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This week on the Source Code podcast: Hirsh Chitkara on Bumble's big IPO, Anna Kramer on Libby and the future of digital books, and Tomio Geron on PayPal's plan to win the future of finance.
For more on the topics in this episode:
- Hirsh on Twitter
- Bumble's IPO: Everything you need to know
- Anna on Twitter
- Libby is stuck between libraries and e-book publishers
- Tomio on Twitter
- PayPal wants to be an all-in-one super app. It has its work cut out.
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Everything you need to know about the Coinbase direct listing
Coinbase's IPO valuation could be the largest by a U.S. tech company since Facebook went public.
Coinbase will go public on Feb. 25.
Jane Seidel is Protocol's social media manager. She was previously a platform producer at The Wall Street Journal, creating mobile content and crafting alert strategy. Prior to that, she worked in audience development at WSJ and on digital editorial at NBC Universal. She lives in Brooklyn.
Coinbase, the cryptocurrency exchange, filed its S-1 on Feb. 25 to go public via direct listing on Nasdaq. In the lead-up to the IPO, Coinbase shares traded on the Nasdaq Private Markets at $373, yielding a company valuation of over $100 billion, per Axios. If share prices remain at or above these levels, Coinbase's IPO valuation could be the largest by a U.S. tech company since Facebook went public in 2012. The company hasn't yet set a date for its trading debut.
Depending on who you ask, the Coinbase IPO could be the latest symptom of a major financial bubble or a significant milestone in the restructuring of the global financial system. Coinbase's mission is to "create an open financial system to the world." It believes the prevailing system of global finance, with the U.S. dollar serving as the global reserve currency, is outdated and inefficient. This mission pits the interests of Coinbase squarely against many of the world's most powerful nations, making regulation a grave and — if cryptos continue gaining momentum — probable risk.
What does Coinbase do?
<p>If you want to buy Bitcoin or Ethereum or other crypto, you can begin the costly, labor-intensive and extremely technical process of mining. Or you can turn to a crypto exchange like Coinbase, which allows retail buyers and sellers to meet in the middle.</p><p>Coinbase also believes today's financial system relies on too many intermediaries (banks, brokers, clearinghouses, payment processors, exchanges, etc.), and that relying on this web limits access, efficiency and costs for users. The internet transformed the way we communicate and live, and Coinbase believes that the financial system has hardly been affected in the same way. By enabling anyone with an internet connection — and a bank account, with funds to invest — to easily invest in crypto assets, Coinbase aims to "democratize" access to the crypto economy. </p><p>The company isn't vastly unlike other cryptocurrency exchanges, which have come and gone since crypto trading hit the zeitgeist in 2017. General finance apps have jumped into crypto as of late, including Robinhood and Square, and crypto-specific competitors include Gemini, Kraken and Binance. Coinbase has stuck around largely because of its efficiency, but also by keeping users' personal data secure. "From the early days, we decided to focus on compliance, reaching out to regulators proactively to be an educational resource," CEO Brian Armstrong writes in the S-1. "We invested heavily in cybersecurity, built novel key storage mechanisms, and obtained a cybercrime insurance policy." </p><p>The company's exchange service is its main offering, but it also has a few other lines of business. <a href="https://commerce.coinbase.com" target="_blank" rel="noopener noreferrer">Coinbase commerce</a> provides online retailers with software that lets them accept crypto payments (like PayPal, but for crypto). <a href="https://www.coinbase.com/card" target="_blank" rel="noopener noreferrer">Coinbase Card</a> is in the early stages, giving users a physical Visa debit card and accompanying app. Coinbase even offers its own cryptocurrency, <a href="https://www.coinbase.com/usdc" target="_blank" rel="noopener noreferrer">USD Coin</a>, built on Ethereum and tied to the U.S. dollar, so the price remains stable. </p><p>At the end of 2020, the company had 2.8 million monthly active users and 43 million verified users (about 6.5% of users are active, monthly). </p>Coinbase's financials
