Coinbase is a weird company, because it's got such an obvious comparable: CME Group. CME Group has about 3500 employees, did 1.2bn in revenue last quarter with 680m net income. Then you have coinbase now trimmming to about the same number 3500, 590m revenue and a net income loss of 550m. That's right, as far as I can see, Coinbase loses $1 for every $1 of revenue.
Firstly, I don't see how Coinbase needs as many people as CME. They're meant to be a disruptive start up they should be lean. Secondly, how the hell do they get those unit economics to work? It should be a trivial job, right. People pay you to trade, so how are they losing so much money!? Well, I guess hiring 4,500 people... I think the idea at this point that Coinbase can get their cost structure down to reasonable numbers making them profitable at lower revenue levels is challenging. It's very hard to put that genie back in the bottle.
>Coinbase is a weird company, because it's got such an obvious comparable: CME Group. CME Group has about 3500 employees, [...] Firstly, I don't see how Coinbase needs as many people as CME.
Coinbase isn't a direct comparable to CME because CME only does the exchange function.
Coinbase combines several different types of financial institutions in the crypto space:
+ exchange : order matching engine of buy & sell -- analogous to NYSE/NASDAQ/CME
+ broker : custodian of customers' margin accounts -- like Schwab, Vanguard, Fidelity, etc
+ bank : digital wallet and loans with customers' crypto as collateral -- like JP Morgan, Bank of America
+ ecommerce payments : analogous to PayPal/VISA/MC
Even though CME deals with trading corn commodities, it is not a bank for people to use corn as collateral. Therefore a corn farmer can't go to the CME and get a loan and pay it back when he sells his crop harvest.
Regardless of all the various financial areas they're in, Coinbase got overstaffed (like many other tech companies overhired) and so they're making aggressive cuts.
The AML stuff is expensive even for the investment industry which unlike crypto, isn't perfectly catered to hackers, scammers and money launderers. I'm guessing AML and support is big a cost area for COIN. This is just speculation as i don't have time to read their public papers.
Take a look at the Coinbase Subreddit to see how many suckers are getting hacked, scammed, locked out for AML reasons on any given day and getting their lawyers to write legal threats to Coinbase. Responding to this all costs money and it's where the Binance model of avoiding AML responsibilities and hiring outside US is superior (until it isn't, when execs end up in a US prison).
There was a lot of hype and an expectation (IMO wishful thinking) that NFTs would have a very broad penetration in the society, for example replace physical collectibles. If that did turn out to be true, most people would require a lot of handholding for taxes, complex global regulation, etc. which the Coinbase would provide, as well as collecting the exchange fees.
Under this premise it is reasonable to hire up to build this framework if the investors are willing to foot the bill during the discovery phase. I am not saying this is prudent, just that it is a consistent story that they sold.
This is not unique to crypto: biotech startups are raising billions a pop in a Series B (not a joke) promising to use generative AI to find miracle drugs.
Two issues here with the comparison. First Coinbase isn't just an exchange in the sense that the CME is an exchange. Coinbase is an exchange, a clearinghouse, a custodian, a broker dealer, a prime brokerage, and a user platform. When you want to trade on CME, you don't just go to CME dot com, open an account with them, and have them hold your money. There's layers of other service providers, with CME itself basically being a B2B platform that also offloads much of the banking and custody to other institutions.
Second, Coinbase has ambitions beyond just being an exchange and that's driven a lot of hires. It runs Coinbase Ventures, Coinbase Cloud, an NFT platform, develops tooling (e.g. Coinbase Wallet), and contributes to crypto protocols. A lot of the recent hiring was driven by these "other bets".
Do you mean CME as the Chicago Mercantile Exchange? That's an exchange that deals with 10s of thousands of securities and derivatives, coinbase only deals with a handful of coins. On the other hand coinbase is also broker, which operates not just in the US but in dozens of countries, with KYC on every customer, lots of different regulators, etc. Not that much comparable I would think.
Is there something in market-making technology (or otherwise) that sets them apart from any other modern exchange? Could they pivot into trading pork bellies (or tokens thereof)?
My best guess is that raising funding helps raise the valuation, especially as they approach IPO. So raise money for the sake of raising the valuation.
You don’t really need the money, but you got it. What are you going to do with it to appease the investors? Well you gotta act like you are doing something with it, especially something that shows growth.
Hire more. Hire more because we imagine more. Keep imagining until imagining doesn’t work anymore. Then fire, and say sorry. Hopefully you sold enough equity at the ridiculous ipo price.
