Coinbase Giving: Half Year in Review

December 23, 2021 Coinbase

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In May 2021, we announced the launch of Coinbase Giving. Coinbase Giving is the operational embodiment of our commitment to Pledge 1%: our promise to dedicate 1% of Coinbase profits, equity, and employee time toward charitable activities that leverage the power of crypto to increase economic freedom in the world.

Where we are

In the past 7 months we’re proud of what we’ve accomplished:

Coinbase Giving is the largest charitable organization focused on Crypto (>$500M endowed at the time of post)
GiveCrypto, founded in 2018, has been brought officially under the umbrella of Coinbase Giving to enable scale and maximize social impact
We have launched 7 programs, supported 410 organizations, deployed ~$2M, and are impacting 2K+ lives

We are only at the beginning of this journey. 2021 has been a test and iteration year — our impact is still modest. The purpose of this post is to share progress and lessons learned.

Progress

In 2021 our focus has been to support endeavors that align to three broad categories:

Increasing education around, and access to, crypto
Accelerating the development of crypto protocols that underpin the cryptoeconomy
Fostering the next generation of crypto talent, no matter where they are located

Highlights

GiveCrypto is our nonprofit that enables crypto based direct giving to some of the most needy people in the world. In doing so we also educate them about crypto and give them an alternative to their broken financial systems.

GiveCrypto has been one of Coinbase Giving’s largest investment areas in-house. GiveCrypto is a two-sided market. First, donations are driven by donors who are inspired to give charitably. Second, from these donations, crypto is put directly in the hands of people in need through our on-the-ground Ambassador program.

Bringing GiveCrypto directly within Coinbase has accelerated our ability to integrate donation collection within the consumer experience. As such, 2021 has been a critical year of rebuilding and integration. As the #1 crypto exchange in the US, we see this connection as a huge step forward in enabling public donations using crypto and Coinbase products. We have taken this chance to revamp our Ambassador program — our system to distribute funds directly into the hands of the most needy. In 2021, we were purely testing our distribution system and only reached 246 recipients. However, with those tests now under our belts, we feel ready to scale distributions dramatically in 2022.

Already we are seeing how crypto possesses unique characteristics that make it suitable as a cross-border donations mechanism. For example, it allows donors to avoid disintermediation by bad actors, who often take a cut at the expense of the recipient. Crypto adoption is growing, particularly in Latin American countries where hyperinflation can be devastating. Our independently validated randomized control test shows that direct giving continues to demonstrate high real-life impact, whether in enabling individuals to pay for food, education, or other day-to-day needs.

Developer Grants 2.0 to accelerate the development of crypto protocols.

In August, we launched the second iteration of our Crypto Community Fund whose goal is to make the cryptoeconomy safer and easier to access for everyone. We selected 6 developers to fund across 3 thematic areas: (1) Scalability; (2) Privacy, identity and zero knowledge research; and (3) Protocol security and other foundational infrastructure.

Grant terms are typically 1-year and we will share progress on their journeys throughout 2022.

Base 11 partnership to foster the next generation of global and diverse crypto talent.

Earlier this year Coinbase announced our three-year partnership with Base 11. Together, our goal is to develop the next generation of diverse crypto talent. In early October, Base11 hosted the Next Frontier Conference & Expo, which featured a fireside chat with Alesia Haas, CFO at Coinbase and Landon Taylor, Founder & Chairman, Base 11.

At the conclusion of the conference, the Coinbase Giving team launched our first ever Open Innovation Challenge, giving away over $10,000 in prizes and an exclusive NFT. The Open Innovation Challenge called for participants to focus on four key pillars: environmental sustainability, healthcare, education, and financial inclusion. The call to action has drawn hundreds of participants from all over the world and dozens of quality submissions that address the key pillars described above. We’re excited to enter the judging phase and will announce the winner in Q1 2022.

Learnings

The crypto-forward charitable ecosystem — like the crypto ecosystem — is still nascent. That said, there are a growing number of novel partnerships between established non-profits (who deeply understand the social sector) and technical partners (who get crypto/blockchain) trying to better solve old problems with new solutions. We’ve learned this is Coinbase Giving’s sweet spot for grant-making.
As more people hold crypto, more people want to give in crypto. “45% of crypto holders donated $1,000 or more to charities in 2020 compared to 33% of all investors”, according to a new report by Fidelity. We have engaged in many conversations with potential partners exploring the role Coinbase Giving could play in connecting nonprofits and endowments with the infrastructure they need to accept and hold crypto as an endowment (only ~2% have the ability to do so currently).
Without education, there is no access. As the crypto market has heated up in 2021, so has the call for Coinbase Giving to provide more educational resources and support. Non-profits, NGOs and education leaders increasingly see crypto literacy as a next-generation skill required for the future success of their communities and constituencies. Coinbase’s investment in Crypto Learn and other initiatives distinctly well position Coinbase Giving to address this educational need. We look forward to exploring more in 2022.
Accelerating and building infrastructure is more than open source code. There are many barriers to the simple and secure use of crypto and blockchain that are just as much about infrastructure development as having the right protocols. There are also many more applications for blockchain to solve social problems than have yet been envisioned or realized. This is all infrastructure. We can do better to support a flourishing ecosystem.