<p>Coinbase had a stellar 2020. It recorded $1.1 billion in revenue for the year, up 136% from the $483 million in revenue from 2019. This increase in revenue tracks closely with the 142% increase in trading volume between 2019 and 2020.</p><p>Coinbase derives almost all of its net revenue (96% in 2020) from transaction fees, which have been correlated with fluctuations in the value of cryptocurrencies. The rise in institutional trading volume has been a major source in revenue growth for Coinbase over the course of 2020. For instance, in Q1 2020, institutional trading volume rose to 6x the volume of Q1 2019. And even over the course of the year, institutional trading volume went from $18 billion in Q1 2020 to $57 billion in Q4 2020. Retail trading volume went from $12 billion to $32 billion in that same timeframe. </p><p>Bitcoin accounted for approximately 41% of trading volume on Coinbase in 2020, followed by Ethereum (15%) and other crypto assets (44%). </p><p>Coinbase posted a net income of $322 million in 2020, which is pretty incredible for a company that says it's choosing "to prioritize growth because we believe that global scale is central to achieving our mission and the potential of our business model." The biggest expenses in 2020 were "general and administrative," which represented 22% of total revenue, and "technology and development," which represented 21% of total revenue. In 2019, Coinbase reported a net loss of $31 million. </p>What could go wrong?
<p>The short answer: a lot.</p><p>Coinbase is driven by a techno-utopian/libertarian mission, and its long-term success is predicated on overhauling global power structures. This comes with a long list of risk factors, but some of the most significant include: regulation by a cohort of nations to protect the central banking system, loss of public confidence in cryptocurrencies and revenue loss that would come with greater stability in cryptocurrency prices. </p><p>"If the world ran on a common set of standards, that could not be manipulated by any company or country, the world would be a more fair and free place, and human progress would accelerate," Armstrong wrote in the S-1's introduction. </p><p>There's a lot to unpack here, but let's start with the bit about financial standards that "could not be manipulated by any company or country." This vision would mean the U.S. dollar loses its status as the dominant global reserve currency, <a href="https://www.federalreservehistory.org/essays/bretton-woods-created#:~:text=The%20Bretton%20Woods%20system%20was,gold%20at%20the%20official%20price." target="_blank" rel="noopener noreferrer">a system established</a> at Bretton Woods following World War II. It would render The Federal Reserve — with its fiscal toolkit intended to provide economic stability — obsolete. With cryptocurrencies such as Bitcoin, there are a finite number of tokens, so quantitative easing isn't possible. </p><p>It isn't in the interest of many nations, particularly the U.S., to give up central banking control due to cryptocurrencies becoming the global reserve currency. </p><ul><li>Coinbase writes that new regulations and laws "may adversely impact the development of the crypto economy as a whole and our legal and regulatory status in particular by changing how we operate our business, how our products and services are regulated, and what products or services we and our competitors can offer, requiring changes to our compliance and risk mitigation measures, imposing new licensing requirements, or imposing a total ban on certain crypto asset transactions, as has occurred in certain jurisdictions in the past."</li><li>It also details how loss of institutional support could impact its business: "We may face difficulty establishing or maintaining banking relationships due to our banking partners' policies and some prior bank partners have terminated their relationship with Coinbase or have limited access to bank services. … In addition, financial institutions in the United States and globally may, as a result of the myriad of regulations or the risks of crypto assets generally, decide to not provide account, custody, or other financial services to us or the cryptoeconomy generally."</li></ul><p>This regulatory uncertainty hinders institutional adoption of cryptocurrencies. </p><ul><li>For instance, in January, Ray Dalio of Bridgewater Associates <a href="https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin" target="_blank" rel="noopener noreferrer">wrote</a>: "For now, though, we do not see it as a viable storehold of wealth for large institutional investors, thanks mainly to a high degree of volatility, regulatory uncertainty, and operational constraints. Rather, we see it as more like buying an option on potential 'digital gold' — it has a wide cone of outcomes, with one path leading to it becoming a true institutionally accepted alternative storehold of wealth."