Despite numerous wrong turns and silly mistakes, Coinbase is looking more and more as the lonely survivor positioned to dominate crypto trading in the West.
The company has lots of cash on hand in excess of corporate debt, almost no short-term corporate debt, customer assets backing all customer deposits, and as far as I can tell from a quick read of the latest quarterly report, a clean balance sheet with no red flags.
If the crypto market recovers from the latest crash, which is what has happened after all previous crashes in the past, Coinbase stands to win big.
They've already survived two crypto winters as well before this one, so they've already had experience and gotten to see what works and what doesn't, and have structured their company accordingly. I think if any crypto company deserves to survive this crypto winter, they're probably the most deserving.
Yet, I have an issue with my business account and their support has ghosted me. They kept responding with form letters and I kept telling them they weren't reading my emails, then they stopped. I'm just trying to add a business debit card to a business account. I get an error message that says "business cards are not supported" and their support tells me I have a personal account. What a mess. It's been 3 weeks now.
We should go fully decentralised for the future, with fiat/crypto done at retail scale. Unfortunately there is a huge lobby of banks and government that want to monitor people spending money to make it happen.
They literally had people with 1-2 years of experience conducting interviews last I remember. They were on an unhinged hiring spree before they ipo’d, so this was coming no matter what.
I spent most of the last two years working on an NFT anti-fraud solution[0].
My two prior startups were (essentially) in telecom and healthcare. Coming from these well established, highly regulated, somewhat legacy industries to "crypto"/NFTs/web3 was a very interesting experience, to say the least. Users/potential customers for our solution ranged from creators to marketplaces to collectors/investors. Several very general and broad observations:
1) The anonymous/pseudo anonymous nature of the space is bizarre. I would have multiple voice-only meetings with people using aliases and avatars for all communications. To this day I only know some people as "Mango Man" or whatever. Meeting people who could just burn down an entire identity and start fresh when things go sideways is an indicator of the nature of the space.
2) There is a general lack of "adults in the room". I would get on a call with the Founder/CEO of a marketplace or project that was valued (at least) in the > $100m range and hear and see things that were horrifying. My final breaking point was a call with the founder of a well known highly valued NFT marketplace who showed up (Tuesday morning, 10 AM) obviously high on some sort of stimulant. Within the first five minutes of the call they repeated their mantra of "I'm just trying to get made, paid, and laid" several times. They spent the remainder of the (very brief) call describing all kinds of things I'm pretty sure are illegal. On an introductory call.
3) The fraud and overall criminality is well beyond what is publicly known from FTX, Celsius, web3 is going great, etc. The most common reply regarding our solution was along the lines of "Why would we want this? We make our money on fraud". I was frequently reminded me of the scene in The Big Short when they talk to mortgage brokers and come away saying "Why are they confessing?" with the response being "They're not confessing, they're bragging".
4) Any semblance of professionalism and basic standards is generally non-existent. A HEAD OF LEGAL for a well known exchange (Superbowl commercial) would say and post things on LinkedIn that would get you terminated immediately in any other field. Daily.
5) The more technical startups/partners (infrastructure providers, etc) were generally the best to work with. However, the profiles of the founders and team were interesting - many of them had 1-2 years of junior experience at a FAANG (for better or worse).
6) VC in the space is even more wild than what has been reported in the media. I'll just leave this one at that.
7) Many people in the space seemed to just appear from nowhere. Like some of the technical founders with 1-2 years of junior experience and SBF who had a few years doing something at Jane Street I often times couldn't figure out where these people came from or why/how they were here. Of course this is common in tech (from Google to Facebook founders often "appear out of nowhere") but it was still extremely bizarre for SBF type characters to be dealing with hundreds of millions or billions of dollars of other people's money with either no reputation/background or a shady one.
8) In my 25 years of experience I've never dealt with a more generally unimpressive group of people. After nearly two years in the space, meeting hundreds of people, there are only a handful I want to maintain any sort of personal or professional relationship with.
With my background I knew I would experience some culture shock (for lack of a better term) entering a space that was still (after 14 years) the Wild West. What I experienced was (almost universally) so beyond the pale I finally ran away screaming. I spent more and more of my time and energy attempting to motivate myself and the team by focusing on our efforts to do good in the space but after all of this no amount of rationalizing could make up for the cesspool I was living in every day. Like the famous saying goes - "If you think you might be depressed, first make sure you're not just surrounded by assholes".
