Coinbase's $2.5B revenue quarter; BNPL Scalapay raises $500MM; LUNA swapped for $1B of Bitcoin

Gm Fintech Futurists — our agenda for today is below. On our mind and heart is the horror of Ukraine and Russia. We will write on this later in the week.

1. CRYPTO:?Coinbase crushes expectations in Q4 earnings, but stock sinks as it reports slower start to year (link?here)
2. BNPL: Ciao Bella! Scalapay brings home $497 million as Italy now lays claim to its first unicorn (link?here)
3. CRYPTO:?Luna Foundation Guard Raises $1B for Bitcoin UST Stablecoin Reserve (link?here)
4. LONG TAKE: Glory and cost of a "pure bet", with SoFi $1B Technisys acquisition and BlockFi $100MM SEC fine (link?here)
5. PODCAST: Rebuilding banking starting with Teens, with Current CTO Trevor Marshall (link?here)

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Short Takes

CRYPTO: Coinbase beats expectations in Q4 earnings, but stock sinks as it reports slower start to year (link?here)

Results! Coinbase Q4 2021 revenue was $2.5B, meaningfully higher than the expected $1.9B, and up $585MM from the same quarter in 2020. The increase in revenue led to net income of $840MM, up from $177MM in the prior period.

Source

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Yet the good news did little work for the share price, before it tumbled just above an all-time low, trading at 4x the ARR of the last quarter. In part, this is because future performance is more uncertain — Coinbase stated they expect monthly transacting users and trading volume to decline in Q1, with an expected total trading volume of $200B (down from $550B in Q4 2021). Additionally, the exchange expects lower subscriptions and services revenues in this quarter, with the overall top-line expected to dip in 2022 as a result.

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Two other interesting takeaways from the table above. First, institutional investors participation is meaningfully increasing — but that implies lower margins. Despite the higher trading volumes, Coinbase generated $90MM in revenue from institutional trading, compared to $2B? from retail investing last quarter. Secondly, investors are generating diversified positions in crypto assets even on centralized exchange. Bitcoin has gone from 38% of trading volume to 16% over the past year, and other crypto assets rose from 48% to 68% of the same period.

All in, we think crypto companies are trading at a discount to fair value, but that’s in part because crypto assets are right now a proxy for risk-on, fun, discretionary spending. And we are sort of in an apocalypse.

BNPL: Ciao Bella! Scalapay brings home $497 million as Italy now lays claim to its first unicorn (link?here)

BNPL solution Scalapay is now Italy’s first fintech unicorn, after the latest $497MM in Series B funding, bringing total funds raised to $1.2B. Putting this in industry context,?Klarna is valued at $45.6B,?Square bought Afterpay for $29B, and?PayPal bought Paidy for $2.7B. There’s no better trade, from private markets to public ones, of packaging credit underwriting as tech revenue.

Scalapay works with merchants like Nike, Decathlon, Moschino, and others, to increase average basket size by 48% and checkout conversion by 11%. Helps to be shopping on credit! It?also recently launched embedded payment processor Magic, which is meant to fix cart abandonment during check-out, and friction at signup, login, and shipping.

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This is like creating Amazon’s 1-click ordering experience outside of Amazon —?70% faster checkout rate for customers and a 1.7x higher conversion rate for merchants. We think that the overlap between commerce and financial products will continue to blend together, and that this will continue to be packaged as enabling industry software.

But obviously, there are risks in making it easier for people to buy more stuff at a higher frequency. If we did a long take here, we would ask about where the underwriting for the credit actually sits.

CRYPTO:?Luna Foundation Guard Raises $1B for Bitcoin UST Stablecoin Reserve?(link?here)

The Luna Foundation Guard (“LFG”) has raised $1B in an over-the-counter private sale of the LUNA token. LFG is a non-profit organisation which was set-up to grow Terra’s decentralised stablecoin ecosystem. The proceeds have been used to establish a Bitcoin denominated reserve for Terra’s largest stablecoin, TerraUSD (UST), with the new reserve acting as a “release valve” during market sell-offs and UST redemptions.

Source?

Unlike more orthodox stablecoin competitors such as?Circle’s USDC, UST claims to be an?algorithmic stablecoin?that relies on market incentives to maintain its peg to the dollar. A unique burn and mint mechanism is used whereby Terra’s native token, LUNA, can be burnt to mint UST and vice versa. As demand rises for UST, the value becomes greater than $1 which creates arbitrage opportunities as only $1 LUNA is burnt, however more than $1 UST can be minted and sold immediately.?Of course, the mechanism suggests “assume LUNA”.

Source?- UST losing its peg during the market sell-off in May.

In the past, the UST peg was lost due to the stress that Terra's main protocol,?Anchor, was under during the market volatility.?This led to oracle price data feeds being lost, which caused Terra to automatically freeze the LUNA and UST swap market. Arbitrageurs were unable to carry out the crucial task of bringing UST back to the $1 peg. However, since May, TerraUSD has not been more than $1.01 or less than $0.99 despite another market sell-off in late 2021.

The $1 billion BTC reserve — which marks-to-market the value of LUNA as of now — can therefore be used in market environments where BTC is better at retaining value than LUNA.?This has clear parallels as to how central banks swap various obligations and currencies to create more stability. But we’ll leave that to coverage of Russia’s balance sheet later in the week.

Rest of the Best

Here are the rest of the updates hitting our radar. Note that DeFi and digital investing now have their own dedicated weekly emails, on Tuesday and Thursday respectively.

• LENDING:?Peruvian startup Leasy secures $17M in debt, equity to provide auto loans to LatAm ride-hailing drivers
• LENDING:?Pipe expands into media and entertainment financing with its acquisition of Purely Capital
• WEALTH MANAGEMENT:?Finary wants to reimagine private banking
• WEALTH MANAGEMENT:?SigFig Branches Out, Defends Its Technology After UBS-Wealthfront Deal
• PAYTECH:?Apple Pay to halt support for Russian banks sanctioned on war in Ukraine
• PAYTECH:?EU Commission to remove Russian banks from SWIFT cross-border network
• INSURTECH:?Nirvana Insurance launches, raises $22 million
• INSURTECH:?Pet insurer SanteVet raises €150 million

Glory and cost of a "pure bet", with SoFi $1B Technisys acquisition and BlockFi $100MM SEC fine?(link?here)

Why do you need a strong directional path when building an empire?

In this analysis, we think about the tradeoffs between “pure bets” and “empire building”. We discuss how labor contributions function in DAOs and can be a hindrance to building something with purpose, referring to the example of SushiSwap. We also highlight the SoFi acquisition of Technisys and the $100MM SEC penalty for BlockFi in the context of pursuing a strong thesis.

?? Long Take

Podcast Conversation: Rebuilding banking starting with Teens, with Current CTO Trevor Marshall (link?here)

In this conversation, we chat with?Trevor Marshall,?The Chief Technology Officer at?Current, a leading U.S. financial technology company serving Americans working to create a better future for themselves. A graduate of Columbia University with degrees in math and computer science, Trevor worked on automating trading strategies at Morgan Stanley and built applications on distributed ledger technology before creating the foundation for Current.

In 2015, he began building the Current Core, Current’s proprietary banking technology, which provides stability, faster money and cost savings that are passed onto customers, and allows Current to provide experiences that cannot exist on traditional banking infrastructures.

More specifically, we touch on cryptography, bitcoin arbitrage trading strategies, Web3, Dollar Ledgering, ACH transactions, Influencer marketing, and so so much more!

?? Listen on Apple Podcasts

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