Coinbase: Trailblazing Crypto Success

For many years, the notion of doing a blockchain start-up or devoting one's full-time attention to crypto was seen as foolhardy. Bitcoin was seen as the world of The Silk Road, scams, charlatans, trading soothsayers, market manipulators, pump-and-dump projects, and a veritable smorgasbord of securities laws violations.

The launch of Coinbase on the Nasdaq today was monumental as it represents an explosion of legitimacy for players in the crypto market to point to Coinbase's trailblazing when meeting with still circumspect traditional finance partners. Everyone in the ecosystem benefits materially from the updraft.

While Brian Armstrong, Fred Ehrsam, and early investors will make out incredibly well and be billionaires several times over, so too will employees make out nicely across the board.

All 1700 employees were gifted, by surprise, 100 shares, now worth $35,246.

The near 11-figure valuation has the company at over an over 200 price-to-earnings, an aggressive valuation for a rocket of a company. In 2020, Coinbase collected ~0.57% of every transaction in fees, amounting to $1.1 billion from $193 billion. 2021 has already eclipsed these numbers.

Many analysts see creating a moat, even with 56 million users, in the exchange space as difficult with Gemini, Binance and FTX chomping one's heels for users. Gemini is firmly entrenched in New York, with the Winklevoss twins as their capable leaders, glad-handing regulators and utilizing their Wall Street connections to streamline bitcoin adoption and Gemini's positioning as an excellent on-ramp from fiat to crypto. FTX just announced the naming rights to Miami Heat Arena for $135 million, in a city that is a magnet for crypto conferences and a pro-bitcoin mayor in Francis Suarez. I will be at Bitcoin 2021, the largest stateside industry conference, formally of San Francisco, also now in Miami.

Coinbase engineers as well-regarded and have in its alumni ranks individuals such as Charlie Lee, the founder of Litecoin, and 77 other founders. This innovation standard that the Coinbase leadership has set appears to permeate through the ranks.

Blockchain companies are atypical in how projects help one another out through various stages of the growth process. Usually this is done to facilitate mass adoption, which bodes well for all projects that utilize smart contracts or blockchains of any variety as an integral part of their business. Mastermind groups are common for CEOs or technical leaders to share problems for other leaders to help deconstruct and solve. Intellectual property is typically not an issue as most platforms are forks or heavily borrowed from predecessor projects.

Once the structural architecture of the project is sound, the only major deliverable is community building. For this reason you see some of the highest salaries in the ecosystem reserved for developer evangelists or crypto community builders. Communicating authenticity and innovation is more important in this industry than any other. If you can have a swath of influencers whom believe in your project and evangelize its utility to their followers, on their platforms, then the birth of a blockbuster blockchain project can quickly scale.

One of the beauties of this recognition that the community itself represents substantial value is a reexamination of how one should reward the community. Often this has been done successfully with airdrops, where lead developers send incredibly valuable tokens for free to users who have interacted with their platform. A few dollar transaction can yield five figures tokenized value which users can immediate liquidate into fiat or "HODL" onto, for hopes that it will appreciate.

Uniswap, with its leader in Hayden Adams, authorized the most sizable airdrop of 600 UNI to early users of Uniswap. Many users appreciated the 2020 Christmastime airdrop and cashed out for a quick $1800 to knock out some Christmas spending bills, but those with the intentional fortitude to hold on would have now been worth $20,808.

Many I've spoken with that held onto this bag of tokens to this day simply said that when one pays nothing for an asset it's far easier to let it ride to the moon or into the dirt. Whatever price they liquidate it at represents an infinite ROI.

The ubiquity of Uniswap, and the sizable airdrop in the midst of the pandemic, was widely and deeply positively and popular, felt by users all over the world. This gesture created a ripple effect such that nearly ever major project that followed integrate some form of community reward--BadgerDAO, 1inch, PoolTogether, et al--for those blockchain enthusiasts who actively experiment with innovative use cases.

This created a whole class of airdrop farmers who will try new decentralized applications with the hopes that their brief interaction with the platform will yield sizable airdrops down the road. This expands the airdrop pool participant number, but also creates a rush of traction for new projects that depend on this visibility and traction to show traditional investors that their project has legs. This provides an easier road to early funding that helps the project to survive and thrive, creating a positive feedback loop that, many times, has worked out handsomely for those dApp airdrop farmers.

This incentive to support new projects all have Hayden to thank for exemplifying community building by generously by circling back enormous value. Uniswap is the prism through which all other decentralized finance projects are largely judged.

Uniswap was also innovative in that they open-sourced their version 2 source code. This allowed Solidity developers--which is what I am--the ability to fork Uniswap V2 onto various Ethereum Virtual Machine platforms like Ethereum mainnet, xDAI, Polygon, or Binance Smart Chain. For a brief while, some Uniswap forks even surpassed Uniswap in terms of billions in USD value staked, but this was due to exceptionally high ROI offered as "farming rewards", additional tokens of value presented for those that would provide liquidity to the smart contract pools.

The $56 billion in Solidity smart contracts value now can attribute this large number to the rise in the value of Ethereum for its stratospheric number as a consideration, but the real traction is due to the brilliance of these smart contracts, meticulously and aggressively tested, proving to do an exceptional job of allowing users to hold onto their tokens and earn a healthy return on these tokens in the process.

Now that Coinbase and crypto have hit the big time, it'll be interesting to see how regulators continue to handle crypto: velvet glove or iron fist. I'm hoping for the former.

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