum, Solana, and hundreds of other assets using a debit card or bank account.
The all-new dapp browser aims to make the ever-growing world of dapps more accessible. The new dapp browser provides a curated list of popular dapps from all networks that Coinbase Wallet supports, making it easier to find and explore new dapps. Now you can discover your new favorite DeFi protocol, play-to-earn game, and web3 social dapp with just a few taps. The dapp browser also adds support for one of our most requested features: tabs. Switch between your favorite dapps with just the tap of a button without losing your place. Best of all, you can move between dapps on different networks and Wallet will handle the switching in the background.
We launched dark mode for the Coinbase app last year, and we’ve heard from many of our users that it quickly became their preferred visual style. Based on feedback and learnings from Coinbase’s dark mode, not only are we bringing dark mode to the new Coinbase Wallet mobile app, but we are going a step further with dark mode by default.
We are able to bring features like these to the redesigned Wallet mobile app in large part thanks to a key engineering decision to rebuild the entire mobile app from the ground up in React Native. By re-platforming to React Native, future features and product enhancements can arrive on both the Wallet mobile app and Chrome Extension at the same time.
The best wallet on extension and mobile
In 2021, we introduced Coinbase Wallet extension, a browser extension for Google Chrome and Chromium browsers like Brave. Some of the new features we released over the past year have been available in Wallet extension, but not the Wallet mobile app. With the redesigned mobile app, we are excited to re-introduce some great features and bring them to our mobile self-custody experience for the first time:
- NFT collection — Manage your Ethereum and Polygon NFTs with ease. See the latest floor prices, send your NFTs to a friend, and even hide airdropped spam assets that you don’t want to see.
- Solana support — With support for sending, receiving, and storing SOL and SPL tokens, you no longer need multiple wallet apps for your multichain web3 activity
- DeFi portfolio — The new DeFi tab on the home screen makes it easy to view your DeFi activity, deposits, and balances on the Ethereum network. Support for more networks is coming soon
- Price charts — Real-time price charts make it easy for you to stay on top of the crypto markets and never miss the right time to make a trade
- Support for 25 languages — With support for more languages and local currencies, Coinbase Wallet is making self-custody accessible to billions of people around the world
Web3 in your pocket, coming soon
The new Coinbase Wallet mobile app begins rolling out across iOS and Android today, and we expect the rollout to be complete over the next few weeks. Already have the Coinbase Wallet mobile app? Make sure your app is up to date by visiting the App Store on iOS or Google Play on Android.
You can easily import your existing Ethereum or Solana self-custody wallet from any other wallet app or extension without any network fees.
We look forward to hearing from our users and the web3 community about their experiences using the redesigned Coinbase Wallet app. Make sure to follow @CoinbaseWallet on Twitter for the latest news and updates.
Coinbase Wallet is a self-custody wallet providing software services subject to Coinbase Wallet Terms of Service and Privacy Policy. Coinbase Wallet is distinct from Coinbase.com, and private keys for Coinbase Wallet are stored directly by the user and not by Coinbase. Fees may apply. You do not need a Coinbase.com account to use Coinbase Wallet.
Making web3 more accessible and intuitive — meet the new Coinbase Wallet mobile app was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 14, 2022A message from Coinbase CEO and Cofounder, Brian Armstrong
By Brian Armstrong, CEO and Cofounder
Earlier today, I shared the following note with all Coinbase employees.
Team,
Today I am making the difficult decision to reduce the size of our team by about 18%, to ensure we stay healthy during this economic downturn. I want to walk you through why I am making this decision below, but first I want to start by taking accountability for how we got here. I am the CEO, and the buck stops with me.
What has changed?
Over the past month, I’ve had many conversations with our Exec team and our Board to discuss recent market events as well as the state of our business. Several realities have become clear to me in these discussions:
- Economic conditions are changing rapidly: We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue (our largest revenue source) has declined significantly. While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.
- Managing our costs is critical in down markets: Coinbase has survived through four major crypto winters, and we’ve created long term success by carefully managing our spending through every down period. Down markets are challenging to navigate and require a different mindset.
