Why can Coinbase, which has always been cautiously under supervision, be listed? What impact will the accusation turmoil have on its industrial development?
Original title: “Coinbase listing: fined $6.5 million? Then DPO”
Author: Liu Xia Editor: Jiang according to Health
On March 19, the US-compliant cryptocurrency exchange giant Coinbase and the CFTC (US Commodity Futures Trading Commission) reached a settlement with allegations of improperly reporting trading volume and “self-trading”, and were fined US$6.5 million. At the same time, the company announced that it will postpone its listing until April.
Why can Coinbase, which has always been cautiously under supervision, be listed? What impact will the allegation storm have on its listing process and industrial development?
Long way to go public, take the lead in suspending XRP transactions
Founded in 2012 and headquartered in Delaware, Coinbase is the largest cryptocurrency exchange in the United States. Coinbase is committed to providing encrypted asset trading and custody services, and it is said that its stock is currently valued in the private market at more than 100 billion U.S. dollars.
Following the US$5 million Series A investment led by Fred Wilson in May 2013, Coinbase has won the favor of many well-known investment institutions. This is not unrelated to the rich user resources that Coinbase has accumulated over the years. It is understood that to date, Coinbase has accumulated more than 450 billion U.S. dollars in transactions and more than 90 billion U.S. dollars in custody assets. The platform has a huge trading group including 43 million retail investors and more than 7,000 institutional users.
Since its establishment, Coinbase has always set a benchmark posture in the industry in terms of compliance. Although you are one of the most well-known cryptocurrency exchanges in the world, at the moment when there are more than 9,000 cryptocurrencies in the global crypto market, Coinbase only lists 44 currencies. It does not seem to be eager to expand, but chooses to comply with the framework Operate the market steadily.
Compliance is an important advantage of Coinbase’s listing, and Coinbase has worked hard on compliance. As early as around 2013, Coinbase began to apply for a Money Transmitter license in the United States. In 2017, Coinbase became one of the first cryptocurrency exchanges to obtain the BitLicense license from the New York Financial Services Department, and obtained official compliance certification for its operations in New York State. In March 2018, Coinbase once again won the e-money license issued by the Financial Conduct Authority (Financial Conduct Authority), which also enabled Coinbase to conduct cryptocurrency-related businesses in EU member states toward compliance . Subsequently, Coinbase registered MSB licenses in multiple states through the Financial Crimes Enforcement Network of the United States (FinCEN).
Coinbase, which is pursuing compliance, has paved the way for listing for more than two or three days. More than two years ago, rumors about the listing of Coinbase spread frequently. One of Coinbase’s original investors, Adam Draper, revealed in October 2018 that Coinbase had confirmed that it was about to launch a $500 million IPO. After the news came out, it set off an upsurge of discussion in the cryptocurrency circle. At that time, it was the cold winter of the cryptocurrency market, and the COO of Coinbase had to come forward and clarify that it would not IPO.
However, on December 17, 2020, Coinbase announced through its official blog that it had submitted a draft registration statement for the S-1 form to the SEC (United States Securities and Exchange Commission). Whether it is an IPO or a DPO (direct public offering/direct listing), this is the only way to go. The so-called DPO, also known as DLP (Direct Listing Procedure), refers to the issuer of securities without the help of or through underwriters or investment banking companies, by publishing listing information on the Internet, transmitting issuance documents, without issuing new shares, and directly issuing companies to the public. Of stocks.
Only five days after the news came out, the encrypted digital currency XRP (Ripple) listed on Coinbase was identified by the SEC as an unregistered securities sold illegally. On the same day, the SEC formally sued Ripple for violating the federal securities laws. This landmark incident of U.S. cryptocurrency regulation has sounded the alarm for trading platforms such as Coinbase. In order to avoid regulatory risks, Coinbase announced soon that it will suspend XRP trading.
On January 20 this year, Coinbase officially delisted XRP, which ranks high in the market value rankings, but said that it will continue to pay attention to legal developments related to XRP.
Among all the major crypto asset exchanges on the market, Coinbase was the first to make the decision to suspend XRP trading. Then OKCoin and Binance US followed up. However, OKEx and Huobi, which are familiar to domestic users, have not made business adjustments to XRP.
Performance has grown rapidly and has turned losses into profits in 2020
On February 25, Coinbase officially announced the S-1 document, and its Class A shares will be DPO in the Nasdaq Global Select Market under the code “COIN”.
Judging from the information disclosed in the S-1 document, Coinbase’s business conditions are generally improving. Affected by the increase in the price of cryptocurrencies such as Bitcoin, as an intermediary of cryptocurrency transactions, Coinbase’s transaction volume and the number of active users have risen sharply, and the number of authenticated users has increased steadily. In 2020, Coinbase’s transaction volume was approximately US$193.1 billion, an increase of 141.7% from the previous year. The number of certified users exceeded 43 million, a year-on-year increase of 34.4%, and the monthly transaction users were approximately 2.8 million, a year-on-year increase of 180%.
Table 1 Overview of platform scale (Source: S-1 file submitted by Coinbase)
Unit: Million
In terms of profitability, Coinbase will turn losses into profits in 2020. According to its disclosed data, Coinbase’s total revenue in 2020 is approximately US$1.277 billion, a year-on-year increase of 139%, and its net profit is US$322 million, reversing the net loss in 2019. From the perspective of cost control, operating expenses, which account for the largest cost, will account for 68% of total revenue in 2020, which is a significant reduction from 109% in the previous year, and the cost structure optimization effect is significant.
