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Coinbase introduces liquid staking token ahead of the Ethereum Merge

Crypto exchange Coinbase has launched Ethereum liquid staking token ahead of Ethereum’s migration to a proof of stake protocol.

Coinbase, one of the leading crypto exchanges in the world, announced via a tweet on Wednesday, August 24th, that it has launched its liquid staking token called, Coinbase Wrapped Staked ETH (cbETH).

This latest development comes a few weeks before the Ethereum Merge, an event that will see the Ethereum blockchain migrate to a proof of stake mechanism from its current proof of work.

Coinbase wrote that the Coinbase Wrapped Staked ETH (cbETH) is a utility token that represents ETH2, which is ETH staked through Coinbase. cbETH can be sold or sent off-platform, while ETH2 will remain locked up until a future protocol upgrade.

The crypto exchange added that the price of cbETH is NOT meant to track the price of ETH 1:1. cbETH represents staked ETH plus all of its accrued staking interest, starting from when cbETH’s conversion rate and balance were initialised.

Coinbase added that holders of ETH2 (staked ETH on Coinbase) could “wrap” their ETH2 and receive cbETH through its website. Wrapping functionality will be rolled out to eligible users progressively throughout the day, Coinbase said.

Liquid staking enables investors to generate extra income on top of standard rewards they make for staking or locking coins in a network.

With liquid staking, the locked staked coins are “wrapped” into transferable tokens, representing ownership of the underlying staked assets and any rewards earned.

The tokens generated from liquid staking are fully transferable and can be unwrapped to redeem the underlying staked assets. 

Coinbase intends to generate massive adoption of its cbETH token, which will have several uses following Ethereum’s migration. In its whitepaper, Coinbase said;

“Our hope is that cbETH will achieve robust adoption for trade, transfer, and use in DeFi [decentralized finance] applications. With cbETH, Coinbase aims to contribute to the broader crypto ecosystem through creating high-utility wrapped tokens and open sourcing smart contracts.”

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Coinbase plans to cut costs and is engaged with regulators, says the CEO

Coinbase has been negatively affected by the ongoing bear market, and the exchange plans to cut costs.

Coinbase’s CEO Brian Armstrong told CNBC’s Kate Rooney in an interview on Tuesday that the cryptocurrency exchange plans to cut costs. The company’s shares are down by more than 70% as the crypto winter continues to affect its operations.

Armstrong added that the downturn is not unusual, as the company has been through four down cycles in the 10 years since he started the cryptocurrency exchange. He said;

“We have this saying internally, I like to repeat a lot, which is, you know, it’s never as good as it seems, it’s never as bad as it seems. I think one of the reasons Coinbase has been so successful in the last 10 years is we just try not to get focused on short-term ups and downs.”

Coinbase laid off 18% of its staff earlier this year, and Armstrong said it had to be done to ensure the company continues to operate. He added that while the layoff was a one-time thing, anything could happen. 

Armstrong said Coinbase is planning to cut costs related to marketing, external vendors and Amazon Web Services.

He added that Coinbase is also planning to convert as many fixed costs into variable costs as possible. Binance.US recently made it possible for its users to trade some cryptocurrencies for zero fees.

Armstrong said fees would eventually erode as they have in the stock brokerage industry. However, it hasn’t gotten to that point yet. He added that;

“I do think there’s going to be margin compression, eventually, it has to happen at some point because everything that we’re building, you know, others, eventually you’re going to build it, and it’ll become a little bit more commoditized. I’d like to get to a place where more than 50% of our revenue is subscription and services.”

The Coinbase CEO further revealed that the company is actively engaged with the United States Securities and Exchange Commission (SEC), a move he considers a good thing. He said;

“You know, we’ve been in actually engaging with regulators, and I actually think it’s a good thing. And our overall goal is really to help drive regulatory clarity on a global scale.”

Coinbase is facing strong competition in the United States from the likes of Binance.US and FTX.US as the exchanges continue to build and capture more market value.