- We grew too quickly: At the beginning of 2021, we had 1,250 employees. At the time, we were in the early innings of the bull run and adoption of crypto products was exploding. There were new use cases enabled by crypto getting traction practically every week. We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets. It’s challenging to grow at just the right pace given the scale of our growth (~200% y/y since the beginning of 2021). While we tried our best to get this just right, in this case it is now clear to me that we over-hired.
What decision was reached?
- The need to manage expenses: As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn. Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.
- The need to increase efficiency: We have now exceeded the limit of how many new employees we can integrate while growing our productivity. For the past few months, adding new employees has made us less efficient, not more. We have seen ourselves slow down considerably due to coordination headwinds, and difficulty fully integrating new team members. We believe the targeted resourcing changes we are making today will allow our organization to become more efficient.
Both of these come back to my decision to significantly scale our team over the past two years, so this accountability rests fully with me.
Who is affected?
Our senior leaders have worked diligently to identify the appropriate changes for each of their teams based on our clarified priorities.
In the next hour every employee will receive an email from HR informing if you are affected or unaffected by this layoff. Every affected employee will receive an invitation to have a direct conversation with your HRBP and the senior leader of your organization.
If you are affected, you will receive this notification in your personal email, because we made the decision to cut access to Coinbase systems for affected employees. I realize that removal of access will feel sudden and unexpected, and this is not the experience I wanted for you. Given the number of employees who have access to sensitive customer information, it was unfortunately the only practical choice, to ensure not even a single person made a rash decision that harmed the business or themselves.
I also wanted to make sure that all affected employees are taken care of in this transition, and that we support them in finding a new role. Employees who are departing today will receive:
- Minimum of 14 weeks of severance plus an additional 2 weeks for every year of employment beyond 1 year
- 4 months of COBRA health insurance in the US, and 4 months of mental health support globally
- Access to Talent Hub, where members of Coinbase’s team will work to connect with you with open positions at other firms (including portfolio companies from Coinbase Ventures and other top crypto VC funds)
Coinbase employees are among the most talented in the world, and I am certain that the skills you all possess will continue to be sought after by companies around the world. I realize it may take longer in this environment to find new employment, and so my hope is that this financial and non-financial assistance helps make this unexpected transition for you as seamless as possible.
How do we move forward?
To our colleagues who are departing, I want to say thank you for giving everything to this company, and that I am sorry. I hope that as we grow again we get a chance to hire you back. We would not be where we are today without your hard work and dedication to our mission. I am incredibly grateful for everything you have done to contribute to our success.
To our team that is staying, I know this will be a difficult day for you all too. You will say goodbye to your colleagues that you’ve been in the trenches with. I also expect you will all feel some level of fear, uncertainty and doubt about the future. Know that we made these hard decisions to ensure our future is bright. We’ll share more on how we rally as a team in the next few days. Right now, let us thank all our colleagues who are departing for the important contribution they’ve made to our mission.
Brian
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This blog post contains forward looking statements. These forward looking statements are only predictions and may differ materially from actual results due to a variety of factors. The risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed in our filings with the Securities and Exchange Commission. Any forward looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this blog post. We undertake no obligation to update these statements as a result of new information or future events.
A message from Coinbase CEO and Cofounder, Brian Armstrong was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 13, 2022Scaling Node Operations at Coinbase
Tl;dr: This blog shares insights on how Coinbase is investing in new tools and processes to scale its node operations.
By Min Choi, Senior Engineering Manager — Crypto Reliability
Blockchain nodes power almost every user experience at Coinbase. We use them to monitor fund movements, help our customers earn their staking rewards, and build the analytics needed to support popular features within our applications. As such, being able to effectively manage blockchain nodes is vital to our core business and we are continuing to invest in ways to scale our node operations.
One of the most difficult aspects of node management is keeping up with the constant, and sometimes unpredictable, changes to the node software. Asset developers are consistently releasing new code versions and some blockchains, such as Tezos, leverage an on-chain governance model to take a community vote on all proposed changes. A decentralized governance model such as this makes it difficult to predict when a change will be introduced and prepare our internal systems in advance. An example of such a scenario is depicted in the below Messari alert.
Data provided by https://messari.io/
The consequences of not keeping up with these changes can be severe to our customers. They could cause long delays to balance updates in our core wallets or slashed staking rewards. To help minimize these incidents from occurring, we’re focusing investments into the following areas:
Asset Release Manager
This service gives us an extra pair of hands (or should I say “ARM”) to process common node upgrades. All puns aside, the ARM service monitors Github release activity for dozens of critical blockchains and automates the deployment of new node binaries to our non-production environments. This frees up our engineers to focus on service validations and work proactively with asset developers to resolve problems prior to production release.