Next Up

With 2021 as a foundation-building (half) year, we are looking forward to incorporating what we’ve learned and to drive the social impact of crypto in 2022. We’ll keep the community up to date on what’s happening with a quarterly blog. Stay tuned!

Coinbase Giving: Half Year in Review was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

How Coinbase thinks about the Metaverse

December 16, 2021 Coinbase

By Brian Armstrong, CEO and Cofounder, & Alex Reeve, Identity Product Lead

These days, everyone is talking about the Metaverse.

Primitive Metaverse platforms are selling virtual land for millions of dollars. Billions more are being invested in Metaverse startups. And Mark Zuckerberg recently renamed his entire company to reflect a focus on building the Metaverse.

The term “Metaverse” is not new. It was first used by author Neal Stephenson in his 1992 novel “Snow Crash.” But as technology improves, and we spend more of our lives online, more people are starting to think about what’s next — and how the future might revolutionize both the digital and the physical world.

Recently, our team put together an internal presentation about the Metaverse, who’s working on it, and how crypto will help make it real. I thought the presentation was well done, so I’m sharing most of the slides here.

Defining the Metaverse

At Coinbase, our thinking about the Metaverse has been heavily influenced by venture capitalist and writer Matthew Ball (you can find his work here). Like Matt, we define the Metaverse as:

The future of the internet: A massively-scaled, persistent, interactive, and interoperable real-time platform comprised of interconnected virtual worlds where people can socialize, work, transact, play, and create.

The earliest version of the internet, Web1, was about accessing static web pages. Web2 is about interactive, social experiences within closed ecosystems. And Web3 will be about digital ownership within an open, decentralized environment.

The Metaverse is the distant evolution of Web3. In its most complete form, it will be a series of decentralized, interconnected virtual worlds with a fully functioning economy where people can do just about anything they can do in the physical world.

Importantly, the Metaverse is not the same thing as gaming (an activity you can do within the Metaverse), or virtual reality (a way of interfacing with the Metaverse). It’s also not the same as Web3 (a distant ancestor of the Metaverse).

To illustrate this, here’s how some current platforms stack up against our definition of the Metaverse:

Elements of the Metaverse

While the full Metaverse is years away, it will rest on a foundation that’s being built right now.

Like the internet today, the Metaverse will rely on hardware and infrastructure, tools and standards, and regulatory frameworks — most of which haven’t been fully developed yet.

But unlike today’s internet, there won’t just be one Metaverse. There will be many Metaverses, and they’ll be interconnected. That’s why it will be important for any Metaverse to be trustless — meaning people can interact directly without going through an intermediary — and permissionless — meaning anyone can participate without authorization from a governing body.

To achieve this, the Metaverse will rely on blockchain to transfer identity and ownership across virtual worlds, attestation to verify them, and payment rails that allow people buy, sell, and earn income within a decentralized economy.

Who’s building the Metaverse today?

While we can’t build anything close to the full Metaverse yet, different companies and organizations are experimenting with different elements of it. Most fall into three categories:

The Metaverse ecosystem is still very much in its infancy: emergent and yet to be defined. That’s its beauty too. There’s a heavy focus on gaming, mostly because it’s easy to monetize. But we’re beginning to see glimpses of what the future might look like.

Identity

Identity determines who you are, what you can access and do, and how you’re represented across the worlds of the Metaverse.

In the Metaverse, our identities will have to include an easy login, a unique ID, an avatar that represents us, metadata that follows us, and attestation so we can prove who we are. Here’s where each of those pieces stands today:

Where Coinbase comes in

At Coinbase, we want to help pull all the pieces of identity together — essentially creating an identity on-ramp into the Metaverse.

That’s the idea behind our work with ENS, which makes it possible to create a unique username NFT that resolves to a wallet. Eventually, this will allow users to carry a unique ID across different worlds in the Metaverse.

We’re also working on technology that will allow you to purchase your avatar, define and maintain your public profile, and establish trust. And we’re working on features like Sign in with [Eth/Coinbase], which could allow users to sign into every app in the Metaverse.

Conclusion

At the end of the day, this isn’t about expanding our business or making money. It’s about building a critical piece of the Metaverse ecosystem, and helping crypto grow in the right way.

We know that the Metaverse will exist, and we know it will be a series of interconnected virtual worlds. Our goal is to make it easy for anyone to establish their identity and gain access to those worlds in a way that’s simple, trusted, and decentralized.

If we succeed, it will allow the Metaverse to reach its full potential — and keep it free and open to everyone.

How Coinbase thinks about the Metaverse was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Coinbase Transparency Report — — Q1-Q3, 2021

December 16, 2021 Coinbase

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Coinbase Transparency Report -Q1-Q3, 2021

By Paul Grewal, Chief Legal Officer

Coinbase is proud to publish our third Transparency Report. This report covers the period between January 1 through September 30, 2021*. As Coinbase continues to grow and offer services in new markets, the number of legitimate information requests we receive from law enforcement agencies and other government agencies will increase accordingly. As such, moving forward, we will publish these reports on an annual basis.