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Coinbase CEO says crypto winter might last another 12-18 months

  • Crypto winter has seen crypto prices fall to new cycle lows
  • Coinbase CEO Brian Armstrong says its difficult to predict markets, but foresees the crypto market recovery taking a year or more.
  • Armstrong hints at Coinbase being prepared for the down cycle after going through four such cycles before.

Coinbase CEO Brian Armstrong believes recovery from the crypto bear market will take 12 to 18 months, but emphasised that the downturn as a whole is not a new phenomenon to the industry.

Armstrong was speaking to CNBC’s Kate Rooney in an interview published on Tuesday.

Crypto winter could last 12-18 months

Recent events, including the collapse of multiple crypto companies, means the industry remains in a bear cycle. For Coinbase, the downturn has impacted its shares and company revenue. But Armstrong is bullish on the sector and for the crypto exchange.

Obviously we are in a bit of a down cycle here, but it’s nothing unusual for us,” he told Rooney, noting that what’s happening is what Coinbase has gone through before.

According to him, the company has seen four such down cycles in the past 10 years since its launch, with 2022 only different in the sense that the downturn has coincided with “the broader micro environment.”

The past few months have seen crypto markets brutalised, with leading cryptocurrency Bitcoin falling from its perch above $69,000 in November to below the previous bull market cycle high of $20,000. 

The broader crypto market, with Ethereum also losing most of the bull cycle gains, saw over $2 trillion in market cap value wiped off.

On how long he sees the down cycle lasting, he says it’s likely to be 12 to 18 months. However, although he foresees a recovery within this period, he warns that the market might have to “plan for it being longer than that.”

That’s how we think about it, and we don’t try to get too cute predicting the future,” he added.

He also talked about his company’s plans to cut costs, further measures to the layoffs it undertook in June. As for shifting from dependence on trading fees, the company is looking to build its business around more subscription and service-based revenue generation.

The key is to have up to 50% of the revenue come from the above models, he said.

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We’d shut down Ethereum staking if threatened by regulators, says Coinbase’s CEO

Coinbase’s CEO says the crypto exchange will abandon Ethereum staking if threatened by regulatory agencies.

The Ethereum blockchain will fully migrate to a Proof of Stake (PoS) mechanism in less than a month. This implies that Ethereum tokens will be staked and not mined.

The move is designed to solve some of the key issues affecting the Ethereum network, including scalability and high transaction fees. 

With the PoS mechanism, ETH holders can stake their coins on various crypto exchanges and platforms, granting them the opportunity to vote for node validators and have a say in how the network operates. 

Coinbase CEO Brian Armstrong responded to a hypothetical scenario on Twitter today regarding Ethereum staking. 

Armstrong stated that in the event of regulatory threats, Coinbase would shut down its Ethereum staking service. He added that Coinbase would do so in order to preserve the integrity of the blockchain network.

However, he added that there could be a legal option where Coinbase will challenge the authorities and hope to reach a better outcome for everyone. 

Coinbase is a publicly listed company and one of the first crypto companies to get listed on a stock exchange. 

Coinbase has been struggling in recent quarters, largely due to the ongoing bear market. Like several crypto companies, Coinbase had to lay off a certain percentage of its staff to enable it to survive the crypto winter.

The San Francisco-founded company’s revenue declined by 61% in the last quarter. Coinbase reported an after-tax loss of $1.1bn, compared with the $1.6bn net profit it registered in the middle of the crypto boom last year.

However, the company said it’s $6.2bn in available capital would enable it to keep investing through the downturn.

The cryptocurrency market has been in a bearish trend over the past nine months, with most coins down by more than 50% from their all-time highs.

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Coinbase’s numbers aren’t surprising due to crypto winter, says CoinFlip’s CEO

Cryptocurrency exchange Coinbase recorded huge losses in the last quarter as the bear market continues to affect businesses in the crypto space.

Coinbase, one of the leading crypto exchanges in the world, reported its second-quarter earnings earlier this week. The exchange’s revenue declined by 61% in the last quarter as the prices of most cryptocurrencies slumped. 