Table 2 Consolidated operation report (Source: S-1 file submitted by Coinbase)
Unit: Thousand U.S. dollars
Go public directly by bypassing the IPO, and set a benchmark for industry standards
In the past two years, DPO has become more and more popular among technology start-ups. Following the successful DPO of enterprise software Slack and music platform Spotify through the New York Stock Exchange, Coinbase also chose DPO this time and will become the first company to list directly on NASDAQ Cryptocurrency company. Compared with IPO, DPO saves underwriting costs, reduces listing costs, and has no lock-up period. There is no equity dilution problem. The interests of shareholders are guaranteed and can be cashed out directly.
Table 3 Comparison of differences between IPO and DPO
On March 24, Coinbase’s CEO and co-founder Brian Armstrong said in an online listing roadshow, “Direct listing allows all investors, institutions, retail investors and anyone in between to participate in our NASDAQ The opening instruction on the platform…This is a step towards achieving our mission as an open financial system, because everyone can participate in our direct listing. It creates all the transparency we want Coinbase to have.”
Following the listing of “Blockchain First Share” mining machine manufacturer Canaan Technology (CAN.O), the listing of Coinbase truly connects encrypted assets with traditional finance, and has become another milestone event that cannot be ignored in the development of the crypto market.
This listing has naturally benefited Coinbase itself. Under the general trend of gradually strengthening the regulatory constraints of encrypted assets, Coinbase has opened up the traditional financial financing channel of mainstream institutional funds through listing. Data shows that the proportion of institutional users’ transaction volume on the Coinbase trading platform has increased from 20% in Q1 in 2018 to 64% in Q4 in 2020, while the proportion of individual users’ transaction volume on the platform has dropped from 80% to 36% in the same period. .
Under the background of institutional users becoming mainstream users, allowing mainstream institutional funds in the traditional capital market to enter is undoubtedly the best choice to take advantage of the institutional bull market and to steadily expand business lines and scale of operations.
Moreover, for its existing investors, since DPOs do not issue new shares and have no lock-up period, they can realize their shares at any time, which reduces the holding risks of institutional investors and will further increase the attractiveness of Coinbase’s listing .
In addition, given that slack rose by 48% on the first day of DPO, this well shows that for a well-known mainstream company in the industry like Coinbase, it can maintain stability when it goes public without borrowing from underwriters. Share price and successfully raised funds.
For the entire cryptocurrency circle, the direct listing of Coinbase is to create a precedent and provide a model for other crypto companies. Brian Armstrong said, “We want to make security tokens available, not just for Coinbase, but anyone who wants to integrate security tokens, raise funds, establish their own equity structure, and finally go public in this way. Encryption companies. I think there will be companies going public in this way in the future. I hope we can help build some infrastructure like this in the future that we don’t have yet.”
Although the crypto asset industry has been developing rapidly and gradually gaining recognition, due to the lack of compliance and existing regulatory loopholes, it is still not generally recognized by the mainstream traditional market, and there are still major disputes and uncertainties. Coinbase chose to put compliance first, go public directly and accept supervision, which has deepened the recognition of crypto exchanges by traditional financial practitioners.
Coinbase’s journey from its inception to the present has also paved the way for other encrypted transactions. If DPO is successful, it will be much easier for latecomers to imitate the former under the enlightenment of their predecessors. This move will also bring a higher degree of attention to the entire encryption circle, as well as the inflow of funds that follow the heat.
Who will be Coinbase’s immediate successor? Previously, the two major domestic exchanges, Huobi and OKEx, both opened the traditional capital market through backdoor listings and landed on the Hong Kong stock market. However, since both have issued platform currencies, it is very difficult to list in the United States. Recently, Robinhood, a retail trading platform, is also seeking to go public. Robinhood’s zero commission and low threshold for allowing “fragmented shares” make it highly supported by retail investors. Robinhood stated on March 23 that it had secretly submitted a draft registration statement (Form S-1) for its common stock IPO to the US Securities and Exchange Commission. It is said that Robinhood will also choose Nasdaq as the listing location, and the company is continuing its March IPO preparation plan under the leadership of Goldman Sachs. In addition, the domestic crypto exchanges Gemini, Kraken, etc. may also become the successors of Coinbase. These platforms comply with regulatory requirements, have not issued platform currencies, and hold state regulatory licenses.
Accused by the CFTC, the listing process has been delayed
Just when everything went as expected, an allegation from the CFTC disrupted Coinbase’s DPO plan.
Recently, the CFTC directive stated that between January 2015 and September 2018, Coinbase ran two automated trading programs, Hedger and Replicator. Although Coinbase disclosed the use of trading programs, they did not disclose that they used two programs that often match transactions.
Vincent McGonagle, Acting Director of Law Enforcement, said: “Reporting false, misleading or inaccurate transaction information undermines the integrity of digital asset pricing. This enforcement action sends a message that the CFTC will take action to ensure the integrity of such information Sex and transparency.”
In addition, the announcement also pointed out that an employee deliberately conducted matching LTC/BTC transactions in the six weeks of 2016 to create the illusion of LTC liquidity and demand. The CFTC determined that Coinbase has “substitute responsibility” for these fraudulent transactions.
At present, the US Commodity Futures Trading Commission has announced that it has reached a settlement with Coinbase, and Coinbase has also accepted a total fine of 6.5 million US dollars, and its original March listing plan has been postponed to April.
This settlement shows that the regulatory framework for encrypted assets is accelerating innovation, and the compliance rules for this new type of industry are gradually becoming clear. This incident also sounded the alarm for Coinbase and its latecomers. If you want to integrate the traditional capital market, you must accept the strict supervision of the public and relevant departments.
With the gradual standardization of these difficult-to-qualify trading behaviors in the crypto circle and the gradual improvement of the listing process, the recognition of crypto-asset-related companies in the traditional market will further increase. 01 Blockchain will also continue to pay attention to the latest listing of Coinbase.
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