The goal of these reports, which we began publishing in 2020 (our two prior reports can be found here and here), is to keep our customers informed about requests for customer information we receive from government agencies and law enforcement — how many we have received, where they come from, and our approach in responding to them. While transparency reports are common in the technology industry, we believe financial institutions should similarly publish these reports on a regular basis, and we encourage them to do so.

At Coinbase, the safety of our customers is very important to us, and we respect the key role of law enforcement and government agencies in pursuing bad actors who engage in prohibited activity or seek to abuse our platform. At the same time, protecting the financial privacy of our customers is a fundamental part of our commitment to being the most trusted place to engage with cryptocurrency. This report shares data on the requests for information that Coinbase receives from government and law enforcement agencies around the world and provides a view into how government policies and actions intersect with customer privacy.

Coinbase Transparency Report

Period: January 1, 2021 — Sept. 30, 2021

Coinbase currently serves more than 73 million customers worldwide. We regularly receive and respond to requests from law enforcement and government agencies seeking customer account information and financial records in connection with civil, criminal, or other investigative matters. These requests can include subpoenas, court orders, search warrants, or other forms of formal legal process. We have an obligation to respond to such requests if they are valid under financial regulations and other applicable laws.

Each request is carefully reviewed by a team of trained experts using established procedures to determine its legal sufficiency; where necessary, we will narrow or push back on requests that appear overly broad or vague. The charts below provide data on the number of requests that we have received and how we have responded to them, broken down by country. As we continue to enhance our processes, we will be publishing this report annually, subject to certain limitations.

Key Takeaways:

There were a total of 5,562 requests in the first three quarters of 2021, and ~51% of requests came from outside of the United States.
~84% of requests are from the U.S., U.K., and Germany.
Countries that sent requests for the first time in 2021 include Latvia, Greece, India, Turkey, Bosnia, Hungary, and Russia.
The number of requests we received in the first three quarters of this year represents a ~27% increase from the total number of requests we received in all of 2020.

FAQs:

Does this report include data about requests received by all Coinbase entities/services?

This report includes data about requests related to our various products and services including coinbase.com, coinbase.com/exchange, coinbase.com/prime, and custody.coinbase.com.

What does it mean if my country is not listed on the report?

We only include countries where (i) our services are available, and/or (ii) Coinbase received a government or law enforcement request.

What is a government information request?

A variety of laws allow the government and law enforcement agencies of a given country to request the disclosure of customer information for civil, administrative, criminal, and national security purposes, including as part of an investigation.

What information does Coinbase provide in response to government and law enforcement requests?

Depending on the nature and scope of the request, Coinbase may produce certain customer information, such as name, recent login/logout IP address, and payment information; this type of information may be subject to requests by government and law enforcement agencies when a customer uses one of our applications or our website, as described in our privacy policy.

Before we consider disclosing information in response to a government or law enforcement request (such as a subpoena, court order, or similar legal process), we review each request on an individual basis. If we believe a request is over-broad or vague, we seek to narrow it and provide a more appropriately tailored response, and in some cases we object to producing any information at all (such as if the request is legally insufficient).

Does Coinbase challenge or reject government requests?

Coinbase may challenge government and law enforcement requests, depending on the particular circumstances of each request. Under certain circumstances, we may ask the government or law enforcement agency to narrow their request.

Who reviews government requests for user information at Coinbase?

Coinbase has a trained team of lawyers, analysts, and other experts who review and evaluate each government and law enforcement request individually to assess its legal sufficiency and determine an appropriate response.

Does Coinbase provide governments with direct access to customer information?

Coinbase does not give any government in any jurisdiction (including law enforcement, or other government agencies) direct access to customer information on our or any third-party’s systems.

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* Data for the remainder of 2021 will be captured in our next report, to be published in 2022.

(2) Coinbase receives various criminal, civil and administrative requests from regulators and agencies in various countries seeking information about specific accounts and transactions. This Transparency Report reflects data related to these requests; it does not include customer initiated requests for information or productions required as part of routine regulatory examinations.

Coinbase Transparency Report — — Q1-Q3, 2021 was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Coinbase to acquire leading cryptographic security company, Unbound Security

November 30, 2021 Coinbase

Acquisition further underlines Coinbase’s commitment to providing the safest, most secure and most trusted venue for anyone to interact with the cryptoeconomy
Unbound’s best-in-class multi-party-computation expertise will play a foundational role in Coinbase’s product and security roadmap
With the acquisition of Unbound Security, Coinbase will establish a tech center of excellence in Israel, one of the world’s most advanced technology hubs

From its earliest days, Coinbase has focused on protecting our customer’s assets with the strongest, most sophisticated security technology in the world. Over time, our approaches have evolved, but our objective has always been the same: to provide the safest, most secure and most trusted venue for anyone to interact with the cryptoeconomy.