The San Francisco-founded company reported an after-tax loss of $1.1bn, compared with the $1.6bn net profit it registered in the middle of the crypto boom last year. The company reported that $446 million of the loss reflected an impairment charge on its crypto and venture investments.

Coinbase’s Chief financial officer Alesia Haas however, commented that the company’s $6.2bn in available capital would enable it to keep investing through the downturn.

Ben Weiss, CEO and Co-founder of CoinFlip, shared his comments with Coinjournal regarding Coinbase’s latest earnings report. CoinFlip is a financial service and crypto platform and is one of the largest Bitcoin ATM operators in the United States.

Weiss said;

“Coinbase’s numbers aren’t surprising given the current economic climate and crypto winter. That being said, Coinbase is responding by imposing financial discipline and refocusing on its core products. Despite volume and revenue declining, Coinbase is still attracting a significant amount of users, which shows its staying power, brand recognition, and likely ability to capitalize when crypto prices recover. The shareholder letter shows management’s confidence in the future of crypto and the company’s commitment to continue building regardless of prices and short-term economic trends.”

Despite the poor performance, Weiss maintains that the decline in Coinbase’s stock is an overreaction, and the cryptocurrency exchange remains a household name in the crypto space. Weiss said;

“The crypto market has seen a lot of volatility, deleveraging, and downward pressure on crypto asset prices. This is obviously going to have a negative impact on the valuation of crypto companies, such as Coinbase. I feel that the market is conflating the performance of crypto assets with the companies in the crypto ecosystem, and therefore the reduction in Coinbase stock price is possibly an overcorrection. Coinbase is a leader in the space with strong brand recognition, and its business model is much more robust than some of the problematic business models we’ve been hearing about – such as centralized crypto lending companies.”

The bear market continues to affect the operations of numerous cryptocurrency businesses, with some of them filing for bankruptcy while others halted withdrawals on their platforms.

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Bitcoin falls below $21K amid reports SEC is probing Coinbase

Bitcoin price fell below $21,000 on Tuesday as the market sentiment turned sour on reports the US Securities and Exchange Commission (SEC) was investigating US-based cryptocurrency exchange Coinbase.

BTC has touched lows of $20,915 and with potential downside likely to push it to the key support line around $20K. Fresh selling could include pain beyond the psychological level.

SEC probing Coinbase spooks investors?

Coinbase had already come out against suggestions that it had listed crypto token securities on its platform when it first emerged following the SEC’s insider trading charges against the crypto platform’s former product manager.

But on Tuesday, it emerged that the SEC was indeed looking into whether Coinbase offered security tokens to US investors – with at least seven of nine alleged security tokens listed on Coinbase.

According to a Bloomberg report, the SEC’s investigation started way before the insider trading case. However, with regulatory scrutiny firmly on the crypto sector following recent events, the investor community is seemingly spooked on the potential impact of the SEC vs. Coinbase case if it comes to that.

Crypto market cap falls below $1 trillion

The downside in the BTC market was also mirrored across the altcoin market, with top altcoin Ethereum (ETH) declining by more than 8% to drop below $1,400.

The sell-off pressure, also seen across the equities market with US indexes opening lower amid investor jitters over recession ahead of the Federal Open Market Committee (FOMC) meeting.

The S&P 500 was down nearly 1% and the Nasdaq over 1.3% lower, while the crypto market total capitalisation has fallen below the $1 trillion mark.

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Robinhood & Coinbase among the biggest political lobbying spenders, before laying off 9%/18% of workforces

Key Takeaways

  • Robinhood spent the most of any crypto company on lobbying expenditure in Q1 this year, donating $610,000 before laying off 9% of its full-time employees
  • Coinbase donated 62% less in Q1 than the previous quarter, as SuperBowl ads increased expenditure before laying off 18% of its workforce
  • Cryptocurrency political spending as a whole rose slightly in Q1 of 2022 despite market downturn from previous quarter
  • There were $1.8 million in donations across top five companies 

The all-important US midterm elections are creeping ever closer, when Democrats and Republicans go head-to-head for control of the houses of the Senate. 