</li></ul><p>Now let's tackle the first part of Armstrong's statement about a world that runs "on a common set of standards." For Coinbase to succeed, it needs cryptocurrencies to remain valuable and worth transacting.</p><ul><li>"The development of new technologies for mining, such as improved application-specific integrated circuits (commonly referred to as ASICs), or changes in industry patterns, such as the consolidation of mining power in a small number of large mining farms, could reduce the security of blockchain networks, lead to increased liquid supply of crypto assets, and reduce a crypto's price and attractiveness," Coinbase writes.</li><li>Another potential risk factor comes with "security issues, bugs, and software errors" of crypto assets that "could adversely affect its price, security, liquidity, and adoption."</li></ul><p>Finally, there's a contradiction within Coinbase's current business model that bears mentioning: Coinbase derives most of its revenue from transaction fees, which are highly correlated with fluctuations in the value of cryptos. The contradiction lies in the fact that cryptocurrency price volatility is seen as one of the primary barriers in something like Bitcoin realizing its potential as an exchange currency rather than an asset class. </p><p>Coinbase believes this isn't actually an issue, since the dynamics will change over the long term. The company writes: </p><ul><li>"Over the long term, we expect further diversification of market participants, to add support for more crypto assets, and for crypto asset use cases to expand. We believe these factors will contribute to diversification in the composition of our Trading Volume and reduce the correlation to both Bitcoin price and Crypto Asset Volatility, subsequently leading to lower volatility in transaction revenues. Further, we expect that diversifying our sources of revenue towards subscription and services revenue will contribute to less fluctuation in our results from operations."</li></ul>Who gets rich?
<p>Coinbase has divided its shares into Class A and Class B, with Class B receiving 20 votes per share and Class A receiving only one. Class B shareholders are also allowed to convert their shares to Class A at any time.</p><p>This setup makes it difficult to say precisely which entities will own Coinbase when it makes its trading debut. As of Jan. 31, 2021, some of Coinbase's largest institutional shareholders included Andreessen Horowitz, Tiger Global, Ribbit Capital, Union Square Ventures and Paradigm. Some of the largest individual shareholders included Frederick Ernest Ehrsam III (the co-founder of Coinbase), Armstrong and CPO Surojit Chatterjee.</p>What people are saying
<ul><li><strong>"The @coinbase<a href="https://twitter.com/coinbase" target="_blank" rel="noopener noreferrer"> </a>Direct Listing will either confirm direct listings as a reasonable on-ramp for companies or kill it all together by making retail the true bag holders. If institutional investors use this period to manipulate the stock from a $54B valuation on Jan29 to $100B now... And then sell to retail at $100B or greater, it will be the ultimate form of stock manipulation. If the stock snaps back at a much lower valuation, each private txn preceding the DL seems manipulative. Good luck to all the players...I'm sitting out. The process stinks."</strong> —Chamath Palihapitiya <a href="https://twitter.com/chamath/status/1364960892958433285" target="_blank" rel="noopener noreferrer">on Twitter.</a></li><li><a href="https://twitter.com/chamath/status/1364960892958433285" target="_blank" rel="noopener noreferrer"></a><strong>"Given the Crypto Cycle, I expect Coinbase IPO to be very successful and price to pump hard. A NYSE 'exchange' security trading >$100B should help drive up Crypto Exchange tokens. I can see a bull market narrative where something like UNISWAP is compared to Coinbase in cap."</strong> — Bob Loukas <a href="https://twitter.com/BobLoukas/status/1364974896493826054" target="_blank" rel="noopener noreferrer">on Twitter</a>.</li></ul>Building better relationships in the age of all-remote work
How Stripe, Xero and ModSquad work with external partners and customers in Slack channels to build stronger, lasting relationships.