The below diagram shows the high level data flow for ARM.
Here’s a recent example of how the ARM service was leveraged to process a node upgrade for Algorand.
- On May 9 at 12:44 PM PDT, Algorand version 3.6.2 was released.
- On May 9 at 1:13 PM PDT, the ARM service filed a ticket to notify our engineers and track the incoming change.
- On May 9 at 1:43 PM PDT, the required code change was automatically generated for build and deployment.
- On May 9 at 2:13 PM PDT, the change was automatically deployed to all our non-production environments for Algorand.
- On May 9 at 2:43 PM PDT, an error in one of the three deployments was detected and the ARM service escalated to an engineer to help investigate.
- On May 10 at 6:27 AM PDT, the engineer resolved the deployment problem and began service validation testing in preparation for production deployment.
As seen above in this event chronology, the system isn’t completely touchless, meaning engineers are still needed as part of the overall upgrade process. However, the ARM service allows us to transact hundreds of these upgrade operations in parallel, saving countless hours of engineering time which can then be reinvested into quality assurance efforts.
Test-Runner
This is an orchestration service used to execute integration tests, both via temporal workflows and API calls to critical systems across Coinbase. As the name may suggest, Test-Runner obtains and stores test results, aggregates them by metadata, and exposes an API to query the results. By making it simple to create these tests and share standardized test results across our engineering teams, we’re able to accelerate our asset addition and incident response processes. We put a lot of value in building reusable integration tests as we view them as a foundation of our asset maintenance regime.
The below diagram shows the high level service architecture for Test-Runner.
Here are also a few basic examples of the types of tests that are in scope for Test-Runner.
- Balance transfers within Coinbase.
- Deposits and withdrawals in and out of Coinbase.
- Sweep and restore operations between cold and hot wallets.
- Simple trade operations (buy/sell).
- Rosetta validation.
Each time a node is upgraded, these tests are automatically triggered through our continuous integration (CI) pipeline, providing a clear validation of success or failure. This helps our engineers make quick and informed operational decisions such as rolling back to a previous version of the node binary.
Blockchain Pods
As we add more blockchains to our support catalog, we’re investing in flexible engineering teams designed to collaborate on emerging priorities. Our pods are approximately 5–7 engineers in size, are made up of site reliability and software engineers, and offer opportunities to quickly adapt to shifting market conditions. For example, we most recently formed a pod to focus specifically on Ethereum’s upcoming transition from a Proof-of-Work (POW) to a Proof-of-Stake (POS) blockchain. The Merge is a very large and extremely complex change, requiring nearly all Coinbase systems to adjust, but is also merely a one time event that doesn’t justify the formation of a permanent engineering team.
We’re also in the process of forming new pods to focus on ERC-20 (Tokens) and ERC-721 (NFTs). In this way, we can pivot on the development of features that harness these standards for the betterment of our customers. By constantly forming and dissolving pods in this manner, we’re able to develop small economies of scale that quickly meet our customer needs. It also gives our engineers the flexibility to choose between areas of technological interest and build subject matter expertise that help them grow their careers at Coinbase.
Final Thoughts
Developing a comprehensive strategy for node management is a challenging endeavor. While we acknowledge that our own strategy is not without flaws, we take pride in operating at the cutting edge of blockchain technology. Everyday, Coinbase engineers work tirelessly in partnership with the greater crypto community to overcome these operational challenges. So if you’re interested in building the financial system of the future, check out the openings on the Crypto Reliability (CREL) team at Coinbase.
Scaling Node Operations at Coinbase was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 10, 2022Olá from Brazil
Tl;dr: A quick update about a key priority market from the International team. As we prepare to launch in Brazil, we have hired a Country Director, are building out an engineering team, and have engaged with regulators, financial institutions, and startup founders.
By Nana Murugesan,VP Business Development and International & Fabio Plein, Country Director for Brazil
At Coinbase, our goal is to promote economic freedom, and we believe the best way to do that is to get more people using crypto. That’s why it’s so important for us to expand internationally, and to make it easier for people around the world to join the crypto community.
