Coinbase

By Brian Armstrong, CEO and Cofounder

Earlier today, I shared the following note with all Coinbase employees.

Team,

Today I am making the difficult decision to reduce the size of our team by about 18%, to ensure we stay healthy during this economic downturn. I want to walk you through why I am making this decision below, but first I want to start by taking accountability for how we got here. I am the CEO, and the buck stops with me.

What has changed?

Over the past month, I’ve had many conversations with our Exec team and our Board to discuss recent market events as well as the state of our business. Several realities have become clear to me in these discussions:

• Economic conditions are changing rapidly: We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue (our largest revenue source) has declined significantly. While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.
• Managing our costs is critical in down markets: Coinbase has survived through four major crypto winters, and we’ve created long term success by carefully managing our spending through every down period. Down markets are challenging to navigate and require a different mindset.
• We grew too quickly: At the beginning of 2021, we had 1,250 employees. At the time, we were in the early innings of the bull run and adoption of crypto products was exploding. There were new use cases enabled by crypto getting traction practically every week. We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets. It’s challenging to grow at just the right pace given the scale of our growth (~200% y/y since the beginning of 2021). While we tried our best to get this just right, in this case it is now clear to me that we over-hired.

What decision was reached?

1. The need to manage expenses: As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn. Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.
2. The need to increase efficiency: We have now exceeded the limit of how many new employees we can integrate while growing our productivity. For the past few months, adding new employees has made us less efficient, not more. We have seen ourselves slow down considerably due to coordination headwinds, and difficulty fully integrating new team members. We believe the targeted resourcing changes we are making today will allow our organization to become more efficient.

Both of these come back to my decision to significantly scale our team over the past two years, so this accountability rests fully with me.

Who is affected?

Our senior leaders have worked diligently to identify the appropriate changes for each of their teams based on our clarified priorities.

In the next hour every employee will receive an email from HR informing if you are affected or unaffected by this layoff. Every affected employee will receive an invitation to have a direct conversation with your HRBP and the senior leader of your organization.

If you are affected, you will receive this notification in your personal email, because we made the decision to cut access to Coinbase systems for affected employees. I realize that removal of access will feel sudden and unexpected, and this is not the experience I wanted for you. Given the number of employees who have access to sensitive customer information, it was unfortunately the only practical choice, to ensure not even a single person made a rash decision that harmed the business or themselves.

I also wanted to make sure that all affected employees are taken care of in this transition, and that we support them in finding a new role. Employees who are departing today will receive:

1. Minimum of 14 weeks of severance plus an additional 2 weeks for every year of employment beyond 1 year
2. 4 months of COBRA health insurance in the US, and 4 months of mental health support globally
3. Access to Talent Hub, where members of Coinbase’s team will work to connect with you with open positions at other firms (including portfolio companies from Coinbase Ventures and other top crypto VC funds)

Coinbase employees are among the most talented in the world, and I am certain that the skills you all possess will continue to be sought after by companies around the world. I realize it may take longer in this environment to find new employment, and so my hope is that this financial and non-financial assistance helps make this unexpected transition for you as seamless as possible.

How do we move forward?

To our colleagues who are departing, I want to say thank you for giving everything to this company, and that I am sorry. I hope that as we grow again we get a chance to hire you back. We would not be where we are today without your hard work and dedication to our mission. I am incredibly grateful for everything you have done to contribute to our success.

To our team that is staying, I know this will be a difficult day for you all too. You will say goodbye to your colleagues that you’ve been in the trenches with. I also expect you will all feel some level of fear, uncertainty and doubt about the future. Know that we made these hard decisions to ensure our future is bright. We’ll share more on how we rally as a team in the next few days. Right now, let us thank all our colleagues who are departing for the important contribution they’ve made to our mission.

Brian

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This blog post contains forward looking statements. These forward looking statements are only predictions and may differ materially from actual results due to a variety of factors. The risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed in our filings with the Securities and Exchange Commission. Any forward looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this blog post. We undertake no obligation to update these statements as a result of new information or future events.

A message from Coinbase CEO and Cofounder, Brian Armstrong was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Tl;dr: This blog shares insights on how Coinbase is investing in new tools and processes to scale its node operations.

By Min Choi, Senior Engineering Manager — Crypto Reliability

Blockchain nodes power almost every user experience at Coinbase. We use them to monitor fund movements, help our customers earn their staking rewards, and build the analytics needed to support popular features within our applications. As such, being able to effectively manage blockchain nodes is vital to our core business and we are continuing to invest in ways to scale our node operations.

One of the most difficult aspects of node management is keeping up with the constant, and sometimes unpredictable, changes to the node software. Asset developers are consistently releasing new code versions and some blockchains, such as Tezos, leverage an on-chain governance model to take a community vote on all proposed changes. A decentralized governance model such as this makes it difficult to predict when a change will be introduced and prepare our internal systems in advance. An example of such a scenario is depicted in the below Messari alert.

Data provided by https://messari.io/

The consequences of not keeping up with these changes can be severe to our customers. They could cause long delays to balance updates in our core wallets or slashed staking rewards. To help minimize these incidents from occurring, we’re focusing investments into the following areas:

Asset Release Manager

This service gives us an extra pair of hands (or should I say “ARM”) to process common node upgrades. All puns aside, the ARM service monitors Github release activity for dozens of critical blockchains and automates the deployment of new node binaries to our non-production environments. This frees up our engineers to focus on service validations and work proactively with asset developers to resolve problems prior to production release.