Today, we’re announcing the next phase of our security journey with the acquisition of Unbound Security. Based in Israel, it is a pioneer in a number of cryptographic security technologies, including the emerging field of secure multi-party computation (MPC), a highly advanced technology for which Unbound Security’s co-founder, Yehuda Lindell, is a world leader. With this acquisition, Coinbase not only gains access to some of the world’s most sophisticated cryptographic security experts, including Unbound Security co-founder and current Vice President of Research and Development, Guy Peer, who brings more than 20 years of experience in cryptographic security, but also a presence in Israel, a well-established and rapidly growing technology hub. This presence in Israel will add an additional powerful prong to Coinbase’s global talent acquisition strategy, following on closely to recent thrusts into engineering talent bases such as India, Singapore and Brazil.

Crypto can’t grow without strong cryptography and strong security, but it also needs to be user friendly. Secure multi-party computation is an application of advanced mathematics to enable crypto assets to be stored, transferred and deployed more securely, easily and flexibly than ever before.

The cryptoeconomy is growing exponentially with myriad new use cases such as staking, DeFi, DAOs and NFTs. Unfortunately so are the threat vectors and complexities for participants to safely manage their crypto private keys. Technologies such as MPC will enable these groundbreaking use cases to come to life safely, securely and in a way that’s user friendly. MPC will deliver on this by protecting our customers’ assets with a technique that provides the virtually impenetrable nature of cold, offline storage, with the frictionless convenience of hot, online wallets. Over time MPC capabilities will enable new features across our consumer, institutional and cloud products to participate in the cryptoeconomy.

In addition to the technological expertise that we will gain through this acquisition, we also plan to establish a tech center of excellence in Israel that will ensure that Coinbase is always at the bleeding edge of security and blockchain technology. We’ve long recognized Israel as a hot bed of strong technology and cryptography talent, and are excited to continue to grow our team with some of the best and brightest minds in these fields. The Unbound Security team will form the nucleus of this new research facility, which we plan to grow over time.

We’re always proud to welcome top talent to Coinbase and the Unbound Security team represents the very best expertise in its field. We look forward to working with them over time to move the entire state of cryptographic security forward and to continue delivering the highest levels of security to our customers. Please join us in welcoming the team to Coinbase.

This acquisition is subject to customary closing conditions and is expected to close in the coming months.

Coinbase to acquire leading cryptographic security company, Unbound Security was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

GiveCrypto Q3 Update

October 21, 2021 Coinbase

By Joe Waltman, Group Product Manager, GiveCrypto.org

Hope everyone had a wonderful summer. GiveCrypto just concluded its first full quarter as a part of Coinbase, so we wanted to share an update with those who are following our progress. As always, we’d love to hear from you.

Coinbase Integrations

As mentioned in previous updates, we’ve been experimenting with ways to make it as easy as possible for Coinbase users to donate to charity. Coinbase has over 68 million verified users, many of whom transact significant sums of crypto on a regular basis. We see a golden opportunity to facilitate charitable donations inside this ecosystem.

*Example of the previous, multi-step flow required to donate in the Coinbase app*

We have tried to integrate a donation function into Coinbase’s UI before, but we limited those past attempts to banners on Coinbase’s web and mobile properties. Those banners didn’t drive much traffic, and when they did, the user would have to go through a multi-step flow to donate. Because of that, donation volume has been relatively low.

Though these modest attempts weren’t the most effective, we chose to take this cautious approach for good reason: We wanted to be sure that we didn’t confuse users or impact Coinbase conversion rates. We also wanted to minimize the technical complexity of integrating a more prominent donation function until we and Coinbase were fully ready to do so.

We now understand that the real opportunity lies in integrating donation options into primary transactional flows like buy and sell. From integrating back-end services to solving a variety of other technical challenges, we know this won’t be simple. But finding a way for Coinbase users to seamlessly donate crypto would be a big accomplishment — not just for us, but also for the crypto community.

*Mock-up of a donate one percent integration in the sell flow*

The current plan is to experiment with a ‘donate one percent of your transaction’ mechanic within Coinbase’s “sell” flow. At first, only a small percentage of Coinbase users will be exposed to this experiment as we observe how they impact key guardrail metrics. We’ll then analyze those results to determine our path forward.

As an aside, I’d like to take this opportunity to express how exciting it is to be involved in the innovation we’re witnessing in this industry. We have long believed that Coinbase has the potential to become a leader in the world of philanthropy, and our experience working together has only reinforced that belief. Perhaps one day we’ll be able to promote the verb “give” to a first-class citizen, so to speak, equal to the likes of “buy” and “sell.”

Ambassador Program

Before we give an update on the current status of the ambassador program, it probably makes sense to review the program’s history.

We launched the ambassador program in 2019 and spent the first half of 2020 implementing an RCT in Venezuela. We spent the second half of 2020 experimenting with a crypto donation marketplace that would be similar to GoFundMe or DonorsChoose but fully crypto-based. Ultimately, this didn’t accomplish what we hoped it would, so we decided to pivot back to the ambassador program in early 2021.

Our goal for 2021 was to automate as much of the program as possible so that it could be scaled in the near future. To minimize the manual workload, we started out by automating most of the program’s operational components, but we only invited people we felt we could trust. Giving away money on the internet tends to attract scammers, and we needed some assurances that people would use our funds in good faith.

We quickly learned that it would be hard to recruit ambassadors at scale if we only acquired them through high-trust channels such as labor marketplaces and social media networks. Once we realized that we would need to cast a wider net, we launched a version of the ambassador program that allows anybody to apply.