As I shared in Lighting Up The Map: How Coinbase Plans To Scale Globally, we have adopted a go-broad and go-deep approach to further our mission around the world. Brazil is a go-deep priority market for us, which is why we’ve hired our new Country Director, Fabio Plein, to lead our work as we prepare to launch here.
Earlier this week, Fabio and I had the privilege to speak at the Valor Capital Crypto Conference about the opportunities for crypto in Brazil, as well as the importance of smart regulation, and our commitment to the Brazilian market. Valor Capital is a cross-border (US and Brazil) venture capital firm, founded by former US Ambassador to Brazil Clifford Sobel and Scott Sobel. Clifford and Scott were early investors in Coinbase, and have been immensely helpful in sharing their connections and expertise.
We believe the potential of crypto in Brazil is enormous. Crypto networks are open, allowing everyone to transact on shared networks, no matter where they live. That’s why crypto and web3 have the potential to change the way the world does business — from improving payments, to empowering microfinance projects, to providing a hedge against inflation, and access to capital.
Brazil is well positioned to lead Latin America and beyond with its approach to crypto. We are excited to see that Brazilian Central Bank Governor Roberto Campos Neto has launched dedicated policy initiatives related to blockchain, digital assets, and other innovations shaping the future of finance. And we want to support the kind of practical, thoughtful and clear regulation that will keep people safe without stifling innovation. That’s why we will keep listening and learning from regulators and policymakers’ priorities and concerns while at the same time collaborating on building a trusted and resilient crypto ecosystem. We want to be a constructive resource to the Brazilian government as they formulate a long-term strategy for how to build the cryptoeconomy.
We are building for Brazil from Brazil. So far, we have hired more than 40 full time engineers in Brazil. We offer all of the assets on the Coinbase Exchange for purchase via credit card payment. Brazilians can also take advantage of staking and use Coinbase Wallet.
We are also investing in the local startup ecosystem. Through Coinbase Ventures, we have invested in local companies, including Hashdex, a Brazilian crypto asset management firm and Bitso, a leading crypto exchange across Mexico, Argentina, and Brazil.
Brazil has always been open to financial innovation — while also laying the groundwork for clear and tailored regulation. We see Brazil as a key market for Coinbase’s entry into Latin America, and are thrilled to continue investing and building here.
Obrigado,
Nana & FabioOlá from Brazil was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 9, 2022The crypto market downturn explained
Around the Block from Coinbase Ventures sheds light on key trends in crypto. Written by Connor Dempsey. Data by Mike Cohen.
TLDR:
- Central Banks and governments responded to the March 2020 COVID market shock with unprecedented interest rate cuts, money printing, and stimulus
- These easy money policies kicked off a multi-year bull run for equities and crypto, before eventually causing inflation that was further exacerbated by COVID supply shocks
- BTC, ETH, the NASDAQ, and S&P each peaked at the tail end of 2021, when it became clear that inflation was not under control and that Central Banks would have to unwind the same policies that propelled stocks and crypto to new heights in the first place
- This cycle crypto has been broadly correlated with tech stocks, and has traded like risk assets
- While not immune to Central Bank policy in the short run, the prospects of crypto and Web 3 in the long run remain stronger than they’ve ever been
Financial markets are, in essence, one giant information processing machine. A machine that responds to new information not directly, but as it affects the decisions of millions of individual buyers and sellers. Or as Benjamin Graham famously put it, “in the short run, the market is a voting machine.”
With the S&P 500, NASDAQ, BTC, ETH, and most crypto assets significantly off of their all-time-highs, that begs the question: what information has market participants predominantly voting to sell?
In this edition of Around The Block, we take a look at the overall macro downturn with an eye towards the crypto markets.
As of June 2022, US equities have shed roughly 20%, or $10 Trillion in value. For US stocks, the selloff has not yet approached the severity of other historically noteworthy downturns, but it’s certainly in the conversation.
Crypto meanwhile, has shed nearly 60%, or $1.7 Trillion. For comparison, it shed 87% of its total market cap after the peak of the 2017 bull run.
BTC, ETH, and the NASDAQ all peaked in November, with the S&P 500 peaking at the end of December. So what changed during the last two months of the year? To understand this market downturn, it’s helpful to start at the beginning of a historic bull run that both stocks and crypto experienced in 2020.