The below diagram shows the high level data flow for ARM.

Here’s a recent example of how the ARM service was leveraged to process a node upgrade for Algorand.

• On May 9 at 12:44 PM PDT, Algorand version 3.6.2 was released.

• On May 9 at 1:13 PM PDT, the ARM service filed a ticket to notify our engineers and track the incoming change.

• On May 9 at 1:43 PM PDT, the required code change was automatically generated for build and deployment.

• On May 9 at 2:13 PM PDT, the change was automatically deployed to all our non-production environments for Algorand.

• On May 9 at 2:43 PM PDT, an error in one of the three deployments was detected and the ARM service escalated to an engineer to help investigate.

• On May 10 at 6:27 AM PDT, the engineer resolved the deployment problem and began service validation testing in preparation for production deployment.

As seen above in this event chronology, the system isn’t completely touchless, meaning engineers are still needed as part of the overall upgrade process. However, the ARM service allows us to transact hundreds of these upgrade operations in parallel, saving countless hours of engineering time which can then be reinvested into quality assurance efforts.

Test-Runner

This is an orchestration service used to execute integration tests, both via temporal workflows and API calls to critical systems across Coinbase. As the name may suggest, Test-Runner obtains and stores test results, aggregates them by metadata, and exposes an API to query the results. By making it simple to create these tests and share standardized test results across our engineering teams, we’re able to accelerate our asset addition and incident response processes. We put a lot of value in building reusable integration tests as we view them as a foundation of our asset maintenance regime.

The below diagram shows the high level service architecture for Test-Runner.

Here are also a few basic examples of the types of tests that are in scope for Test-Runner.

1. Balance transfers within Coinbase.
2. Deposits and withdrawals in and out of Coinbase.
3. Sweep and restore operations between cold and hot wallets.
4. Simple trade operations (buy/sell).
5. Rosetta validation.

Each time a node is upgraded, these tests are automatically triggered through our continuous integration (CI) pipeline, providing a clear validation of success or failure. This helps our engineers make quick and informed operational decisions such as rolling back to a previous version of the node binary.

Blockchain Pods

As we add more blockchains to our support catalog, we’re investing in flexible engineering teams designed to collaborate on emerging priorities. Our pods are approximately 5–7 engineers in size, are made up of site reliability and software engineers, and offer opportunities to quickly adapt to shifting market conditions. For example, we most recently formed a pod to focus specifically on Ethereum’s upcoming transition from a Proof-of-Work (POW) to a Proof-of-Stake (POS) blockchain. The Merge is a very large and extremely complex change, requiring nearly all Coinbase systems to adjust, but is also merely a one time event that doesn’t justify the formation of a permanent engineering team.

We’re also in the process of forming new pods to focus on ERC-20 (Tokens) and ERC-721 (NFTs). In this way, we can pivot on the development of features that harness these standards for the betterment of our customers. By constantly forming and dissolving pods in this manner, we’re able to develop small economies of scale that quickly meet our customer needs. It also gives our engineers the flexibility to choose between areas of technological interest and build subject matter expertise that help them grow their careers at Coinbase.

Final Thoughts

Developing a comprehensive strategy for node management is a challenging endeavor. While we acknowledge that our own strategy is not without flaws, we take pride in operating at the cutting edge of blockchain technology. Everyday, Coinbase engineers work tirelessly in partnership with the greater crypto community to overcome these operational challenges. So if you’re interested in building the financial system of the future, check out the openings on the Crypto Reliability (CREL) team at Coinbase.

Scaling Node Operations at Coinbase was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Tl;dr: A quick update about a key priority market from the International team. As we prepare to launch in Brazil, we have hired a Country Director, are building out an engineering team, and have engaged with regulators, financial institutions, and startup founders.

By Nana Murugesan,VP Business Development and International & Fabio Plein, Country Director for Brazil

At Coinbase, our goal is to promote economic freedom, and we believe the best way to do that is to get more people using crypto. That’s why it’s so important for us to expand internationally, and to make it easier for people around the world to join the crypto community.

As I shared in Lighting Up The Map: How Coinbase Plans To Scale Globally, we have adopted a go-broad and go-deep approach to further our mission around the world. Brazil is a go-deep priority market for us, which is why we’ve hired our new Country Director, Fabio Plein, to lead our work as we prepare to launch here.

Earlier this week, Fabio and I had the privilege to speak at the Valor Capital Crypto Conference about the opportunities for crypto in Brazil, as well as the importance of smart regulation, and our commitment to the Brazilian market. Valor Capital is a cross-border (US and Brazil) venture capital firm, founded by former US Ambassador to Brazil Clifford Sobel and Scott Sobel. Clifford and Scott were early investors in Coinbase, and have been immensely helpful in sharing their connections and expertise.

We believe the potential of crypto in Brazil is enormous. Crypto networks are open, allowing everyone to transact on shared networks, no matter where they live. That’s why crypto and web3 have the potential to change the way the world does business — from improving payments, to empowering microfinance projects, to providing a hedge against inflation, and access to capital.