In looking through the political funding this year, something jumped out – cryptocurrency companies are moving more and more into the political space, with a whole host of companies spending increasing amounts of money on political lobbying this year, despite the widespread fall in market prices, mass layoffs and the general downturn in volume across the industry this year. 

Political donations led by Robinhood

Robinhood announced they would be laying off 9% of their full-time employees in April, as the downturn in markets hit the crypto and stockbroker hard. However, this came after a quarter where they donated more money towards lobbying than any other crypto company, at $610,000, an increase of 42% from the $430,000 they spent in Q4 of 2021. 

Blockchain Association, Coinbase, Ripple Labs and Dapper Labs rounded out the top 5 in spending, as the graph below shows. 

Looking at the overall figures, the total amount of donations was relatively even in Q4 of 2021 compared to Q1 of 2022. While markets hit all-time highs in November 2021 when Bitcoin traded at $68,000, sentiment worsened in Q1 of 2022 which is why it is notable that spending remained buoyant. 

With the bear market really kicking up a gear in Q2 of 2022, one would expect there to be a dropoff across the industry once the Q2 figures are revealed. 

On a more granular basis, however, there were certain moves that stood out when compared to the previous quarter, as shown above. Robinhood’s increase we have mentioned, but this was the exact opposite of another company which has also trimmed its workforce recently, Coinbase. 

The prominent publicly listed exchange donated the highest amount in Q4 of 2021 at $740,000, but this figure fell 62% in the first quarter of 2022. This came amid a much-publicised $14 million outlay on a minute-long SuperBowl advert in February. Four months later, Coinbase laid off 18% of its workforce, comprising 1,100 jobs. 

With midterm elections around the corner, lobbying is being thrown into the limelight evermore. While traditionally spending would rise as we near election time, the flip side is that the cryptocurrency market has been in freefall this year, evidenced by the aforementioned layoffs. 

It is unclear, therefore, whether this level of lobbying expenditure will be able to be maintained. Let’s hope the layoffs don’t worsen, however. 

Sources

OpenSecrets.org

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The 9 tokens SEC says are securities in Coinbase insider trading case

  • Ishan and his brother are in custody, arrested on Thursday and are facing fraud and conspiracy to commit fraud charges, while Ramini is yet to be arrested.

  • Broadly, the SEC says Ishan violated securities laws, with this the first insider trading case in the crypto sector.

  • The SEC says nine of the 25 tokens for which Ishan provided confidential information were securities.

The US Securities and Exchange Commission (SEC) has highlighted nine tokens it says are securities, the details of which come from a landmark case against a former Coinbase manager.

The SEC’s case is against Ishan Wahi, the former product manager at Coinbase and two others – Nikhil Wahi (Ishan’s brother) and Sameer Ramini, a friend. The former Coinbase manager is alleged to have leaked confidential information about token listings announcement, tipping the other two in a scheme that spanned nearly a year and involved $1.1 million in profits.

Ahead of those announcements, which usually resulted in an increase in the assets’ prices, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit,” the SEC said in a press release.

9 tokens deemed securities

The SEC has previously stated that most tokens in the crypto sector are securities, and indeed has an active case against Ripple Labs over the XRP coin.

In this latest installment of its battle to bring deemed securities under the SEC laws, it does identify nine “security” tokens.

What are these tokens? The SEC highlights them here.

LCX (LCX), Amp (AMP), Rally (RLY), Rari Governance (RGT), Power Ledger (POWR), XYO Network (XYO), DFX Finance (DFX), DerivaDAO (DDX) and Kromatika (KROM).

Commenting on these tokens, Gurbir S. Grewal, SEC’s Director of Enforcement, noted that the main concern is not “with labels, but rather the economic realities of an offering.”

In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase,” he added.