Entering 2020, Bitcoin was rallying from the depths of the 2018/19 crypto winter, from $7,500 to nearly $10,000. Meanwhile the S&P and NASDAQ each stood at all-time highs. Then COVID hit.
COVID shock of March 2020
On March 12, 2020, the World Health Organization declared the Coronavirus a pandemic and governments around the world placed entire countries on lockdown.
As the magnitude of COVID-19 set in, it became clear that our global economy was not adequately prepared to handle the shock, sending all markets into a panic. The S&P and NASDAQ each declined around 30%, with crypto markets getting hit harder (in absolute terms). When the dust settled, BTC briefly dropped below $4,000, shedding over 60% of its value.
In short, COVID sent panicked investors to rush for the safety of cash, sending all liquid markets down sharply. Then the US Federal Reserve stepped in.
The Fed response
As the Central Bank behind the world’s largest economy, the US Federal Reserve plays a unique role in financial markets. Mainly, it controls the supply of the US dollar, which is the world’s reserve currency.
The money printer and interest rates are the Fed’s main tools for supporting the economy in times of extreme turmoil. By digitally printing money and buying financial assets like bonds from financial institutions, they can introduce new money into the economy. By lowering interest rates, they can make it cheaper for other banks to borrow money from the Fed, which also introduces new money (in the form of credit) into the economy.
After COVID, the Fed dropped the cost that banks pay to borrow money from the Central Bank, known as the Federal Funds Rate, to essentially zero. This allowed banks to, in turn, lower the cost at which their customers borrow money. These cheap loans could then be used to finance homes, businesses, spending and other investments.
By digitally printing new money and using it to buy treasury bills and other securities from financial institutions (this is known as quantitative easing), an unprecedented amount of US dollars was introduced into the economy. Over the next two years, almost 6 trillion in new money was printed, increasing the broad supply of USD nearly 40%. Awash with cash, financial institutions compete to lend this fresh capital out, forcing them to lower interest rates to remain competitive. Again, availability of cheap credit encourages borrowing, which ultimately supports the economy.
The US wasn’t alone, as the European Central Bank, Bank of Japan, and Bank of England all lowered interest rates to near (or even below zero) and printed money at historic levels. All told, the world’s four major central banks printed $11.3 trillion, which is a 73% expansion since the beginning of 2020.
On top of all that, the US Government injected over $5 trillion of “stimulus” into the economy by taking on debt from public, private, and foreign entities. Similarly, China pumped another $5 trillion into its economy through the same methods. Basically, the world became awash with fresh cash.
Don’t fight the Fed
“Don’t Fight the Fed” is an old investor mantra which implies that given the Fed’s outsized influence, one should invest in lockstep with whatever direction the Fed is moving financial markets. This mantra rang true after COVID struck in 2020.
When new money is being printed at record levels, and interest rates are near zero, all of this money and credit needs a place to go. On top of that, when rates are low, conservative instruments like bonds are less profitable, pushing money into higher yield assets. In the aftermath of COVID, these forces caused massive inflows into stocks, crypto, and even NFTs, helping push asset prices to new heights.
From their COVID panic induced bottoms, the S&P500, NASDAQ, BTC, and ETH would soar 107%, 133%, 1,600%, and 4,200% respectively.
Enter inflation
When the system is awash with money, and assets are going up, everyone feels richer. People can spend more and companies can pay their employees more. When spending and incomes increase faster than the production of goods, you have “too much money chasing too few goods,” and the price of goods rise, or inflate.
With supply chain shocks stemming from COVID lockdowns, there were even fewer goods in the economy. More money chasing even fewer goods led to even more inflation. This started to become apparent in May 2021.
The consumer price index (CPI) measures the change in prices paid by consumers for goods like gas, utilities, and food. From March to May 2021, it shot up from a healthy 2.6% to 5%. By March 2022 it hit 8% — levels of inflation not seen in over 40 years.
Inflation makes everyone poorer, because people’s money no longer buys as much as it once did, so the Fed had to step in once again. To combat rising inflation, they turn to the same tools they used to support financial assets in the first place.
Reversing course
As we explained, low interest rates and newly printed money support both the economy and asset prices. When overdone, they can also lead to inflation. When that happens, the Fed flips the switch, raises rates and removes money from the market, setting the process in reverse.