Brazil is well positioned to lead Latin America and beyond with its approach to crypto. We are excited to see that Brazilian Central Bank Governor Roberto Campos Neto has launched dedicated policy initiatives related to blockchain, digital assets, and other innovations shaping the future of finance. And we want to support the kind of practical, thoughtful and clear regulation that will keep people safe without stifling innovation. That’s why we will keep listening and learning from regulators and policymakers’ priorities and concerns while at the same time collaborating on building a trusted and resilient crypto ecosystem. We want to be a constructive resource to the Brazilian government as they formulate a long-term strategy for how to build the cryptoeconomy.

We are building for Brazil from Brazil. So far, we have hired more than 40 full time engineers in Brazil. We offer all of the assets on the Coinbase Exchange for purchase via credit card payment. Brazilians can also take advantage of staking and use Coinbase Wallet.

We are also investing in the local startup ecosystem. Through Coinbase Ventures, we have invested in local companies, including Hashdex, a Brazilian crypto asset management firm and Bitso, a leading crypto exchange across Mexico, Argentina, and Brazil.

Brazil has always been open to financial innovation — while also laying the groundwork for clear and tailored regulation. We see Brazil as a key market for Coinbase’s entry into Latin America, and are thrilled to continue investing and building here.

Obrigado,
Nana & Fabio

Olá from Brazil was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The crypto market downturn explained

Around the Block from Coinbase Ventures sheds light on key trends in crypto. Written by Connor Dempsey. Data by Mike Cohen.

TLDR:

• Central Banks and governments responded to the March 2020 COVID market shock with unprecedented interest rate cuts, money printing, and stimulus
• These easy money policies kicked off a multi-year bull run for equities and crypto, before eventually causing inflation that was further exacerbated by COVID supply shocks
• BTC, ETH, the NASDAQ, and S&P each peaked at the tail end of 2021, when it became clear that inflation was not under control and that Central Banks would have to unwind the same policies that propelled stocks and crypto to new heights in the first place
• This cycle crypto has been broadly correlated with tech stocks, and has traded like risk assets
• While not immune to Central Bank policy in the short run, the prospects of crypto and Web 3 in the long run remain stronger than they’ve ever been

Financial markets are, in essence, one giant information processing machine. A machine that responds to new information not directly, but as it affects the decisions of millions of individual buyers and sellers. Or as Benjamin Graham famously put it, “in the short run, the market is a voting machine.”

With the S&P 500, NASDAQ, BTC, ETH, and most crypto assets significantly off of their all-time-highs, that begs the question: what information has market participants predominantly voting to sell?

In this edition of Around The Block, we take a look at the overall macro downturn with an eye towards the crypto markets.

As of June 2022, US equities have shed roughly 20%, or $10 Trillion in value. For US stocks, the selloff has not yet approached the severity of other historically noteworthy downturns, but it’s certainly in the conversation.

Crypto meanwhile, has shed nearly 60%, or $1.7 Trillion. For comparison, it shed 87% of its total market cap after the peak of the 2017 bull run.

BTC, ETH, and the NASDAQ all peaked in November, with the S&P 500 peaking at the end of December. So what changed during the last two months of the year? To understand this market downturn, it’s helpful to start at the beginning of a historic bull run that both stocks and crypto experienced in 2020.

Entering 2020, Bitcoin was rallying from the depths of the 2018/19 crypto winter, from $7,500 to nearly $10,000. Meanwhile the S&P and NASDAQ each stood at all-time highs. Then COVID hit.

COVID shock of March 2020

On March 12, 2020, the World Health Organization declared the Coronavirus a pandemic and governments around the world placed entire countries on lockdown.

As the magnitude of COVID-19 set in, it became clear that our global economy was not adequately prepared to handle the shock, sending all markets into a panic. The S&P and NASDAQ each declined around 30%, with crypto markets getting hit harder (in absolute terms). When the dust settled, BTC briefly dropped below $4,000, shedding over 60% of its value.

In short, COVID sent panicked investors to rush for the safety of cash, sending all liquid markets down sharply. Then the US Federal Reserve stepped in.

The Fed response

As the Central Bank behind the world’s largest economy, the US Federal Reserve plays a unique role in financial markets. Mainly, it controls the supply of the US dollar, which is the world’s reserve currency.

The money printer and interest rates are the Fed’s main tools for supporting the economy in times of extreme turmoil. By digitally printing money and buying financial assets like bonds from financial institutions, they can introduce new money into the economy. By lowering interest rates, they can make it cheaper for other banks to borrow money from the Fed, which also introduces new money (in the form of credit) into the economy.

After COVID, the Fed dropped the cost that banks pay to borrow money from the Central Bank, known as the Federal Funds Rate, to essentially zero. This allowed banks to, in turn, lower the cost at which their customers borrow money. These cheap loans could then be used to finance homes, businesses, spending and other investments.

By digitally printing new money and using it to buy treasury bills and other securities from financial institutions (this is known as quantitative easing), an unprecedented amount of US dollars was introduced into the economy. Over the next two years, almost 6 trillion in new money was printed, increasing the broad supply of USD nearly 40%. Awash with cash, financial institutions compete to lend this fresh capital out, forcing them to lower interest rates to remain competitive. Again, availability of cheap credit encourages borrowing, which ultimately supports the economy.

The US wasn’t alone, as the European Central Bank, Bank of Japan, and Bank of England all lowered interest rates to near (or even below zero) and printed money at historic levels. All told, the world’s four major central banks printed $11.3 trillion, which is a 73% expansion since the beginning of 2020.

