Cryptocurrency also has its own world, taking stock of the Coinbase Mafias territory

Original author: Yueqi Yang

Original translation: TechFlow

After years of dominating bitcoin trading in the U.S. as the go-to exchange for buying and selling bitcoin, Coinbase is now trying to reposition itself as a pillar of the entire financial system, leveraging its Base blockchain, which launched last year.

To attract users and turn a profit, Coinbase needs to attract outside applications that offer lending, international payments and other financial services on its blockchain. The crypto giant has a key advantage: a large network of former employees who have founded their own crypto startups, including about 40 in which Coinbase has invested.

One example is Moonwell, a decentralized finance application that allows users to borrow and lend cryptocurrencies using blockchains including Coinbase’s Base. Moonwell was launched on Base in August 2023, the day the blockchain publicly launched, and has now become one of the most popular applications on the network, with more than $145 million in crypto locked on the blockchain.

Moonwell founder Luke Youngblood resigned from Coinbase in the spring of 2022 after three years at the crypto giant. Youngblood wanted to build decentralized protocols — leaderless organizations governed by token holders — but he said that was difficult to achieve at Coinbase due to increased regulatory risks and traditional corporate structures.

However, shortly after Youngblood submitted his resignation, he received a message on Slack from Shan Aggarwal, who oversees venture capital and corporate development at Coinbase. “He just said, ‘Whatever you’re doing, we want to invest in you,’ ” Youngblood recalled. “‘Please let us know because we’d like to be able to invest.’ ”

Coinbase Ventures ended up becoming an early shareholder in Youngblood’s new company. Over the years, Coinbase employees have founded about 100 venture-backed startups, according to the company, in industries ranging from non-fungible token markets to decentralized finance and social media networks.

More startups founded by Coinbase employees will emerge. Vishal Gupta, a former head of trading who left the company last year, said his startup will debut in the coming weeks. Based on his experience, he plans to start a company in the crypto trading space.

“The culture of working at Coinbase was, get something done at scale, get your assignment done, and then move on to your own thing,” said Breck Stodghill, a partner at crypto investment firm Haun Ventures and an early Coinbase engineer.

This practice stems from the early days of Coinbase, when some employees were able to get support from senior management when they decided to start their own businesses. Linda Xie, who joined Coinbase as its 30th employee in 2014, decided to leave the company three years later to start a crypto fund.

When she told Coinbase co-founder and CEO Brian Armstrong, “he gave me a high five and said, ‘Welcome to being a founder,’ ” Xie recalled. Xie said Armstrong then offered to help finance her upcoming fund and serve as a referral if she needed it.

The idea behind this stance is that the growing crypto ecosystem presents more opportunities for Coinbase, even if it might result in losing a talented employee in the short term.

“We meet with them before they leave Coinbase, and before they start a company, and in many cases we decide to invest and support these founders because they plan to leave Coinbase to start their own company,” Aggarwal said. Coinbase Ventures typically provides funding of $1 million to $5 million and currently has about 450 companies in its portfolio.

Wide range of supported platforms

Successful founders coming out of Coinbase can expand their influence and market share in the crypto ecosystem, while also benefiting their own development. Most Coinbase-backed startups do not compete with its core business of crypto trading, but rather aim to build services that leverage Coinbase infrastructure or integrate with Coinbase products.

“When Coinbase Ventures invests, you get the support of Coinbase as a larger platform that sits at the center of the crypto ecosystem,” Aggarwal said, which facilitated the partnership with the company.

Coinbase Ventures’ early investment could also attract investors like a16z, which invested in Coinbase when it was still a startup, and Katie Haun, founder of Haun Ventures, who served on Coinbase’s board of directors. Many well-known crypto VCs are Coinbase employees, and they are familiar with the founders’ backgrounds, which helps attract more investment.

Olaf Carlson-Wee, Coinbase’s first employee, founded Polychain Capital, one of the earliest crypto investment funds, in 2016 at age 26. Fred Ehrsam co-founded Coinbase with Armstrong and later launched Paradigm, a crypto-focused venture capital firm. (Ehrsam stepped down as managing partner at Paradigm to become a partner last year.)

Haun Ventures’ Stodghill said he reconnected with former Coinbase product manager Rishav Mukherji after they left the firm. Mukherji founded crypto infrastructure startup Neynar in 2023, and Haun led its $11 million funding round in May.

Desperate for change

While Coinbase’s role as a launching pad for founders and a talent pipeline for the broader industry reflects its deep ties to Silicon Valley and extensive experience in crypto, it also highlights that some founders feel the need to break away from this industry giant in order to innovate at the forefront of crypto technology.

Many founders backed by Coinbase recount similar experiences to Youngblood, expressing a desire to build on the frontiers of crypto, such as decentralized finance, or to issue a token. Others feel Coinbase has lost its early entrepreneurial spirit, which attracted entrepreneurs who saw themselves as owners of small companies and were willing to take on big projects.

When Dan Romero joined Coinbase, who later founded decentralized social media platform Farcaster, he played a role in tackling major challenges in 2014. For example, after Silicon Valley Bank abruptly exited, he flew to Europe to find a new banking partner to stay afloat, Armstrong recalled in a recent podcast episode .

By 2019, when Romero decided to leave, Coinbase was a more mature company. “When I joined, there were 20 people. Now there are 800, and I had this itch to do my own thing,” Romero recalled telling his managers. “Brian [Armstrong] understood.”

During the recent crypto bull run, Coinbase continued to expand in size, from 1,717 people at the beginning of 2021 to about 5,000 people at the beginning of 2022. Founders who left during this phase said they did so in part to avoid dealing with increased bureaucracy and cumbersome processes. Armstrong admitted that Coinbase hired too quickly, resulting in reduced efficiency , and after a series of layoffs, the number of employees was reduced to about 3,500.

In some cases, Coinbase has lagged behind in the development of popular products. For example, Coinbase announced plans to launch an NFT marketplace in October 2021, at the height of the NFT craze. But the platform didn’t go live until half a year later, and the market had already fallen sharply.

Coinbase has regained some support among crypto purists after launching the Base blockchain, which is now the sixth-largest blockchain, according to DefiLlama, and has become a small but growing source of revenue for Coinbase. The company collects transaction fees based on transactions that occur on the blockchain.

Base was the main source ofthe $108.6 million in “other trading revenue” Coinbase earned in the first half of this year. That’s still a tiny fraction of its $3 billion in total revenue for the period, but it’s more than the fees Coinbase earns from its custodial services.

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