Crypto is eating the world.
Today, Coinbase goes public. The numbers are absurd:
- 56M users
- $7.2B revenue rate
- 11.3% of all crypto on platform
...And yet, despite that traction, the exchange is a series of paradoxes.
Here's what's going on 👇
readthegeneralist.com/briefing/coinb…
1/
Christmas Day, 2009.
Brian Armstrong stumbles on a paper, written by someone called Satoshi Nakamoto.
"Bitcoin: A Peer-to-Peer Electronic Cash System"
Armstrong spends all day reading it, again and again.
2/
Over the next 3 years, the crypto-mind-virus works on Armstrong's brain.
He spends more and more time on bitcoin message boards. On one, he meets Ben Reeves, a programmer in the UK.
They decide to start a company.
3/
The idea is simple:
"Coinbase" is a simple bitcoin wallet and payment platform.
The pair apply to Y Combinator to get funding and support.
4/
They're accepted.
A few days before the program starts, Armstong sends Reeves an email...
5/
"Cofounding is really like a marriage. Even though I think we have mutual respect for each other, we don't work together extremely well."
Reeves had just been dumped.
Some suggest YC's partners persuaded Armstrong to make the move.
It proved to be the right call.
(Aside)
Things turned out just fine for Ben Reeves.
He went on to found Blockchain[.]com another crypto exchange. It bears more than a passing resemblance to Coinbase.
6/
It was only after Armstrong graduated from YC that he found the perfect co-founder.
Fred Ehrsam.
A former Goldman Sachs banker looking for his next move.
7/
They balanced each other out.
Armstrong was technical and introverted.
Ehrsam was business-minded and charismatic.
Together, they made a strong pair. Ehrsam's traditional finance background added an air of legitimacy.
8/
They found it hard to raise their seed round.
Bitcoin was so niche, trading at $15.50 a coin.
They found their true believers:
@garrytan
@alexisohanian
@AdamDraper
@gregkidd
@BarrySilbert
Credit to these investors.
9/
It would never be so hard for Coinbase to raise again.
- 2013: $6M from USV
- 2013: $25M from a16z
- 2015: $75M from DFJ
- 2017: $108M from IVP
In total, Coinbase has raised at least $850B.
(Aside)
As you'd expect, many of those investors hold large stakes today.
Over 5% stakeholders:
- a16z
- Paradigm
- Ribbit
- Tiger
- USV
-Viserion
10/
The secular rise of crypto boosted Coinbase, of course.
But it would be wrong to discount the team's execution. They made a few key decisions:
1. Usability > Power
2. Safety > Speed
3. Permission > Forgiveness
Let's unpack those.
11/
Coinbase has made *usability* central to its product.
It has succeeded in being the easiest-to-use exchange, perfect for crypto novices.
They could have easily gone in another direction and built for power-users.
12/
Coinbase has chosen *safety* over speed.
Compare the trajectories of Coinbase and Binance.
Binance adds new assets at an insane rate. But the company doesn't really care about the legitimacy of these coins.
Coinbase moves slower, vetting more carefully.
(Aside)
This was a key disagreement at Coinbase during Balaji Srinivasan's term as CTO.
Apparently, Srinivasan constantly pushed for Coinbase to prioritize adding currencies, while COO Asiff Hirji wanted to the company to focus on serving institutions.
13/
Coinbase has played nice with regulators choosing to ask for *permission* rather than beg for forgiveness.
The focus on building a regulatory "moat" really began in 2015, with Coinbase bringing talent like Brian Brooks onboard, an EVP from Fannie Mae.
14/
Taken together, these decisions established Coinbase as:
1. The on-ramp for crypto n00bs
2. The trusted partner for institutions
$COIN's product sprawl reflects that positioning with a full-suite of offerings for consumers and enterprises.
15/
So, what do the numbers look like?
Very impressive.
Coinbase mostly makes money on trading fees. Crypto mania has made this a particularly active time to trade BTC et al.
- $1.8B in Q1 revenue
- 39% EBITDA margin
- Solid growth despite currency fluctuations
16/
That last point is *key.*
Coinbase's fortunes are tied to crypto's. Users flee when markets tank.
Buyers today should recognize that crypto enthusiasm has never been higher.
It might not stay that way.
17/
Investors might also worry about competition.
- Binance has more volume and more assets
- Kraken is a strong domestic opponent
- Robinhood has a crypto offering
- Square has BTC buying
Traditional finance and fintech both want a piece of this.
18/
Perhaps the final major concern?
Management.
Armstrong has clearly executed remarkably. And yet, doubts remain...
19/
Armstrong has allowed internal strife to flourish multiple times...
1. Balaji and Asiff's battle created huge rifts.
2. The acquisition of Neutrino was damaging
3. Stance on BLM led to critical resignations
(Aside)
I am surprised the Neutrino story has not received more coverage.
A refresher: $COIN acq.the blockchain analytics co in 2019.
Neutrino's founders also ran HackingTeam, a truly hateful blackhat group working for dictatorships & cartels.
C'mon, Brian.
(I think I could have kept this thread going for another 30 tweets but Twitter is cutting me off. Probably a good idea 😂)
I'll end with this: Coinbase is an endlessly fascinating company and this was my favorite S-1 Club.
I hope you'll give it a read.
readthegeneralist.com/briefing/coinb…
Epilogue:
I have to give *so* much credit to the people that contributed to this piece. I'm really proud of our work.
@jillruthcarlson
@katherineykwu
@_RJTodd
@AdamDraper
@LexSokolin
@michaelsidgmore
@BlockBytch_
@max_heald
@MarcRuby
@dlwei17
@iankar_
Ballers.
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