On top of all that, the US Government injected over $5 trillion of “stimulus” into the economy by taking on debt from public, private, and foreign entities. Similarly, China pumped another $5 trillion into its economy through the same methods. Basically, the world became awash with fresh cash.

Don’t fight the Fed

“Don’t Fight the Fed” is an old investor mantra which implies that given the Fed’s outsized influence, one should invest in lockstep with whatever direction the Fed is moving financial markets. This mantra rang true after COVID struck in 2020.

When new money is being printed at record levels, and interest rates are near zero, all of this money and credit needs a place to go. On top of that, when rates are low, conservative instruments like bonds are less profitable, pushing money into higher yield assets. In the aftermath of COVID, these forces caused massive inflows into stocks, crypto, and even NFTs, helping push asset prices to new heights.

From their COVID panic induced bottoms, the S&P500, NASDAQ, BTC, and ETH would soar 107%, 133%, 1,600%, and 4,200% respectively.

Enter inflation

When the system is awash with money, and assets are going up, everyone feels richer. People can spend more and companies can pay their employees more. When spending and incomes increase faster than the production of goods, you have “too much money chasing too few goods,” and the price of goods rise, or inflate.

With supply chain shocks stemming from COVID lockdowns, there were even fewer goods in the economy. More money chasing even fewer goods led to even more inflation. This started to become apparent in May 2021.

The consumer price index (CPI) measures the change in prices paid by consumers for goods like gas, utilities, and food. From March to May 2021, it shot up from a healthy 2.6% to 5%. By March 2022 it hit 8% — levels of inflation not seen in over 40 years.

Inflation makes everyone poorer, because people’s money no longer buys as much as it once did, so the Fed had to step in once again. To combat rising inflation, they turn to the same tools they used to support financial assets in the first place.

Reversing course

As we explained, low interest rates and newly printed money support both the economy and asset prices. When overdone, they can also lead to inflation. When that happens, the Fed flips the switch, raises rates and removes money from the market, setting the process in reverse.

Raising interest rates ripples throughout the economy. Since it makes it more expensive for banks to borrow from the Central Bank, they in turn charge customers more to borrow money. On top of it becoming more expensive for everyone to borrow money, the price to pay for money already borrowed also goes up (think if your credit card rate jumped from 5 to 10%).

Where quantitative easing involves injecting money into the economy by buying securities from financial institutions, quantitative tightening is the opposite. First, the Fed stops buying securities while letting existing securities expire, and eventually, begins selling them on the open market. This ultimately leads to less money in the economy. Less money to lend out causes interest rates to rise due to simple supply and demand.

With the cost of borrowing and paying existing debts more expensive, everyone slows down on the spending that caused inflation in the first place. With less money being pumped into the economy via asset purchases, there’s less money chasing inflated goods, and prices in theory should normalize. There’s also less money chasing investments, which brings the price of assets down along with it — something sophisticated market participants know all too well.

The machine reacts

When inflation was hanging around 5% over the summer, the line out of the Fed was that it was “transitory,” or non-permanent. On November 3rd, 2021, the Fed said that it would start to slow asset purchases, but would be patient with any interest rate hikes as it continued to monitor inflation.

When October’s CPI of 6.2% was announced on November 10th, it became clear that inflation was not under control and that the Fed would have to intervene. While the first interest rate hike wouldn’t come until March, the great information processing machine that is the market, seemed to react at first sign that they’d likely be coming.

Don’t fight the Fed rang true once again, as BTC and ETH each peaked on November 8th, the NASDAQ on November 19th, and the S&P at the end of December.

Even the CryptoPunks floor price (a proxy for NFT sentiment) and DeFi TVL peaked during this same period.

In a nutshell

Basically, in response to COVID, Central Bank and government intervention helped keep markets afloat with record low interest rates, money printing and stimulus. These easy money policies ultimately helped propel stocks and crypto to all-time highs before leading to inflation — inflation that was exacerbated by supply chain stocks stemming from COVID lock downs in China (and later on in 2022, Russia’s invasion of Ukraine).

When it became clear that inflation was persistent and that Central Banks would have to reverse course and bring an end to the policies that propelled many assets to new heights, the macro downturn began.

The great re-rating

While we started our story at the beginning of 2020, the era of easy Central Bank monetary policies started in the wake of the 2008 Great Financial Crisis. An era that saw the birth of crypto as well as a historic run in equities.

In the face of inflation not seen in 40 years, Central Banks have signaled that the easy money era has come to an end. Previous frameworks for valuing companies and assets are no longer relevant in lieu of this shift. The value of everything has been “re-rated”, which is the downturn we’ve all experienced over the course of the last six months.

When interest rates rise, bonds become more attractive investments. Meanwhile, “growth” stocks, or companies that aren’t expected to produce dividends until many years in the future get hit the hardest. With money tighter, investors preferences shift to investments that produce cash flows today, rather than far out in the future. Thus the tech sell-off.

Crypto selloff

But wasn’t crypto supposed to be an inflation hedge? It depends. If you bought Bitcoin in May 2020 after macro investor Paul Tudor Jones famously dubbed it “the fastest horse” in a post COVID environment, you’re still up over 200% and well ahead of inflation. If you bought after inflation started to rear its head, much less so.

Even with the correction, Bitcoin and ETH are each still up 500% and 1,000% respectively from their pandemic lows. Longer tail assets have not fared as well, however, and it’s hard to deny that this time around crypto more broadly has been highly correlated with stocks — particularly tech.

