Coinbase’s new venture capital fund has announced a strategic investment in Compound, a startup that is building money market accounts for cryptocurrency investors.
Compound is the first project to receive venture funding from Coinbase as part of the company’s new efforts for fostering blockchain innovation. As CCN reported, Coinbase announced the new venture fund to incubate early-stage startups in the exploding industry.
Coinbase’s funding is part of a larger $8.2 million seed funding round, which pools other backers including Bain Capital Ventures, Andreessen Horowitz and Polychain Capital, with participation from Transmedia Capital, Compound Ventures, Abstract Ventures, Danhua Capital.
While other coin and token projects have debated ways to generate interest or dividend income, Compound has run with the idea. In a blog update, Salil Deshpande, Managing Director at Bain Capital Ventures, he states that current lending solutions for cryptoassets “are not good enough: they are either centralized and have substantial counterpart risk, or require robust order books for each type of cryptoasset, which generally do not exist.”
Compound’s mission is to put cryptoassets to work that now “sit idle on exchanges and in wallets, yielding no interest,” according Founder Robert Leshner in a blog update about the funding announcement.
“…when Compound launches it’s [sic] first money markets on the Ethereum blockchain, individuals, institutions and applications will earn interest on Ether, stablecoins and utility tokens, with complete liquidity — similar to the overnight rate for dollars and government currencies.”
The core technology behind Compound is a decentralized blockchain infrastructure that is centered around a series of open-source smart contracts. As part of the smart contracts, the interest rates for each asset adjust dynamically in response to the borrowing demand for that asset. An algorithm makes these adjustments in real time, according to the project’s whitepaper.
Compound hopes to attract borrowers such as hedge funds, sophisticated speculators, and other Ethereum applications.
As Compound’s technology aligns closely with Coinbase’s entrenched status as a company that is revolutionizing traditional finance, it is no small wonder why it has received the firm’s backing. The company’s target market of institutional investors is in line with Coinbase’s recent rolling out of a suite of tools for only these clients, as CCN reported on May 15.
Compound’s core technology also eases reporting, since each money market is transparent, auditable, and completely predictable. Coinbase itself has also worked hard on institutional-grade reporting as part of efforts for becoming an SEC-regulated brokerage.
Binance, Coinbase on Hiring Spree Despite Bear Market, Sign of Rapid Growth
Binance and Coinbase, two of the largest cryptocurrency exchanges in the world by user base and daily trading volume, are on a hiring spree despite the 80 percent correction the crypto market experienced throughout 2018.
Speaking to Bloomberg, Binance’s Chief Financial Officer Wei Zhou stated that the company is hiring 50 new employees in its headquarters in Malta while also recruiting new hires for the firm’s first fiat-to-crypto exchange in Singapore.
The Malta-based multi-billion dollar company, which already has more than 300 people across 39 countries, is soon expected to expand its team to over 350 employees.
Sign of Rapid Growth
Over the past year, Binance has experienced exponential growth, adding millions of users and billions in daily trading volume in merely months. The company is often described as the fastest growing startup in history, outside the realm of crypto and finance.
Zhou emphasized that Binance is continuing to grow the ecosystem, with its most recent initiative being the launch of Binance Singapore and potentially more fiat-integrated cryptocurrency exchanges in the months to come.
“Our goal right now is to continue to grow the ecosystem, not just for cryptocurrency, but for the blockchain industry as well. The company is currently looking to acquire projects in the fiat space, Zhou said.
Apart from managing billions of dollars in funds, which requires a highly experienced and talented security team, Binance also puts in significant effort in integrating cryptocurrencies that fit the criteria of the exchange.
The rigorous approval process of cryptocurrencies by Binance has decreased the acceptance rate of tokens to 2 to 3 percent, which is slimmer than the chance of going to Harvard and Stanford for millennials.
“I think it’s harder to get into Binance than it is to get to Harvard and Stanford. It’s like less than 2 to 3 percent acceptance rate in terms of tokens we’re looking at,” Zhou added.
The complicated and long process of approving tokens manually requires individuals with experience in the cryptocurrency sector that are able to evaluate projects based on a wide range of criteria. The intensive work that is required in approving and implementing tokens along with the responsibility of the exchange to secure user funds demand a large workforce.
The vision of Binance to continuously evolve and improve its infrastructure has allowed the exchange to operate without any hacking attack or security breach to date, while several multi-billion dollar exchanges like Bithumb and Coincheck experienced high profile hacking attacks in recent months.
High Profile Hires
Coinbase recently brought in Michael Li, a senior executive and Head of Analytics and Data Science at LinkedIn, as the company’s new Vice President of Data.
“I am thrilled by the opportunity to define and evolve the role data can play in a rapidly emerging space, combining an innovative mindset to solve new challenges with learnings from my past experience,” Li said.