Raising interest rates ripples throughout the economy. Since it makes it more expensive for banks to borrow from the Central Bank, they in turn charge customers more to borrow money. On top of it becoming more expensive for everyone to borrow money, the price to pay for money already borrowed also goes up (think if your credit card rate jumped from 5 to 10%).
Where quantitative easing involves injecting money into the economy by buying securities from financial institutions, quantitative tightening is the opposite. First, the Fed stops buying securities while letting existing securities expire, and eventually, begins selling them on the open market. This ultimately leads to less money in the economy. Less money to lend out causes interest rates to rise due to simple supply and demand.
With the cost of borrowing and paying existing debts more expensive, everyone slows down on the spending that caused inflation in the first place. With less money being pumped into the economy via asset purchases, there’s less money chasing inflated goods, and prices in theory should normalize. There’s also less money chasing investments, which brings the price of assets down along with it — something sophisticated market participants know all too well.
The machine reacts
When inflation was hanging around 5% over the summer, the line out of the Fed was that it was “transitory,” or non-permanent. On November 3rd, 2021, the Fed said that it would start to slow asset purchases, but would be patient with any interest rate hikes as it continued to monitor inflation.
When October’s CPI of 6.2% was announced on November 10th, it became clear that inflation was not under control and that the Fed would have to intervene. While the first interest rate hike wouldn’t come until March, the great information processing machine that is the market, seemed to react at first sign that they’d likely be coming.
Don’t fight the Fed rang true once again, as BTC and ETH each peaked on November 8th, the NASDAQ on November 19th, and the S&P at the end of December.
Even the CryptoPunks floor price (a proxy for NFT sentiment) and DeFi TVL peaked during this same period.
In a nutshell
Basically, in response to COVID, Central Bank and government intervention helped keep markets afloat with record low interest rates, money printing and stimulus. These easy money policies ultimately helped propel stocks and crypto to all-time highs before leading to inflation — inflation that was exacerbated by supply chain stocks stemming from COVID lock downs in China (and later on in 2022, Russia’s invasion of Ukraine).
When it became clear that inflation was persistent and that Central Banks would have to reverse course and bring an end to the policies that propelled many assets to new heights, the macro downturn began.
The great re-rating
While we started our story at the beginning of 2020, the era of easy Central Bank monetary policies started in the wake of the 2008 Great Financial Crisis. An era that saw the birth of crypto as well as a historic run in equities.
In the face of inflation not seen in 40 years, Central Banks have signaled that the easy money era has come to an end. Previous frameworks for valuing companies and assets are no longer relevant in lieu of this shift. The value of everything has been “re-rated”, which is the downturn we’ve all experienced over the course of the last six months.
When interest rates rise, bonds become more attractive investments. Meanwhile, “growth” stocks, or companies that aren’t expected to produce dividends until many years in the future get hit the hardest. With money tighter, investors preferences shift to investments that produce cash flows today, rather than far out in the future. Thus the tech sell-off.
Crypto selloff
But wasn’t crypto supposed to be an inflation hedge? It depends. If you bought Bitcoin in May 2020 after macro investor Paul Tudor Jones famously dubbed it “the fastest horse” in a post COVID environment, you’re still up over 200% and well ahead of inflation. If you bought after inflation started to rear its head, much less so.
Even with the correction, Bitcoin and ETH are each still up 500% and 1,000% respectively from their pandemic lows. Longer tail assets have not fared as well, however, and it’s hard to deny that this time around crypto more broadly has been highly correlated with stocks — particularly tech.
Tech stocks are considered risk assets. Given the correlation, it’s fair to say that most individuals are still treating crypto similarly. Risk assets carry high upside, as well as high downside risk. When money gets tight, which is what happens when Central Banks tighten up, risk assets are often the first to get sold. That, in a nutshell, explains the recent crypto market downturn.
The Fed giveth
Have you ever wondered why market participants hang on every word of the Fed Chair? It’s because they know that the direction in which the Fed turns its dials can significantly influence markets and the economy. It can make businesses succeed or fail, and home values rise or fall.