Tech stocks are considered risk assets. Given the correlation, it’s fair to say that most individuals are still treating crypto similarly. Risk assets carry high upside, as well as high downside risk. When money gets tight, which is what happens when Central Banks tighten up, risk assets are often the first to get sold. That, in a nutshell, explains the recent crypto market downturn.

The Fed giveth

Have you ever wondered why market participants hang on every word of the Fed Chair? It’s because they know that the direction in which the Fed turns its dials can significantly influence markets and the economy. It can make businesses succeed or fail, and home values rise or fall.

It’s not done with malice, but with the noble aim of keeping prices stable and people employed. However, the Fed’s tools are somewhat crude, and in the hands of well meaning, but inherently fallible groups of people. It isn’t unreasonable to think it strange that the unilateral decisions of a very small group of people remain so consequential for the average person.

While crypto prices are clearly not immune to Fed policy, it should also come as no surprise that it was among the best performing asset classes over this last market cycle. Easy money policies encourage speculation, and speculation has always accompanied paradigm shifting technologies: personal computers, the internet, smartphones, and even the railroads of the 1800’s.

Additionally, Bitcoin and its hard supply of 21 million that can’t be debased by a central authority continue to stand in stark contrast to Central Bank money printers. History tells us that all centrally managed currencies fail eventually, typically from mass inflation via economic mismanagement. While this cycle has also shown that crypto is still far from without its risks and shortcomings, it also further validated the need for decentralized systems free from the risks of single-party control to co-exist with centralized counterparts. While crypto prices will remain influenced by Fed policy in the short run, in the long run, crypto and Web3 remain more alluring than ever.

Looking ahead

If this is your first crypto market downturn, it can certainly be scary. It is however, not without precedent. This market has been pronounced dead in 2018, 2015, and 2013, only to come back stronger each time.

Like the internet before it, crypto innovation marches on regardless of market cycles.

From our seat, crypto feels more inevitable than it’s ever been. Bitcoin has global adoption, now held by institutions, corporations, countries, and millions of individuals alike. DeFi has created the underpinnings of an internet based financial system with no single party in control. The foundations for Web3 and a user-owned internet have been laid. NFTs have birthed billion dollar industries across art and gaming with a diverse array of use cases on the way. DAO treasuries manage nearly $10B+ and are just getting started. Crypto’s real world utility has been showcased on the world stage, raising millions in aid for Ukraine following a Russian invasion.

Even the biggest detractors have come around. 9 out of 10 Central Banks are exploring digital currencies and analysts at JP Morgan have dubbed crypto a “preferred alternative asset class.” Facebook rebranded to Meta, Twitter, Spotify, TikTok and Instagram are integrating NFTs, while Google and Microsoft are each dipping their toes into Web3.

In the long run, it appears that the proliferation of the financial internet is a function of time, rather than Central Bank policy.

The weighing machine

As we mentioned, Benjamin Graham said that in the short run, the market is a voting machine. But he also said that in the long run it is a weighing machine. In the short run it’s a giant information processing machine subject to emotional swings when presented with distressing information. In the long run, it has a knack for weighing assets based on their true value.

Bitcoin and Ethereum have maintained their weight over past downturns. Many other crypto assets will be weighed accordingly over the current downturn. The job of the individual is to vote in the short run for whatever they think the market will weigh as valuable in the long run.

At Coinbase, our votes are cast on crypto, Web3, and the financial internet eventually being weighed as one of the most valuable innovations of our time.

Special thanks to Scott Meadows, David Duong, and Griffin McShane for the review!

This website does not disclose material nonpublic information pertaining to Coinbase or Coinbase Venture’s portfolio companies.

Disclaimer: The opinions expressed on this website are those of the authors who may be associated persons of Coinbase, Inc., or its affiliates (“Coinbase”) and who do not represent the views, opinions and positions of Coinbase. Information is provided for general educational purposes only and is not intended to constitute investment or other advice on financial products. Coinbase makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information on this website and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Unless otherwise noted, all images provided herein are the property of Coinbase. This website contains links to third-party websites or other content for information purposes only. Third-party websites are not under the control of Coinbase, and Coinbase is not responsible for their contents. The inclusion of any link does not imply endorsement, approval or recommendation by Coinbase of the site or any association with its operators.

The crypto market downturn explained: a macro outlook was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what European officials need to get right.

By Faryar Shirzad, Chief Policy Officer

Tl;dr: As negotiations on the EU’s crypto rules enter a critical phase, we’re sharing four key pillars that should be taken into consideration. The potential for the EU is enormous and Coinbase is working to inform the process and drive towards positive policy outcomes.

Leading the charge for a tailored crypto regime

The Markets in Crypto-Assets Regulation (MiCA) and Transfer of Funds Regulation (TFR), which are in the final stages of negotiation, aim to facilitate the safe and responsible use of crypto across the EU. MiCA, in particular, will be one of the first comprehensive regulatory frameworks for crypto assets globally, and will provide important legal and regulatory certainty to the market, which is so important in order for firms to invest and innovate in Europe. MiCA includes a number of important elements. The authorisation and supervisory regime, as well as the prudential, risk management, market integrity and governance requirements for CASPs, will signal to consumers which operators meet certain minimum standards. Regulation of this kind will encourage the growth of a legitimate and trusted industry of DASPs.