Before launching this updated version of the ambassador program, we developed fraud detection metrics designed to mitigate Sybil attacks. In simple terms, this helped us ensure that the ambassadors who applied to the program were who they said they were.

In the same update, we also tried to devise a trust score, which is a way of programmatically identifying which ambassadors are acting in good faith. We defined a good-faith ambassador as one who meets two criteria: they select recipients who are actually in need; and their recipients actually do what they say they’ll do with the funds.

Once we recruited a few hundred ambassadors, we found we needed to augment the automated scoring with significant manual investigation and intervention to thwart bad-faith behavior. We’ve thus realized that until our automations have undergone further maturation and validation, we’ll need to filter down the incoming audience.

For these reasons, we have decided to make the following changes:

Focus on the following countries: Venezuela, Colombia and El Salvador
Hire a manager in each country, whose primary job is to recruit trusted ambassadors. We will closely monitor these ambassadors and use the data to inform our automation process.
Monitor the activities of each ambassador’s recipients. We plan to give “good” ambassadors more invites and to extend the length of payment periods for “good”’ recipients.
Begin measuring the impact of donations via self-reported questionnaires and spot checks, which will be overseen by the local manager as well as high-quality ambassadors.

This revised approach will provide the following benefits.

Provide locations with different characteristics (i.e. inflation, crypto adoption, smartphone penetration and regulatory acceptance) but still have high levels of need and minimal logistical challenges (i.e. timezone and localization)
Reduce our team’s need to manually supervise the program
Improve the ratio of high-quality ambassadors signing up
Allow us to facilitate redemption options for recipients, such as stores and cash-out partners
Train and validate our data models on what good behavior looks like across various geographies

We have already started rolling out components of this plan and look forward to more enhancements in Q4. Between this program’s growth and the new donation options, we’re thrilled to see our work paying off.

GiveCrypto Q3 Update was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership

October 14, 2021 Coinbase

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By Faryar Shirzad, Chief Policy Officer

Today, we’re pleased to introduce our new regulatory framework, entitled Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership (dApp). We hope this document will animate an open and constructive discussion regarding the role of digital assets in our shared economic future. Our goal is to thoughtfully and respectfully engage in the debate, and to offer good-faith suggestions for how the U.S. financial regulatory framework should adapt to two critical developments:

1. The blockchain-driven and decentralized evolution of the internet

2. The emergence of a distinctive asset class that is digitally native and empowers unique economic use cases

We understand that high-level proposals don’t become law overnight — nor should they. But what they can do is evolve the debate in ways that are helpful for everyone, including members of Congress who are increasingly focusing on this area.

A number of us have been working diligently on this for some time, consulting with experts, crypto builders, opinion leaders, and policymakers from across the country. We’ve also studiously read the commentary produced by our peers and others who are pushing the debate forward in thought-provoking and creative ways. This process of investigation and discovery has been remarkably eye-opening and invaluable to help us think deeply about the potential of these new and uniquely democratizing financial innovations.

Here are three consistent themes that surfaced from the past few weeks of intensive meetings:

A broad awareness is emerging on blockchain and distributed ledger technology’s potential; one that recognizes crypto could be an important catalyst of innovation, economic growth and financial inclusion in an increasingly digital world
The adoption rate of crypto is growing rapidly, and regulation has a vital role to play in protecting the consumer and providing certainty to market participants
American geopolitical strength and leadership is inextricably tied to the United States maintaining its technological leadership

We’d like to personally thank everyone we met with for their feedback, their candor, and their willingness to engage on some of the most profound and complex economic and societal questions we face. Let’s dive in.

The Market Context

Digital assets like Bitcoin, Ether, stablecoins, and other cryptocurrencies are now a mainstream part of the financial market ecosystem. In 2013, the market cap for the entire cryptocurrency market was around $1.5 billion. In 2021, that market cap has grown to $2 trillion. Adoption rates have seen a similarly astounding rate of growth with an estimated 1 million crypto users in 2013 to an estimated 330 million users worldwide today, with tens of millions in the United States alone.

But like the early days of the internet, the use cases for crypto are still in a nascent stage of development and adoption. However, what we’re seeing is societally powerful. Blockchain and distributed ledger technologies have accelerated the democratization of finance that began with the emergence of mobile payments. Whether factors such as lack of wealth, inaccessible infrastructure, or a range of societal factors have historically contributed to the 1.7 billion adults who remain unbanked today, the evolution of decentralized protocols and peer-to-peer marketplaces have the potential to resolve deep disparities and inequities.

Marketplaces for digital assets have emerged to offer a platform that facilitates the demand from Americans to access certain innovations in the way financial assets are transferred and traded. Retail and institutional traders have direct access to platforms that execute transactions 24 hours a day, seven days a week. Transactions settle in real time. A multitude of intermediaries is no longer needed as the digital asset market infrastructure has developed so that exchange and trading services, clearing, settlement, and custody can be provided effectively and more efficiently by the same entity.