Basically, what I'm saying is, when I see the unbelievable-to-most FTX (and other) stories unfolding in the media all I can think is "Yep, sounds about right". When I see stories like this and people asking "What are all of these people doing?" I can firmly respond with either "I have no idea" or "Trying to manage this crazy world takes a lot of people". Thankfully I'm not in the space any longer but as shoes keep dropping left and right I don't think I could be surprised by anything anymore.
"Therefore, I've made the difficult decision to reduce our operating expense(1) by about 25% Q/Q, which includes letting go of about 950 people
(..)
(1) Comprising Sales and Marketing Expenses, Technology and Development + General & Administrative Expenses, including stock-based compensation and excluding restructuring expenses and Other operating expenses"
(..)
In futher news, highly recommend Ben Thompson's recent interview with Brian Armstrong.
There it is. Rings incredibly hollow when the same line was trotted out just a few months ago with zero impact or meaning behind the statement, given it clearly didn't change anything.
While 20% is a lot - how far back does this bring the headcount? A lot of these companies have what seem to be large reductions in staff but are more of a correction of insane hiring sprees.
Coinbase may or may not be a good company. I have no idea.
What I do know is that they have a lot of things working against them:
- Money is not cheap anymoore
- Their market is collapsing.
I don't see how a company makes it through. Even if they navigate the present environment and manage to finance the company through the new few years, they may do so in to an ultimately collapsing market.
There is no reason to assume that crypto trading will exist in any meaningful way in the next few years. (It may, sure. You may believe, yes. Are there any clear indicators that it will stabilize and grow? No there are not.)
I'm curious what coinbase leadership has done to try and innovate in this space. they had this proclaimed vision of democratizing finance but they're just letting people buy and sell crypto.
There was a time when disruptive startups were small and lean. Now they are overhired. It’s fault of this crazy VC world where you are pushed to grow at all costs.
I am bullish on bootstrapped startup for next years.
Hopefully this pivot allows them to realize promoting altcoins like Doge will not take them very far, and go deeper on the Lightning Network integration to enable their customers to move funds and use apps made on L2/Nostr
[+] [-] SilverBirch|3 years ago|reply
Firstly, I don't see how Coinbase needs as many people as CME. They're meant to be a disruptive start up they should be lean. Secondly, how the hell do they get those unit economics to work? It should be a trivial job, right. People pay you to trade, so how are they losing so much money!? Well, I guess hiring 4,500 people... I think the idea at this point that Coinbase can get their cost structure down to reasonable numbers making them profitable at lower revenue levels is challenging. It's very hard to put that genie back in the bottle.
[+] [-] jasode|3 years ago|reply
Coinbase isn't a direct comparable to CME because CME only does the exchange function.
Coinbase combines several different types of financial institutions in the crypto space:
+ exchange : order matching engine of buy & sell -- analogous to NYSE/NASDAQ/CME
+ broker : custodian of customers' margin accounts -- like Schwab, Vanguard, Fidelity, etc
+ bank : digital wallet and loans with customers' crypto as collateral -- like JP Morgan, Bank of America
+ ecommerce payments : analogous to PayPal/VISA/MC
Even though CME deals with trading corn commodities, it is not a bank for people to use corn as collateral. Therefore a corn farmer can't go to the CME and get a loan and pay it back when he sells his crop harvest.
Regardless of all the various financial areas they're in, Coinbase got overstaffed (like many other tech companies overhired) and so they're making aggressive cuts.
[+] [-] wolongong942|3 years ago|reply
Take a look at the Coinbase Subreddit to see how many suckers are getting hacked, scammed, locked out for AML reasons on any given day and getting their lawyers to write legal threats to Coinbase. Responding to this all costs money and it's where the Binance model of avoiding AML responsibilities and hiring outside US is superior (until it isn't, when execs end up in a US prison).
[+] [-] totetsu|3 years ago|reply
[+] [-] rco8786|3 years ago|reply
When has this ever been a thing? They raised tons of money in huge valuations and used it to hire a boatload of people. Tale as old as time.
Agree with the rest of your post though, it’s unclear what their endgame was/is to get into the black.
[+] [-] ptero|3 years ago|reply
Under this premise it is reasonable to hire up to build this framework if the investors are willing to foot the bill during the discovery phase. I am not saying this is prudent, just that it is a consistent story that they sold.
This is not unique to crypto: biotech startups are raising billions a pop in a Series B (not a joke) promising to use generative AI to find miracle drugs.
[+] [-] dcolkitt|3 years ago|reply
Second, Coinbase has ambitions beyond just being an exchange and that's driven a lot of hires. It runs Coinbase Ventures, Coinbase Cloud, an NFT platform, develops tooling (e.g. Coinbase Wallet), and contributes to crypto protocols. A lot of the recent hiring was driven by these "other bets".