Every business leader knows you can learn the most about your customers and partners by meeting them face-to-face. But in the wake of Covid-19, the kinds of conversations that were taking place over coffee, meals and in company halls are now relegated to video conferences—which can be less effective for nurturing relationships—and email.
Email inboxes, with hard-to-search threads and siloed messages, not only slow down communication but are also an easy target for scammers. Earlier this year, Google reported more than 18 million daily malware and phishing emails related to Covid-19 scams in just one week and more than 240 million daily spam messages.
Citizen’s plan to keep people safe (and beat COVID-19) with an app
Citizen CEO Andrew Frame talks privacy, safety, coronavirus and the future of the neighborhood watch.
Citizen added COVID-19 tracking to its app over the summer — but its bigger plans got derailed.
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Citizen is an app built on the idea that transparency is a good thing. It's the place users — more than 7 million of them, in 28 cities with many more to come soon — can find out when there's a crime, a protest or an incident of any kind nearby. (Just yesterday, it alerted me, along with 17,900 residents of Washington, D.C., that it was about to get very windy. It did indeed get windy.) Users can stream or upload video of what's going on, locals can chat about the latest incidents and everyone's a little safer at the end of the day knowing what's happening in their city.
At least, that's how CEO Andrew Frame sees it. Critics of Citizen say the app is creating hordes of voyeurs, incentivizing people to run into dangerous situations just to grab a video, and encouraging racial profiling and other problematic behaviors all under the guise of whatever "safety" means. They say the app promotes paranoia, alerting users to things that they don't actually need to know about. (That the app was originally called "Vigilante" doesn't help its case.)
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Blockchain, QR codes and your phone: the race to build vaccine passports
Digital verification systems could give people the freedom to work and travel. Here's how they could actually happen.
One day, you might not need to carry that physical passport around, either.
Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.
There will come a time, hopefully in the near future, when you'll feel comfortable getting on a plane again. You might even stop at the lounge at the airport, head to the regional office when you land and maybe even see a concert that evening. This seemingly distant reality will depend upon vaccine rollouts continuing on schedule, an open-sourced digital verification system and, amazingly, the blockchain.
Several countries around the world have begun to prepare for what comes after vaccinations. Swaths of the population will be vaccinated before others, but that hasn't stopped industries decimated by the pandemic from pioneering ways to get some people back to work and play. One of the most promising efforts is the idea of a "vaccine passport," which would allow individuals to show proof that they've been vaccinated against COVID-19 in a way that could be verified by businesses to allow them to travel, work or relax in public without a great fear of spreading the virus.
Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.
Anjali Sud is reinventing Vimeo and the future of video
It's not a YouTube competitor anymore. It's something much bigger.
Anjali Sud has been CEO of Vimeo since 2017, and has totally changed the company in that time.
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.
Anjali Sud's first day as Vimeo CEO was an eventful one. Not only was she standing in front of the company as its new leader, she was telling them that things were about to change. A lot. After more than a decade operating as a home for streaming content — sometimes a YouTube competitor, other times coming for Netflix, never quite reaching either goal — Vimeo was going to become a SaaS company. It would be wooing IT managers and vice presidents, not A-list directors and Golden Globes voters. Even after the initial shock wore off, she knew it would take a while to change the structures, incentives, goals and workflows to become a different kind of company.
That was 2017. Now it's early 2021, and Vimeo is on a tear. Sud and her team are getting ready to spin out of Barry Diller's IAC later this year, turning Vimeo into a public company in its own right. They've raised $450 million in capital ahead of that change, and are currently valued at about $5.7 billion. Vimeo has more than 200 million users, 1.5 million of whom pay for its services. Its revenue increased 54% in the most recent quarter compared to a year ago, and by some measures the company is already profitable.
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- Citizen, a safety app, hopes to keep people safe - Protocol — The people, power and politics of tech ›
David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.