We are seeing the beginning of more efficient, transparent, and cost-effective processes compared to those in traditional financial markets. These developments, in turn, will empower market participants with greater and more direct control over their trading decisions, increasing accessibility to financial services, reducing excess costs of the current system — costs too often borne by retail customers, and creating more transparency for regulators, who are already benefiting from new ways to engage in market surveillance and combat illicit finance.

Laws drafted in the 1930s to facilitate effective oversight of our financial system could not contemplate this technological revolution. Elements of those laws do not have room for the transformational potential that digital assets and crypto innovation make possible. They do not accommodate the efficiency, seamlessness, and transparency of digital asset markets, and thus risk serving as an unintended barrier to current innovations in the digital asset economy. For example, digital assets that are well established, broadly recognized, and fully decentralized, like Bitcoin and Ether, have technical characteristics that are well understood by the public. There is no information vacuum that immediately needs to be resolved. Not only are some of the financial rules of a paper-based system obsolete, but they are also an encumbrance to innovation, inclusion, and social welfare.

Forcing the full spectrum of digital assets into supervisory categories codified before the use of computers risks stifling the development of this transformational technology, thus pushing offshore the innovative center of gravity that currently sits in the United States. Doing this will have profoundly harmful economic implications and undermine the United States’ leadership at a time when technology is so critical to this country’s geopolitical strengths. We are seeing some legislatures at the state-level take important steps to give their residents access to these innovations, but there is still more work to be done.

Fostering this innovation is also critical because there are too many people in our society who do not see a place for themselves in our current financial system. According to the Federal Reserve, up to 22% of American households could be unbanked or underbanked. This could mean up to 55 million American adults don’t have access to key functions of our critical financial and societal architecture. Furthermore, even for those with a bank account and recognizing the dramatic advances in financial technologies, payments remain slow and cumbersome. Millions continue to pay too much and wait too long to transfer funds to loved ones overseas or to invest their money directly in projects and ideas they care about.

This exclusion of millions from the financial system is occurring as more and more Americans look for alternatives to traditional finance. Surveys show that a diverse group of Americans are availing of the unique and empowering financial opportunities that crypto affords. To help the public and the businesses that will provide the services for this new, thriving financial ecosystem, regulatory certainty for everyone is required.

Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership (dApp)

Pillar One: Regulate Digital Assets Under a Separate Framework

As mentioned at the outset, the cryptoeconomy is defined by two concurrent innovations, both of which have manifold impacts on our financial system. The changes made possible by these two innovations are transformational, but do not easily fit within the existing financial system, which assumes that the structure of our financial markets will remain largely as they have been in the past. Our financial regulatory system is predicated on the ongoing existence of a series of separate financial market intermediaries — exchanges, transfer agents, clearing houses, custodians, and traditional brokers — because it never contemplated that distributed ledger and blockchain technology could exist. A new framework for how we regulate digital assets will ensure that innovation can occur in ways that are not hampered by the difficulty of transitioning from our legacy market structure.

Pillar Two: Designate One Regulator for Digital Asset Markets

To avoid fragmented and inconsistent regulatory oversight of these unique and concurrent innovations, responsibility over digital asset markets should be assigned to a single federal regulator. Its authority would include a new registration process established for entities that serve as marketplaces for digital assets (MDAs) and an appropriate disclosure regime to inform purchasers of digital assets. Platforms and services that do not custody or otherwise control the assets of a customer — including miners, stakers and developers — would need to be treated differently. Additionally, in the tradition of other markets, a dedicated self-regulatory organization (SRO) should be established to strengthen the oversight regime and provide more granular oversight of MDAs. Together, they should formulate new rules that permit the full range of digital asset services within a single entity: digital asset trading, transfer, custody, clearing, settlement, money payment, staking, borrowing and lending, and related incidental services. This two-tier regulatory structure will ensure efficient and streamlined regulation and oversight, and evolve elements of the existing frameworks to meet the requirements of our new technologically-driven financial system.

Pillar Three: Protect and Empower Holders of Digital Assets

This new framework should have three goals to ensure holders of digital assets are empowered and protected:

Enhance transparency through appropriate disclosure requirements,
Protect against fraud and market manipulation, and
Promote efficiency and strengthen market resiliency.

Each of these goals should be accomplished in recognition of the unique characteristics and risks of the underlying functionalities of digital assets.

Pillar Four: Promote Interoperability and Fair Competition

Innovation in decentralized protocol development and the peer-to-peer marketplace continues to produce novel approaches that allow greater financial access across all facets of society. To realize the full potential of digital assets, MDAs must be interoperable with products and services across the cryptoeconomy. If fully realized, this can enshrine fair competition, responsible innovation, and promote a thriving consumer and developer ecosystem.

What’s Next

We hope you take the time to evaluate our proposal. And if you do, consider sharing your thoughts. We’re also open-sourcing the framework through GitHub, so tell us what you think there, express your views directly to your elected officials, and be part of the conversation that will shape our shared financial future. We will also be convening a number of opportunities to hear from others who have made thoughtful contributions to the debate that we are hoping to advance today.

Thank you for reading.

Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

How We Make Decisions at Coinbase

October 11, 2021 Coinbase

By Emilie Choi, President and Chief Operating Officer

TLDR: We use Problem/ Proposed Solutions and RAPIDs as our main tools to break through tough decisions and land on good resolutions.