It’s not done with malice, but with the noble aim of keeping prices stable and people employed. However, the Fed’s tools are somewhat crude, and in the hands of well meaning, but inherently fallible groups of people. It isn’t unreasonable to think it strange that the unilateral decisions of a very small group of people remain so consequential for the average person.
While crypto prices are clearly not immune to Fed policy, it should also come as no surprise that it was among the best performing asset classes over this last market cycle. Easy money policies encourage speculation, and speculation has always accompanied paradigm shifting technologies: personal computers, the internet, smartphones, and even the railroads of the 1800’s.
Additionally, Bitcoin and its hard supply of 21 million that can’t be debased by a central authority continue to stand in stark contrast to Central Bank money printers. History tells us that all centrally managed currencies fail eventually, typically from mass inflation via economic mismanagement. While this cycle has also shown that crypto is still far from without its risks and shortcomings, it also further validated the need for decentralized systems free from the risks of single-party control to co-exist with centralized counterparts. While crypto prices will remain influenced by Fed policy in the short run, in the long run, crypto and Web3 remain more alluring than ever.
Looking ahead
If this is your first crypto market downturn, it can certainly be scary. It is however, not without precedent. This market has been pronounced dead in 2018, 2015, and 2013, only to come back stronger each time.
Like the internet before it, crypto innovation marches on regardless of market cycles.
h/t Chris Dixon From our seat, crypto feels more inevitable than it’s ever been. Bitcoin has global adoption, now held by institutions, corporations, countries, and millions of individuals alike. DeFi has created the underpinnings of an internet based financial system with no single party in control. The foundations for Web3 and a user-owned internet have been laid. NFTs have birthed billion dollar industries across art and gaming with a diverse array of use cases on the way. DAO treasuries manage nearly $10B+ and are just getting started. Crypto’s real world utility has been showcased on the world stage, raising millions in aid for Ukraine following a Russian invasion.
Even the biggest detractors have come around. 9 out of 10 Central Banks are exploring digital currencies and analysts at JP Morgan have dubbed crypto a “preferred alternative asset class.” Facebook rebranded to Meta, Twitter, Spotify, TikTok and Instagram are integrating NFTs, while Google and Microsoft are each dipping their toes into Web3.
In the long run, it appears that the proliferation of the financial internet is a function of time, rather than Central Bank policy.
The weighing machine
As we mentioned, Benjamin Graham said that in the short run, the market is a voting machine. But he also said that in the long run it is a weighing machine. In the short run it’s a giant information processing machine subject to emotional swings when presented with distressing information. In the long run, it has a knack for weighing assets based on their true value.
Bitcoin and Ethereum have maintained their weight over past downturns. Many other crypto assets will be weighed accordingly over the current downturn. The job of the individual is to vote in the short run for whatever they think the market will weigh as valuable in the long run.
At Coinbase, our votes are cast on crypto, Web3, and the financial internet eventually being weighed as one of the most valuable innovations of our time.
Special thanks to Scott Meadows, David Duong, and Griffin McShane for the review!
This website does not disclose material nonpublic information pertaining to Coinbase or Coinbase Venture’s portfolio companies.
Disclaimer: The opinions expressed on this website are those of the authors who may be associated persons of Coinbase, Inc., or its affiliates (“Coinbase”) and who do not represent the views, opinions and positions of Coinbase. Information is provided for general educational purposes only and is not intended to constitute investment or other advice on financial products. Coinbase makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information on this website and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Unless otherwise noted, all images provided herein are the property of Coinbase. This website contains links to third-party websites or other content for information purposes only. Third-party websites are not under the control of Coinbase, and Coinbase is not responsible for their contents. The inclusion of any link does not imply endorsement, approval or recommendation by Coinbase of the site or any association with its operators.
The crypto market downturn explained was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Posted on June 9, 2022The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what policymakers need to…
The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what policymakers need to get right.
By Faryar Shirzad, Chief Policy Officer
Tl;dr: As negotiations on the EU’s crypto rules enter a critical phase, we’re sharing four key pillars that should be taken into consideration. The potential for the EU is enormous and Coinbase is working to inform the process and drive towards positive policy outcomes.