We believe that if well-designed and appropriately implemented, MiCA could put the EU at the forefront of the digital finance revolution and the advent of web3. However, if there are systemic flaws in the execution of the framework, it could push this uniquely innovative and empowering financial ecosystem outside the region, and deny EU regulators the ability to provide appropriate oversight over how their citizens engage with these transformational products and services.

Here are four pillars that EU policymakers should be thinking about as they debate and discuss the implementation of MiCA and TFR across the region.

1. Create common sense liability standards

There are three key provisions under consideration which will significantly raise the liability placed on Crypto Asset Service Providers (CASPs). The liability is disproportionately applied to CASPs to such an extent that they will need to decide whether they can reasonably accept such liability in order to do business in the EU. These provisions undermine the important steps the EU is taking to create a competitive, pro-innovation and tech-neutral regulatory framework for crypto assets.

Custodial liability

MiCA should ensure that CASPs are only liable for events that are in their control. Current texts imply much broader liability for events that are outside the CASP’s control, such as cyber attacks. Moreover, the burden of proof should not fall on the CASP to show the event occurred independently of their operations. Legal clarification is needed to enable CASPs to offer investors the best protection available, with appropriate liability.

Liability for the accuracy of Whitepapers

CASPs should have a responsibility for implementing a sound and proper asset listing process. Moreover, it is important that, going forward, issuers produce whitepapers for assets, so that investors understand the risks. However, making CASPs liable for the accuracy of whitepapers they do not themselves publish and creating a mandatory requirement to publish a whitepaper where one does not exist, is impractical. This is particularly true for assets that are already listed, which is why grandfathering provisions are so important. The inevitable effect of such a provision would be CASPs limiting their service offering in the EU to reduce their liability. These whitepaper liability requirements could kill competitiveness for smaller players, dramatically reduce consumer protection (as the trading of crypto assets would shift from regulated EU platforms to unregulated third country platforms), and position the EU as unwelcoming to web3 entrepreneurs.

Liability for the redemption of E-Money Tokens

Third parties, including CASPs, should not be liable for the redemption of e-money tokens where the issuer fails to redeem. This would be like making banks liable for volatility in global currency markets. The inclusion of any provision stating otherwise would essentially constitute an indirect trading ban on e-money tokens. Exchanges will not be willing to offer EMTs unless they are certain of the issuer’s ability to honor redemption obligations.

2. Create common sense privacy solutions for crypto

Obligating exchanges to collect, verify and report information on non-customers using self-hosted wallets (SHWs) is prohibitive to business and damaging to consumers. The requirement on exchanges to not only collect this data, but to also verify its accuracy before allowing a transfer to or from one of their customers, is a near impossible task. In fiat terms, it would basically mean you cannot receive or take money out of your bank account to send to someone else until you share personal data with your financial institution about that person and verify their identity. Not only is this collection and verification requirement a hugely burdensome measure, it runs counter to the EU’s core data protection principles of data minimization and proportionality.

3. Create clear definitions regarding NFTs

MiCA should not apply to “non-fungible tokens” (NFTs) and utility tokens. By including these assets within MiCA, many of which take the form of art and creative content, policymakers would be extending the scope of regulated “financial” assets far beyond the norm.

4. Address sustainability issues separately and thoughtfully

The EU is currently bringing forward a range of environmental and sustainability initiatives. These issues are extremely important and should be addressed through bespoke and appropriately tailored legislation — not MiCA. They require their own process, consultation, and industry engagement.

Path ahead

We urge EU policymakers finalizing the MiCA and TFR proposals to take the above considerations into account and to take their time developing these highly technical and complex frameworks. This is a pivotal moment for the EU to provide global leadership and to set the standard that will enable a safe, accessible, and innovative cryptoeconomy in Europe. Let’s get it right.

The future of the EU’s cryptoeconomy is entering a critical phase: Here’s what European officials… was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

By L.J Brock, Chief People Officer

As part of our announcement on Thursday, we made the difficult decision to rescind the offers of a number of candidates who were set to join Coinbase.

While it’s necessary to slow our headcount growth in light of the macro environment, we deeply regret the impact this has for the affected candidates. This decision is not a reflection of our regard for their exceptional talent or the incredible contributions we believe they would have brought to our team.

We have an opportunity now to demonstrate our culture in how we respond next. We are committed to helping these exceptionally talented individuals in the next stage of their careers.

Introducing Coinbase Talent Hub

Coinbase Talent Hub is a talent directory which utilizes Coinbase’s reputation and extensive industry network, to connect individuals with their next great role. The hub is a publicly available webpage that companies, VCs and recruiters can access to tap into top talent who have been impacted by last week’s announcement. Our goal is to make this directory highly discoverable and ultimately create the greatest value and level of choice for every individual as they transition to new employment.

If you are hiring, visit Coinbase Talent Hub to:

• Discover exceptionally talented individuals, and/or;
• Post your open roles using this submission form.

My goal is that through Coinbase Talent Hub and the additional talent support we have made available, we are able to help ease everyone’s transition to their next role. There are already 250+ job postings listed from more than 50 companies, and we expect that to continue to grow given the interest and outreach we’ve already seen. We aim to help create a career-defining moment for these folks — just not the one we had originally intended to.

Visit coinbase.com/talenthub.

Connecting great talent with new opportunities: Introducing the Coinbase Talent Hub was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Tl;dr: Our recent evaluation of Kubernetes underscored its suitability for scaling Coinbase into the future. In the past, a migration to Kubernetes raised concerns due to the operational burden of running and securing the control plane in-house. We’ve now concluded that managed Kubernetes offerings reduce this operational burden without compromising our stack security.