Executives and experienced traders from the finance sector are flocking to the rapidly growing cryptocurrency sector, often with a pay cut, to be a part of the new asset class and the industry surrounding it.
Crypto Exchange Coinbase: We Don’t Engage in Proprietary Trading
Cryptocurrency exchange operator Coinbase has denied that it engages in proprietary trading and that these activities account for a large percentage of the firm’s overall trading volume.
CCN reported yesterday that an investigation into cryptocurrency exchange policies and operations, published this week by the New York attorney general’s office (OAG), found that proprietary trading, through which an exchange operates a trading desk that trades on its own platform against its customers, is common within the crypto industry.
Per the report:
“The OAG found that significant variation exists in the amount of trading activity attributable to those platform operators. Circle reported that it accounted for less than one percent of the executed volume on its platform Poloniex during the most recent time period reviewed. BitFlyer USA indicated that its own activity accounted for approximately ten percent of the executed volume on its platform. Another, Coinbase, disclosed that almost twenty percent of executed volume on its platform was attributable to its own trading.”
The OAG noted that, though this practice is also common within traditional securities markets, it raises “serious questions about the risks customers face on those platforms,” since it could mislead traders about the exchange’s true liquidity and hinder their ability to execute trades during periods of peak market volatility.
However, writing in a blog post published Wednesday, Mike Lempres, chief policy officer at Coinbase, said that the exchange operator does not engage in proprietary trading and that the volume cited in the OAG report stems from the company executing trades on behalf of its retail brokerage customers.
“Coinbase does not trade for the benefit of the company on a proprietary basis. In order to provide an easy-to-use customer experience, Coinbase Consumer quotes a price and then quickly fills the order from our exchange platform (Coinbase Markets). This takes advantage of the liquidity provided by the entire Coinbase ecosystem.”
When customers use the company’s traditional brokerage platform, now known as Coinbase Consumer, they see a single buy and sell price for each of the assets listed on the platform, rather than a full order-book as they would see on a centralized exchange.
After a customer places an order through the brokerage, the company fills the order from Coinbase Markets, its centralized exchange platform, though this action is hidden from the client, who simply sees the funds enter or leave their personal wallet.
Lempres further clarified that Coinbase neither operates an in-house trading desk nor acts as a market maker, through which a firm places buy and sell orders to increase a trading pair’s liquidity.
He said, “The volume figure stated in the report has been misreported in the media as ‘self-trading,’ which is inaccurate. The figure represents customer-driven volume via Coinbase Consumer. Coinbase does not operate a proprietary trading desk, nor does it undertake market making actions.”
Coinbase claps back at the NY AG report, asserts on customer safety
The aftermath of the report released by the New York Office of the Attorney General is still creating tremors in the cryptocurrency space. Coinbase, one of the biggest cryptocurrency exchanges in the FinTech ecosystem, responded to the allegations mentioned in the report, saying that the allegations were misplaced.
The report titled ‘Virtual Markets Integrity Initiative’ stated that Coinbase was involved in over 20% of the executed volume on their exchange. The report aimed at creating awareness amongst the user base about the high level of “proprietary trading” that occurred on the platform as well as the repercussion they might face in the future.
The report stated:“As a general principle, when a significant percentage of the volume in one or more assets on a venue is attributable to one source, customers face the risk that the availability of liquidity in those assets could change, without notice and at any time, including when liquidity is needed most – namely, in times of market volatility or rapid price movement.”
Mike Lempres, the Chief Policy Officer at Coinbase, retaliated to the comments in the report. In a Medium blog post titled ‘Correcting the record’, the official affirmed on the fact that it does all trades on behalf of Coinbase Consumer customers.
He also stated that some figures were misrepresented in the report, citing the example of ‘”self-trading”. The company has gone on record and stated that the company only cites figures that are given by the customers and does not indulge in actions that would sway the market in any way.
Lempres also said:“Our goal is to be the world’s most trusted place to buy, store and interact with cryptocurrency. We welcome oversight and will continue to work with regulators to promote the cryptocurrency ecosystem.”
One of the main concerns highlighted in the report by the NYAG pointed to insider trading and the scenario that a lot of the investors and traders partake in it to ensure the continuous rise of currencies. The report also stated:“…potentially using non-public information to inform their trades. Fourth, apart from individual employee trading, several trading platforms themselves trade on their own venue in a proprietary capacity.”
Coinbase is not the only cryptocurrency which was called out by the Attorney General, with the list also including exchanges like Bitfinex, bitFlyer, Poloniex, and Tidex. The Office of the Attorney General also elucidated on the policies that cryptocurrency exchanges need to follow which “define, detect, prevent, or penalize suspicious trading activity or market manipulation.” This was followed up by clauses that focussed on prevention of mismanagement of assets during trade on any cryptocurrency exchange.