Leading the charge for a tailored crypto regime
The Markets in Crypto-Assets Regulation (MiCA) and Transfer of Funds Regulation (TFR), which are in the final stages of negotiation, aim to facilitate the safe and responsible use of crypto across the EU. MiCA, in particular, will be one of the first comprehensive regulatory frameworks for crypto assets globally, and will provide important legal and regulatory certainty to the market, which is so important in order for firms to invest and innovate in Europe. MiCA includes a number of important elements. The authorisation and supervisory regime, as well as the prudential, risk management, market integrity and governance requirements for CASPs, will signal to consumers which operators meet certain minimum standards. Regulation of this kind will encourage the growth of a legitimate and trusted industry of DASPs.
We believe that if well-designed and appropriately implemented, MiCA could put the EU at the forefront of the digital finance revolution and the advent of web3. However, if there are systemic flaws in the execution of the framework, it could push this uniquely innovative and empowering financial ecosystem outside the region, and deny EU regulators the ability to provide appropriate oversight over how their citizens engage with these transformational products and services.
Here are four pillars that EU policymakers should be thinking about as they debate and discuss the implementation of MiCA and TFR across the region.
1. Create common sense liability standards
There are three key provisions under consideration which will significantly raise the liability placed on Crypto Asset Service Providers (CASPs). The liability is disproportionately applied to CASPs to such an extent that they will need to decide whether they can reasonably accept such liability in order to do business in the EU. These provisions undermine the important steps the EU is taking to create a competitive, pro-innovation and tech-neutral regulatory framework for crypto assets.
Custodial liability
MiCA should ensure that CASPs are only liable for events that are in their control. Current texts imply much broader liability for events that are outside the CASP’s control, such as cyber attacks. Moreover, the burden of proof should not fall on the CASP to show the event occurred independently of their operations. Legal clarification is needed to enable CASPs to offer investors the best protection available, with appropriate liability.
Liability for the accuracy of Whitepapers
CASPs should have a responsibility for implementing a sound and proper asset listing process. Moreover, it is important that, going forward, issuers produce whitepapers for assets, so that investors understand the risks. However, making CASPs liable for the accuracy of whitepapers they do not themselves publish and creating a mandatory requirement to publish a whitepaper where one does not exist, is impractical. This is particularly true for assets that are already listed, which is why grandfathering provisions are so important. The inevitable effect of such a provision would be CASPs limiting their service offering in the EU to reduce their liability. These whitepaper liability requirements could kill competitiveness for smaller players, dramatically reduce consumer protection (as the trading of crypto assets would shift from regulated EU platforms to unregulated third country platforms), and position the EU as unwelcoming to web3 entrepreneurs.
Liability for the redemption of E-Money Tokens
Third parties, including CASPs, should not be liable for the redemption of e-money tokens where the issuer fails to redeem. This would be like making banks liable for volatility in global currency markets. The inclusion of any provision stating otherwise would essentially constitute an indirect trading ban on e-money tokens. Exchanges will not be willing to offer EMTs unless they are certain of the issuer’s ability to honor redemption obligations.
2. Create common sense privacy solutions for crypto
Obligating exchanges to collect, verify and report information on non-customers using self-hosted wallets (SHWs) is prohibitive to business and damaging to consumers. The requirement on exchanges to not only collect this data, but to also verify its accuracy before allowing a transfer to or from one of their customers, is a near impossible task. In fiat terms, it would basically mean you cannot receive or take money out of your bank account to send to someone else until you share personal data with your financial institution about that person and verify their identity. Not only is this collection and verification requirement a hugely burdensome measure, it runs counter to the EU’s core data protection principles of data minimization and proportionality.
3. Create clear definitions regarding NFTs
MiCA should not apply to “non-fungible tokens” (NFTs) and utility tokens. By including these assets within MiCA, many of which take the form of art and creative content, policymakers would be extending the scope of regulated “financial” assets far beyond the norm.
4. Address sustainability issues separately and thoughtfully
The EU is currently bringing forward a range of environmental and sustainability initiatives. These issues are extremely important and should be addressed through bespoke and appropriately tailored legislation — not MiCA. They require their own process, consultation, and industry engagement.
Path ahead
We urge EU policymakers finalizing the MiCA and TFR proposals to take the above considerations into account and to take their time developing these highly technical and complex frameworks. This is a pivotal moment for the EU to provide global leadership and to set the standard that will enable a safe, accessible, and innovative cryptoeconomy in Europe. Let’s get it right.
The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what policymakers need to… was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