By Clare Curtis, Coinbase Staff Software Engineer

Almost two years ago we released a blog post detailing why Kubernetes is not part of our technical stack. At the time, migrating to Kubernetes would have created a whole new set of problems that outweighed any near-term benefits. However, as these technologies have matured, our newly-formed Compute Team devised a strategy for leveraging Kubernetes in a way that can deliver a more flexible and scalable version of our current system.

Coinbase has grown substantially since we first considered migrating to Kubernetes. With any growth of this kind, it is important to prioritize scalability concerns. As we continue to scale, one of the main areas in need of future-proofing is Coinbase’s compute platform. In mid-2020, our largest service was configured to run a relatively small number of hosts, whereas today it’s running 10x that number.

In this same period, we quadrupled the size of our engineering organization causing a substantial increase in the number of deployments — each needing completely new hosts. The increase in the number of deployments have raised concerns over future scalability as we are already running into technical limitations of current APIs and resources. Recurring issues with getting enough capacity and having it delivered in a reasonable timeframe, caused an increase in failed deployments and required our largest services to dramatically slow down their release process.

While these issues are solvable, we decided to take this opportunity to evaluate whether it made sense to continue investing in a homegrown system or consider an open source alternative that would be much more scalable in the long term.

In our evaluation of Kubernetes, we found that one of the biggest advantages of a migration is that it decouples host provisioning from service deployment, moving the burden of managing host acquisition from individual teams to the broader Infrastructure team. This empowers the Infrastructure team to take a holistic approach to host management. Also, capacity constraints are less likely to affect deployments, and we reduce the amount of cloud provider specific knowledge that individual engineers need to maintain.

The Kubernetes community has created a wealth of knowledge and tooling that we can utilize to provide better support to teams and quickly enable new features. Additionally, as Kubernetes is extensible, there is still the option to build tooling internally and open source it for use within the wider community.

Security is incredibly important at Coinbase and securing Kubernetes clusters is a non-trivial undertaking. Transitioning from highly-isolated and single-tenant compute to a system which promotes multi-tenancy requires deliberate security design and consideration. Because we have high-security workloads where we have to guarantee isolation, we must run separate clusters and build automated tooling that handles all cluster operations. Giving individuals access to operate high-security infrastructure is not allowed.

Managed Kubernetes offerings, such as AWS EKS, take on the responsibility of operating, maintaining, and securing the control plane, reducing the operational burden of running many clusters. Reducing our operational burden and security responsibility enables us to focus on building the orchestration and automation that is required to support many clusters across a large engineering organization. EKS has significantly matured over the past few years and shown that it provides stable, operational Kubernetes while also integrating with features that are commonly used in EC2 such as being able to attach security groups to pods and IAM Roles to service accounts. Having those integrations reduces the risk and cost associated with migration, as they allow for migration without having to change the identity or access patterns of our current platform.

While the migration to Kubernetes spurred concerns in the past, we’ve now concluded that managed Kubernetes offerings, such as AWS EKS, can reduce the operational burden without compromising security. Ultimately, we realized there is a clear ceiling to the ability of our homegrown system to scale, and while there is a large set up and migration cost associated with a move to Kubernetes, we are confident that it will be more flexible and scalable than our current system.

Scaling Container Technologies at Coinbase with Kubernetes was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

By L.J Brock, Chief People Officer

I shared an update with our employees today that I want to also share publicly here.

TL;DR: In response to the current market conditions and ongoing business prioritization efforts, we will extend our hiring pause for both new and backfill roles for the foreseeable future and rescind a number of accepted offers.

Two weeks ago, we paused hiring while we took time to reprioritize our hiring needs against our highest-priority business goals. As these discussions have evolved, it’s become evident that we need to take more stringent measures to slow our headcount growth. Adapting quickly and acting now will help us to successfully navigate this macro environment and emerge even stronger, enabling further healthy growth and innovation.

How we’ll navigate this moment:

1. We will extend our hiring pause for the foreseeable future.

• After assessing our business priorities, current headcount, and open roles, we have decided to pause hiring for as long as this macro environment requires.
• The extended hiring pause will include backfills, except for roles that are necessary to meet the high standards we set for security and compliance, or to support other mission-critical work. We will always prioritize the safety and security of our customers’ funds.

2. We will rescind a number of accepted offers.

• We will also rescind a number of outstanding offers for people who have not started yet. This is not a decision we make lightly, but is necessary to ensure we are only growing in the highest-priority areas.
• Limited exceptions apply and will be managed by the same criteria as backfills.
• All incoming hires will be advised of their updated offer status today by email.

3. We acknowledge and take responsibility for the experience of those impacted.

• This decision is not a reflection on the highly talented people we had extended job offers to.
• We will apply our generous severance philosophy to offset the financial impact of this decision.
• To further support impacted individuals, we are establishing a talent hub to allow them to opt-in to receive additional support services including job placement support, resume review, interview coaching and access to our strong industry connections.

We have prepared an FAQ — targeted to hiring managers and our talent teams — that contains additional information on how we’re managing this process.

As we manage through this downturn, we want to be transparent about the decisions we have to make in order to meaningfully manage expenses. For example, on our Q1 earnings call, we discussed that headcount and a variety of other expenses are the key ways for us to manage our costs. While we did not make this decision lightly, it is the prudent one given market conditions. We will continue to evaluate all of our options to responsibly navigate Coinbase through the current cycle.