[+] [-] cm2187|3 years ago|reply
[+] [-] dwighttk|3 years ago|reply
Huh, I would call that ~$2 lost for every $1 of revenue.
[+] [-] rvnx|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] makestuff|3 years ago|reply
[+] [-] college_physics|3 years ago|reply
[+] [-] LatteLazy|3 years ago|reply
[+] [-] tempsy|3 years ago|reply
a company like Coinbase needs hundreds if not thousands of support staff like a retail bank would that scales with the total active customer base.
the total number of employees doesn’t tell you how many are in a support function.
[+] [-] davidgerard|3 years ago|reply
they have IPOed and insiders continue to exit as fast as possible
[+] [-] rattlesnakedave|3 years ago|reply
For one, they do much more than CME.
[+] [-] ThrowawayTestr|3 years ago|reply
[+] [-] jesuscript|3 years ago|reply
You don’t really need the money, but you got it. What are you going to do with it to appease the investors? Well you gotta act like you are doing something with it, especially something that shows growth.
Hire more. Hire more because we imagine more. Keep imagining until imagining doesn’t work anymore. Then fire, and say sorry. Hopefully you sold enough equity at the ridiculous ipo price.
Sorry, but not sorry.
[+] [-] kenniskrag|3 years ago|reply
[+] [-] cs702|3 years ago|reply
The company has lots of cash on hand in excess of corporate debt, almost no short-term corporate debt, customer assets backing all customer deposits, and as far as I can tell from a quick read of the latest quarterly report, a clean balance sheet with no red flags.
If the crypto market recovers from the latest crash, which is what has happened after all previous crashes in the past, Coinbase stands to win big.
[+] [-] Sohcahtoa82|3 years ago|reply
Because it feels like they're the only ones that stay legit while also seeming to take security quite seriously.
Everyone else is either a scammer or gets hacked, and I'm convinced at least half of the "hacks" are inside jobs.
[+] [-] cableshaft|3 years ago|reply
[+] [-] msoad|3 years ago|reply
[+] [-] jxm262|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] e40|3 years ago|reply
[+] [-] Kukumber|3 years ago|reply
Coinbase also is 10x less volume than Binance [2]
You have all of this, then the press who keep advertise them despite the poor metrics, something doesn't sound right
I think it's fair to say people made their choice and the choice is Binance
The narative can't be forced like with other industries, unless you get help from the press and push some FUD, hmm
Or with the help of the CIA with FTX as a poison aimed at Binance, hmm
[1] - https://www.justice.gov/usao-sdny/pr/three-charged-first-eve...
[2] - https://coinmarketcap.com/rankings/exchanges/
[+] [-] hgsgm|3 years ago|reply
[+] [-] charlieyu1|3 years ago|reply
[+] [-] jesuscript|3 years ago|reply
[+] [-] johnvanommen|3 years ago|reply
I interviewed at a place where 75% of the interviewers didn't show up.
The only dude who did, had started the day before...
[+] [-] kkielhofner|3 years ago|reply
My two prior startups were (essentially) in telecom and healthcare. Coming from these well established, highly regulated, somewhat legacy industries to "crypto"/NFTs/web3 was a very interesting experience, to say the least. Users/potential customers for our solution ranged from creators to marketplaces to collectors/investors. Several very general and broad observations:
1) The anonymous/pseudo anonymous nature of the space is bizarre. I would have multiple voice-only meetings with people using aliases and avatars for all communications. To this day I only know some people as "Mango Man" or whatever. Meeting people who could just burn down an entire identity and start fresh when things go sideways is an indicator of the nature of the space.
2) There is a general lack of "adults in the room". I would get on a call with the Founder/CEO of a marketplace or project that was valued (at least) in the > $100m range and hear and see things that were horrifying. My final breaking point was a call with the founder of a well known highly valued NFT marketplace who showed up (Tuesday morning, 10 AM) obviously high on some sort of stimulant. Within the first five minutes of the call they repeated their mantra of "I'm just trying to get made, paid, and laid" several times. They spent the remainder of the (very brief) call describing all kinds of things I'm pretty sure are illegal. On an introductory call.
3) The fraud and overall criminality is well beyond what is publicly known from FTX, Celsius, web3 is going great, etc. The most common reply regarding our solution was along the lines of "Why would we want this? We make our money on fraud". I was frequently reminded me of the scene in The Big Short when they talk to mortgage brokers and come away saying "Why are they confessing?" with the response being "They're not confessing, they're bragging".
