This week saw mixed fortunes for Coinbase. The company attracted attention with several announcements, including the news it will offer 1.25% interest on its USDC stablecoin and the introduction of a new banking agreement for faster deposits and withdrawals for UK customers.
However the exchange also faced backlash over a massive fee increase for retail customers on Coinbase Pro and drew scepticism over its Crypto Ratings Council initiative, run in collaboration with other major exchanges.
In other news, Brave proposed the addition of a decentralised VPN (dVPN) service to its popular browser, an Algorand-focused VC fund was hacked for $2 million, a16z announced the launch of a Crypto Startup School, BitTorrent’s decentralised file sharing protocol went live, and Charles Hoskinson is prepared to eat a shoe…if an important deadline is missed.
Tim Cook Dismisses AppleCoin Prospect
Apple CEO Tim Cook has rules out the idea that the company could follow Facebook’s lead in issuing its own cryptocurrency, stating that responsibility for currency issuance is best retained by central banks and governments. His comments extinguished speculation that resulted from earlier remarks by the head of Apple Pay that the company was “watching” developments in crypto.
PayPal Withdraws From Libra
PayPal, one of several major corporations originally announced as supporters of Facebook’s Libra, has backed away from the project following the intense regulatory scrutiny the proposal has received. It was anticipated that PayPal would maintain one of the network’s nodes. Focus is now on whether fellow payments services Visa and Mastercard will follow suit is distancing themselves from the project.
Maker Devs Catch Critical Bug
Developers working on the MakerDAO Multi-Collateral Dai (MCD) upgrade managed to fix a flaw that could have resulted in 7 million DAI being drained from the project’s smart contract. The flaw was found by a hacker on the bug bounty platform HackerOne. The launch of MCD is hotly anticipated due to the popularity of Maker’s existing (single collateral) contract, which has been one of the success stories of the DeFi movement.
Who Is Coinbase Competing With?
With the anticipation of a cyclical flux of new crypto investors, both retail and institutional, ready to enter the space, competition among exchanges is decidedly fierce. This week, Coinbase – long the most popular crypto wallet and fiat on-ramp for retail investors – surprised users with the news it significantly raising fees on its Coinbase Pro platform.
This stands in stark contrast to its competitor Binance, which announced recently its offering zero fees for U.S. customers for the next three months to celebrate the launch of its new US platform.
The Coinbase announcement understandably drew ire from everyday crypto investors, who will now face fees up to 0.5% for buying and selling crypto. It was not so long ago that the company offered zero fees, both for makers (who add bids to the order book) and takers (who fill the order book bids), on the platform.
For retail customers, this provided several options for buying assets – either they could transfer their funds to Coinbase.com and ‘buy now’, getting instant access to assets but at the cost of ‘paying the spread’ (the difference in price between buys and sells) as well paying an additional service fee. Or, they could transfer their funds to Coinbase Pro, where they could place a buy order to get the asset at the price they wish to pay, without incurring any additional costs.
Now, it appears, Coinbase is placing a clear separation between the two platforms, with Coinbase.com being positioned as the venue for retail. This strategy has been in place for a while, with the addition of several altcoins, including Chainlink, BAT and Stellar, to give less experienced investors easy access to such assets.
It is also introducing auxiliary services such as interest payments on USDC and education through Coinbase Earn in order to help bed more new users into the new world of crypto. In this respect, it is competing with both traditional retail banks, currently burdened by the low-interest macro environment, and with Binance, which has strong brand awareness among existing crypto users but may be seen as a ‘riskier’ option for those new to the space.
With Coinbase Pro, it has shifted emphasis towards institutions, giving them a platform where they are rewarded for large volumes with low fees, supported by its new Custody solution following the acquisition of Xapo Custody in August. In this respect, Coinbase is competing with the newly launched Bakkt exchange, although there is as yet no suggestion Coinbase Pro will be adding margin trading or futures any time soon.
The question, of course, is whether Coinbase serves either of these distinct user groups well enough that they would make Coinbase their primary venue. Fiat on-ramp aside, retail users with a base level of experience would still typically prefer to use Binance over Coinbase due to both the vast range of assets Binance offers and the higher volumes that exist, even despite U.S. users being migrated to a new platform.
Institutional traders are in a similar boat. They want access to a wide range of institutional-grade products, such as margin or indexes, for which they may be better served at Bakkt, BitMEX (regulatory issues notwithstanding) or a newer competitor such as FTX. Even Binance is moving into this area with the launch of its Binance Futures product, which is seeing encouraging uptake.
The risk for Coinbase is that in seeking to segregate their users into two broad buckets, they risk losing differentiation. Too vanilla for one user group, too basic for the other. In short, by trying to compete with everyone they ultimately compete with no one.
Tweets of the Week
Viktor Bunin finds a connection between the fall of a major clothing retailer and crypto’s most famous fixed supply asset:
Forever 21 could have been a great Bitcoin brand.
— Viktor Bunin (@ViktorBunin) October 1, 2019
Hashgraph’s Brady Gentile pokes fun at PayPal’s withdrawal from Libra:
I heard it’ll take 3-5 business days tho https://t.co/IA2URwZSxf
— Brady (@Bmgentile) October 4, 2019
Alex Libertas notes that John McAfee’s new DEX isn’t quite up to security standards:
— Alex Libertas (@alexlibertas_) October 6, 2019
The Week’s Best Content:
Recommendation 1 – So you want to build a crypto startup?
Esteemed VC Hasseb Qureshi shares some valuable advice with aspiring crypto entrepreneurs, covering everything from knowledge-building and finding the killer idea, through to fund raising and go-to-market strategy.
Recommendation 2 – James Prestwich appears on On the Brink with Castle Island
Castle Island Venture’s Nic Carter interviews James Prestwich, a developer with rare expertise in working across Bitcoin, Ethereum and several other blockchains. The pair discuss interoperability and cross-chain assets.
Recommendation 3 – DeFi Summit videos
Miss this year’s DeFi Summit? Videos from the presentations have now been posted online. Watch to find out about some of the most innovative products being built in the space, including talks by UMA, Set Protocol and 0x.
Ethereum London October Keynote
Wednesday 9 October, 7pm
Have you been following the BBC’s popular The Missing Cryptoqueen podcast series? If so, you may want to make your way to Imperial College on Wednesday to see the show’s presenter and producer discuss the background to their OneCoin investigation.