We always knew crypto would be volatile, but that volatility alongside larger economic factors may test the company, and us personally, in new ways. If we’re flexible and resilient, and remain focused on the long term, Coinbase will come out stronger on the other side. These challenges can be career-defining, helping us learn and grow. And at the end of the day, I think you’ll be proud to have helped Coinbase navigate this next part of its journey.

• L.J.

Forward-Looking Statements

This blog post contains forward looking statements. These forward looking statements are only predictions and may differ materially from actual results due to a variety of factors. The risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed in our filings with the Securities and Exchange Commission. Any forward looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this blog post. We undertake no obligation to update these statements as a result of new information or future events.

Update on Hiring Plans was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Setting the record straight: Your funds are safe at Coinbase — and always will be

By Paul Grewal, Chief Legal Officer

A couple of weeks ago, a newly required SEC disclosure we made in our 10Q created some noise about how Coinbase holds crypto assets and what could happen in the highly unlikely event of the company’s insolvency. This led to some genuine concern among people who hold crypto assets on Coinbase.

Even though customer assets have always been protected, we know this was scary — especially in a down market. We want to share how we’re keeping your assets safe today and in the future:

• Your funds are your funds, and your crypto is your crypto: Coinbase maintains internal systems, like a bank or a broker. Our fully audited ledger identifies your account, your fiat and crypto holdings, and tracks your account activity in real time. There’s never a situation where customer funds could be confused with corporate assets.
• We will never repurpose your funds: We do not lend or take any action with your assets, unless you specifically instruct us to. Many banks and financial institutions use customer funds for commercial purposes including lending and trading, meaning that they often hold only a fraction of their customer assets at any given time. Coinbase always holds customer assets 1:1. This means that funds are available to our customers 24 hours a day, 7 days a week, 365 days of the year.
• We have clarified our Retail User Agreement: We have always protected our customer funds both legally and physically. We also recently updated our Retail User Agreement to expressly highlight the applicability of UCC Article 8 — the same legal protection that our institutional clients also rely on to protect their assets in the event of a custodian bankruptcy. This is not a change in how we do business. We believe that digital assets in our custody have always been Article 8 financial assets, but have clarified this so that there will not be any doubt.

We hope that the clarifications above provide you — our customer — with confidence and clarity. We apologize for the confusion around the disclosure. Even though it was in response to guidance applicable to any publicly traded crypto custodian from an important regulator, it caused unnecessary uncertainty and anxiety.

The crypto space is a dynamic one, and we will always seek to use the best structures to ensure that our clients’ assets are managed in the safest way possible.

One final big-picture note

As Brian shared with our teams a couple weeks ago, volatility in crypto — or any market — is inevitable. We can’t control it, but we do plan for it. That’s why, through the ups and downs of crypto over the last 10 years, Coinbase has focused on building — scaling through the highs and innovating through the lows.

Nothing about Coinbase has changed. If anything, we’re in an even stronger position than we were a few months, or a year ago — and we’ll keep working to be the simplest, most trusted way for people to get involved in crypto. #Longlivecrypto

Setting the record straight: Your funds are safe at Coinbase — and always will be was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Tl;dr: Coinbase commits $1 million for Public Goods through Gitcoin, including $200,000 for upcoming Grants Round 14.

Today, Coinbase is pleased to announce its ongoing support of digital public goods — or open-source software supporting open-source protocols — in collaboration with Gitcoin. With this $1 million commitment, Coinbase has committed one of the largest single donations to the public goods treasury in Gitcoin history — funded jointly by Coinbase Giving and Coinbase Cloud. Coinbase joins prominent names like the Ethereum Foundation, ENS, Optimism, NounsDAO and Polygon as one of the largest donors helping support the cryptoeconomy’s infrastructure. The funds will be allocated in an increasing stepwise manner over GR14, GR15, and GR16.

Coinbase remains committed to building a cryptoeconomy with equitable access for all. Investing in and backing secure public infrastructure is a critical component of this work. Our efforts are spread across a variety of teams at Coinbase, including Coinbase Giving, Coinbase Cloud, and developer relations, all of whom share the goal of improving digital public goods for the cryptoeconomy.

“If web3 is a city, then open source software is its infrastructure — the roads, bridges, and electrical grids it relies on. But just like a city, to create the kind of thriving, interconnected web3 we want to see we all need to do our part to maintain it. We’re proud to see Coinbase continuing to show exactly that kind of commitment here, by funding and empowering developers in the ecosystem to build for the public good.” — Scott Moore, Co-Founder and Head of Ecosystem Development at Gitcoin.

We believe helping to connect and grow the cryptoeconomy is essential to advancing economic freedom around the world. That’s why a portion of the donation ($200,000) will be allocated to Gitcoin’s upcoming Grants Round 14 Quadratic Funding match pool, taking place in June 2022. Thanks in part to Coinbase’s contribution, the upcoming Grants Round main will include a new pool specifically dedicated to funding and scaling Ethereum protocol development.

See Gitcoin’s impact measurement dashboard for more details on how we’re making a difference and driving impact with our partners. For more information, follow @Gitcoin and @Coinbase, and join the conversation on the future of web3.

Coinbase Commits $1 Million for Public Goods in partnership with Gitcoin was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.