One of the top three questions I get from candidates is: “how do you make decisions at Coinbase?” What they’re getting at is, how do we break through politics and bureaucracy to get things done quickly? We use two tools at Coinbase that help cut through the noise and address issues that we’re grappling with:

Problem/Proposed Solutions are great for tackling issues that come up in the normal course of work.
RAPIDs are great tools for breaking through tough decisions and getting good decisions actually made. Here’s how we use each of these tools.

Coinbase is a written culture, which means that we aim to put our thinking, processes and decision making down on paper. This helps us clarify our thinking and increase understanding with each other. We use Google Docs to collaborate, which allows us to comment and ask questions transparently. These decision making frameworks are an important element of this written culture.

Problem/Proposed Solution (P/PS): The ultimate way to cut through noise.

(Credit to Matt Mochary, who came up with the P/PS and discusses it in his book).

The P/PS is a great tool to address unresolved issues that are bothering you. It could be that you think the performance management process needs improvement, or that we need less meetings, or that we need to revisit our org structure, or anything that rises to a certain level of significance for you. We all have those instincts, and yet sometimes, we don’t know how to bring them up in the right way. We want to encourage productive problem solving and the P/PS can help with this.

The keys to an effective Problem/Proposed Solution

Short and easy: It has to be lightweight and take <15 mins to write. It should average one page only.
Focused on solutions: Consistent with our value of positive energy, you don’t just shine light on the problem, but you also propose a solution.

Here’s a very short, lightweight example:

Problem: We have too many meetings. It’s cutting into employees’ ability to get real work done.

Proposed Solution/s:

Kill all recurring meetings
Have a no meeting day
Create friction to add a meeting (require that any new meeting invite includes an agenda and goals of the meeting)

You then send the P/PS to anyone relevant to start adding to the Google Doc. Once the draft is complete, it’s discussed either asynchronously or in a meeting (for more complex problems). Some stakeholders may agree and add other suggestions. Some may disagree and say there isn’t a problem. The comments and feedback are all captured in the doc. The doc can be as simple or complex as the topic itself.

Once we’ve settled on some solutions, we document them as action items (AIs) with one directly responsible individual (DRI) to complete that action within a certain time frame (example: LJ, our Chief People Officer, should create a recharge week by January 1st).

RAPID: An excellent tool for making complex decisions.

(Credit to Jeff Weiner, who brought this tool to LinkedIn).

A RAPID is key to getting a number of people across functions to make a decision. We’ve all been a part of an organization where people deliberately hold up making hard decisions with passive-aggressive behavior and avoid making the hard calls. The RAPID helps cut through that with a clear process and owners.

Here are the key elements of the RAPID approach:

Recommend: One person
Agree: One to two people
Perform: The people who will need to take an active role in whatever the decision entails
Input: Anyone who is really relevant to the discussion who should add their thoughts
Decide: Only one person(!) and not someone who is already on the RAPID

Here’s an example:

Date of Recommendation:
Date of Decision: (Ideally within a week of the Recommendation)
Type 1 or Type 2 Decision: If it’s Type 1, it’s not reversible, and you have to be extra careful in making it. If it’s Type 2, you can reverse the decision.

Recommendation: We should exit operations in XYZ country (this would be a Type 1 Decision). After three years of intense effort and multiple approaches, we have not been able to get to a level of users that warrant the level of business investment and energy required to make us successful in this country.

Details behind the Recommendation: More information, including quantitative, to make the recommendation. It should include pros and cons, risks and benefits.

Recommend: Name of Person A
Agree (or Disagree): Name of Person B
Perform: Other employees who are involved
Input: Other employees who are involved
Decide: Name of Person C

Each of the named persons has the opportunity to put their own Agree or Disagree in, with their additional context.

Here’s the cool things about the RAPID:

It allows the Decide to see all of the participants’ feedback in the document
Everything is clearly written down, so it doesn’t rely on memory of how or what someone said something in the room
You can look back in time and see the quality and pacing of your complex decisions

Conclusion

All tools are imperfect, but as companies scale rapidly, having norms around a few types of decision making toolsets makes a huge difference in driving consistency. At Coinbase, we’ve found that the Problem/Proposed Solution and the RAPID are two amazing tools in our arsenal, and we use them daily to drive important discussions and decisions.

How We Make Decisions at Coinbase was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

How Coinbase thinks about market integrity and trade surveillance

October 11, 2021 Coinbase

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By The Coinbase Trade Surveillance Team

One of the most pervasive misconceptions of crypto is that it’s an unregulated space, rife with market manipulation, insider trading and bad actors. The reality is that this is far from the truth. Crypto is in fact highly regulated, and good actors in the space take pride in working with regulators around the world to ensure the safety and security of their customers and their funds.

Coinbase is overseen by more than 50 regulators in the U.S. alone. Globally, that number rises even higher. Our goal is to be the most trusted venue for anyone in the world to interact with the cryptoeconomy. Core to this commitment to earning our customers’ trust is to hold ourselves to not only the highest levels of regulatory compliance, but also operational excellence when it comes to internal controls and employee behavior.