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Southeast Asian crypto exchange Zipmex halts withdrawals

Zipmex, a Thai-based crypto exchange, has halted withdrawals citing a combination of circumstances. The Southeast Asian exchange has halted withdrawals until further notice.

A tweet by the exchange said:

“Due to a combination of circumstances beyond our control including volatile market conditions, and the resulting financial difficulties of our key business partners, to maintain the integrity of our platform, we would be pausing withdrawals until further notice.”

Failed acquisition by Coinbase

Prior to the halting of withdrawals, Cointelegraph had issued reports that Zipmex could be in trouble but the crypto exchange ended up dismissing that as just rumors. This came after a failed acquisition of Zipmex by Coinbase.

Responding to Cointelegraph, the CEO and co-founder of Zipmex, Marcus Lim, said:

“While Coinbase is an interesting partner, an investor makes more sense at this stage.”

Lim went ahead to explain the reason for the failed acquisition saying:

“The acquisition fell through due to market conditions. They’ve pulled out in many countries around the world such as Turkey and in Latin America. Coinbase is a great strategic partner to the business.”

Coinbase had made an offer to acquire Zipmex in the first quarter of 2022 but the acquisition plan fell on June 9. However, Coinbase went ahead to make a strategic investment into the Thai-based crypto exchange.

Other than halting withdrawals, there are reports that Zipmex is planning for a Series B+ that could value it at $400 million.

By August 2021, Zipmex had reached a 200,000 user base with over $1 billion in gross transaction volume since it was launched in 2019.

Zipmex troubles

According to sources some funds, about $100 million from Zipmex were given to Hong Kong-based asset manager Babel Finance with the aim of generating yield. However, there is a risk of default since Babel halted withdrawals in June due to unusual liquidity pressures resulting from the crypto market meltdown and hasn’t resumed the withdrawals.

Though not confirmed, there are fears that Zipmex could go the way of Celsius, which has already filed for bankruptcy seeking financial restructuring.

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Coinbase ‘grew a ton in 2021’, and is still adjusting, CEO says

  • Coinbase added to its headcount by 200% year-over-year as crypto saw massive growth.

  • The risks of that is what informed the decision to thin out the employee numbers in June.

  • Now the focus on “driving efficiency” with scaling in mind to better serve customers.

Coinbase is looking at ways to ensure efficiency at all of its operations during these lean crypto times, Brian Armstrong, the CEO of the top crypto exchange said in a blog post.

Commenting on the company’s massive employee growth over the past eighteen months, Armstrong noted that it was a “ton” of growth. However, even as they adjust to that, it’s time to focus on “driving more efficiency.”

According to the Coinbase boss, unchecked workforce growth may see a company slow down and become less efficient. 

When this happens, most largely to massive scaling, getting off the wrong turn often eats up “more dollars, more people and more time” just to get things going. In the meantime;

Coordination headwinds increase, vetocracies emerge, risk tolerance fades, and teams become inwardly focused instead of staying focused on their customers,” he added, pointing to the risks of unchecked headcount growth.

What great companies do

Armstrong, whose company is among those to lay off employees amid the crypto winter, said that the outcome (layoffs) was what any great company would do.

Every great company, from Amazon to Meta to Tesla, found ways to retain their founding energy in conjunction with appropriate controls, even as they scaled to be much larger than Coinbase is today,” he wrote.

He explained that in most cases, the so-called great companies always find ways to “maintain their insurgent mindset,” doing so to avoid careening into complacency and turning into an “irrelevant” at a later date.

That’s why we’re focusing on driving more efficiency at Coinbase. After 18 months of ~200% y/y employee growth, many of our internal tools and organizing principles have started to strain or break. So we’ve been digging in to identify the set of changes we need to make to help us succeed at this new scale,” he added.

One of the steps towards achieving this was to cut their headcount as was done in June. 

The exchange will also continue to find novel ways to add more efficiency to its services, with the objective being to return to that “mindset and approach” by which the company saw much success.

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