4) Any semblance of professionalism and basic standards is generally non-existent. A HEAD OF LEGAL for a well known exchange (Superbowl commercial) would say and post things on LinkedIn that would get you terminated immediately in any other field. Daily.
5) The more technical startups/partners (infrastructure providers, etc) were generally the best to work with. However, the profiles of the founders and team were interesting - many of them had 1-2 years of junior experience at a FAANG (for better or worse).
6) VC in the space is even more wild than what has been reported in the media. I'll just leave this one at that.
7) Many people in the space seemed to just appear from nowhere. Like some of the technical founders with 1-2 years of junior experience and SBF who had a few years doing something at Jane Street I often times couldn't figure out where these people came from or why/how they were here. Of course this is common in tech (from Google to Facebook founders often "appear out of nowhere") but it was still extremely bizarre for SBF type characters to be dealing with hundreds of millions or billions of dollars of other people's money with either no reputation/background or a shady one.
8) In my 25 years of experience I've never dealt with a more generally unimpressive group of people. After nearly two years in the space, meeting hundreds of people, there are only a handful I want to maintain any sort of personal or professional relationship with.
With my background I knew I would experience some culture shock (for lack of a better term) entering a space that was still (after 14 years) the Wild West. What I experienced was (almost universally) so beyond the pale I finally ran away screaming. I spent more and more of my time and energy attempting to motivate myself and the team by focusing on our efforts to do good in the space but after all of this no amount of rationalizing could make up for the cesspool I was living in every day. Like the famous saying goes - "If you think you might be depressed, first make sure you're not just surrounded by assholes".
Basically, what I'm saying is, when I see the unbelievable-to-most FTX (and other) stories unfolding in the media all I can think is "Yep, sounds about right". When I see stories like this and people asking "What are all of these people doing?" I can firmly respond with either "I have no idea" or "Trying to manage this crazy world takes a lot of people". Thankfully I'm not in the space any longer but as shoes keep dropping left and right I don't think I could be surprised by anything anymore.
[0] - https://fnftf.io/
[+] [-] dwighttk|3 years ago|reply
I haven’t been able to find a view that shows a downward trend since…
[+] [-] brunorsini|3 years ago|reply
"Therefore, I've made the difficult decision to reduce our operating expense(1) by about 25% Q/Q, which includes letting go of about 950 people
(..)
(1) Comprising Sales and Marketing Expenses, Technology and Development + General & Administrative Expenses, including stock-based compensation and excluding restructuring expenses and Other operating expenses"
(..)
In futher news, highly recommend Ben Thompson's recent interview with Brian Armstrong.
[+] [-] drstewart|3 years ago|reply
There it is. Rings incredibly hollow when the same line was trotted out just a few months ago with zero impact or meaning behind the statement, given it clearly didn't change anything.
[+] [-] _hcuq|3 years ago|reply
[+] [-] TekMol|3 years ago|reply
If the Coinbase app supported it, that would allow all of the Coinbase users to do real decentralized micropayments.
Any theories, why they don't do that?
[+] [-] odiroot|3 years ago|reply
[+] [-] ushakov|3 years ago|reply
read that again
you're not an individual to corporations, just an expendable
can only imagine the joy shareholders get out of "cutting expenses", they get richer and you peasants lose jobs
[+] [-] mupuff1234|3 years ago|reply
Coincidence? I think not.
[+] [-] EZ-E|3 years ago|reply
[+] [-] jmacd|3 years ago|reply
What I do know is that they have a lot of things working against them: - Money is not cheap anymoore - Their market is collapsing.
I don't see how a company makes it through. Even if they navigate the present environment and manage to finance the company through the new few years, they may do so in to an ultimately collapsing market.
There is no reason to assume that crypto trading will exist in any meaningful way in the next few years. (It may, sure. You may believe, yes. Are there any clear indicators that it will stabilize and grow? No there are not.)
[+] [-] nfRfqX5n|3 years ago|reply
[+] [-] leoplct|3 years ago|reply
I am bullish on bootstrapped startup for next years.
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] noelsusman|3 years ago|reply
Unemployment in the US is currently at its lowest level in 50 years. What economic downturn are they referring to?
[+] [-] jononomo|3 years ago|reply
[+] [-] saos|3 years ago|reply
I guess all companies are making cuts before new fiscal year? Survive this month and maybe you're ok for time being?
[+] [-] LAMike|3 years ago|reply