Coinbase prepares for Gigantic expansion of Digital Asset Listings
Coinbase announced they will be increasing the number of digital assets they support in the coming months. The plan is to begin listing digital assets on a jurisdiction-by-jurisdiction basis. This means tokens available for trading in one country may or may not be available in another country.
The new system allows almost anyone to submit a cryptocurrency through an online form for evaluation under the company’s digital asset framework. Those that meet the criteria may be listed, although not necessarily available right away to all platform customers.
The logic here is that Coinbase will be able to list tokens compliantly in one jurisdiction that may not be legal according to a separate jurisdiction’s securities law. If executed correctly, the company will have found a way to expand the supply side of their exchange business, without exposing themselves to additional regulatory risk.
The downside to the jurisdiction-by-jurisdiction compliance strategy is that it is more expensive and time-consuming. Today there are 1,800+ tokens in existence, with thousands more estimated to launch in the coming years, so the work could become quite tedious to vet and approve/disprove such a large number of applications across 100+ jurisdictions. The application is free for now, but Coinbase stated that they “…reserve the right to impose an application fee in the future to defray the legal and operational costs associated with evaluating and listing new assets.”
In an attempt to remove bias and create efficiency, Coinbase announced the following criteria for approving a digital asset application:
- Is the digital asset legally compliant in this jurisdiction?
- Does it pass Coinbase Digital Asset Framework?
- Is it technically secure and innovative?
- Do our customers want it?
These four questions are relatively straightforward but they highlight an interesting point — Coinbase appears to be following the platform strategy that other famous companies like Amazon, Facebook, Airbnb and others did.
For example, Facebook was able to build a two-sided marketplace between content creators and content consumers (and eventually between advertisers and users). This platform strategy paid off in the long run because it allowed Facebook to benefit from each business, game, ad, and content creator who built something on top of Facebook’s platform. For instance, instead of focusing on building each game themselves, Facebook gave game developers the tools necessary to create, launch, scale, and monetize their own games on Facebook. This strategy led to faster growth and more profitability.
Two-sided marketplaces scale easily, are highly profitable, and create significant network effects. If Coinbase is working towards a true platform strategy, it wouldn’t surprise me to see them scale their ~$1 billion in 2017 revenue to $10+ billion within a few years.
There are still many questions they have to think about. For example, how do they ensure that investors in their jurisdictions are not participating in non-compliant trading? Will Coinbase accelerate their move to support security tokens?
They will definitely find the answers as we are watching one of the most talented teams in crypto move from startup phase to scaling phase. If Coinbase successfully pulls this off, they have a chance to become the biggest competitor to the traditional financial system in decades.
For more information on digital assets, feel free to reach out to WhitePark Capital at contact@whitepark.capital, and be sure to check out our website www.whitepark.capital
Follow us on Twitter at: @vshabanov_ @WhitePark
Disclaimer:
This article is an informational document and does not constitute an investment recommendation, investment advice, an offer to sell or a solicitation to purchase any assets or any entity organized, controlled, or managed by WhitePark Capital LLC (“WhitePark”) or any of its affiliates. This document is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.
The views expressed in this article are the subjective views of WhitePark personnel, based on information which is believed to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty is made, expressed or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of the information and opinions. The information contained in this letter is current as of the date indicated above. WhitePark does not undertake to update the information contained herein.
WhitePark and its principals haven’t made investments in some of the instruments discussed in this communication and may in the future make additional investments, including taking both long and short positions, in connection with such instruments without further notice.
It is strongly suggested that investors obtain independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Analyses and opinions contained herein may be based on assumptions that, if altered, can change the analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency rate or other market or economic measure.