Since Coinbase’s inception in 2012, we’ve leaned into compliance. This includes a range of internal controls around data protection, ongoing training sessions, and well-documented policies. Of these policies, one of the most important is our insider trading policy. This document defines how, when and what assets Coinbase employees, consultants, contractors and board directors can trade, with the intent of ensuring that these groups can’t trade while in the possession of material non-public information (MNPI).

Overview

Like all publicly traded companies, Coinbase restricts when employees and other insiders can buy or sell company stock. For instance, employees and company insiders are only allowed to trade during very brief trading windows, directly following our public earnings calls, when they don’t possess MNPI, or through pre-approved and pre-scheduled 10b5–1 plans.

Similarly, when it comes to crypto, our insider trading policies are designed so that no one associated with the company can trade crypto assets (including NFTs) with information that isn’t public. This includes knowledge that an asset is likely to be added or removed from our trading platforms, that we will be offering new features or services based on an asset (this could include things like staking or a product integration), or other information that could impact (positively or negatively) the price of an asset. To ensure that employees and others that fall under the purview of this policy are aware of the assets they can and cannot trade at a given time, we have a regularly updated list of restricted digital assets. Additionally, employees that have broad insight across the company (senior executives, some members of our legal, compliance and communications teams, for example), are party to an “enhanced” insider trading policy that includes supplemental oversight such as quarterly attestations, pre-disclosure of trades made off Coinbase’s trading platforms, as well as additional monitoring.

As an additional layer of enforcement, Coinbase also mandates that all employees and board directors trade crypto only on Coinbase’s trading platforms (unless the asset they wish to trade is not supported by Coinbase in their region). This additional step is important for two reasons: First, it means we can proactively disable trading on certain assets, at certain times, for certain employees. Second, it also means that we have full visibility into our employees’ and board directors’ trading behavior — which is an important distinction from traditional exchanges and spot markets which tend to encourage employees to trade on platforms other than the one that they work for.

On top of the restrictions noted above, Coinbase prohibits the use of trading algorithms by employees on all Coinbase platforms.

Mandating that employees trade exclusively on Coinbase platforms also enables our Trade Surveillance team to monitor for prohibited trading activities — such as market manipulation. Market manipulation can take many forms, but is broadly defined as actions taken by any market participant or a person acting in concert with a participant which are intended to:

Deceive or mislead other Traders;
Artificially control or manipulate the price or trading volume of an Asset; or
Aid, abet, enable, finance, support, or endorse either of the above. This may include actions on Coinbase Pro/Exchange and/or outside of Coinbase Pro/Exchange.

Much like traditional financial markets, specific forms of market manipulation that Coinbase prohibits include:

Wash trading: a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace.
Trade spoofing: a practice of placing fake or non-bonafide bids and offers in an attempt to push the market in a particular direction to execute bonafide contra-side orders. The non-bonafide orders are then cancelled.
Trade layering: Similar to spoofing, layering is the practice of placing non-bonafide orders to influence or push the market in a direction to have real orders executed. The key difference being that instead of placing one large fake or non-bonafide order at the top of the order book (spoofing), multiple orders at different price points are entered. Similar to spoofing, once the real or bonafide order is executed, the fake orders are cancelled.
Front-running: the act of executing a trade (either a buy or a sell) when you have knowledge that a trade or group of trades will shortly follow thereafter.
Trade churning: the practice of executing trades for an investment account by a trader or broker in order to generate commission from the account.
Quote stuffing: a form of market manipulation employed by API or algorithmic traders that involves quickly entering and withdrawing a large number of orders in an attempt to flood the market.

Trade monitoring and surveillance

Coinbase takes trade monitoring and surveillance very seriously. Our Trade Surveillance team draws on a range of experience that includes former regulators, compliance at multinational, Bulge-Bracket banks and broker-dealers, technology companies and crypto specialists.

People + technology

Underpinning our Trade Surveillance team is a cutting-edge surveillance technology named Eventus. The platform leverages artificial intelligence and machine learning techniques to provide 24/7/365 monitoring across all of Coinbase’s trading platforms in a way that manual tracking alone cannot. Unlike traditional market surveillance, which is often done forensically after the fact, the Eventus platform provides our Trade Surveillance team with real-time insights that can be actioned quickly, and often mitigated rapidly.

Coinbase’s goal is to provide our customers with the most trusted, safest and most secure venue with which to access the cryptoeconomy. Compliance, market integrity and surveillance are core components of this approach and we’re proud of what we’ve built. As with anything, we’ll continue to enhance our systems over time and look forward to sharing these updates as they happen.

How Coinbase thinks about market integrity and trade surveillance was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Our open letter to the Financial Accounting Standards Board: “We believe there is a pervasive need…

September 23, 2021 Coinbase

accounting

Our open letter to the Financial Accounting Standards Board: “We believe there is a pervasive need to improve the accounting for crypto assets”

Tl:Dr: Coinbase is actively seeking clarity around crypto accounting standards. Recently, we shared our thoughts with a key industry body, the Financial Accounting Standards Board.

On June 24 2021, the Financial Accounting Standards Board (FASB) issued an invitation to comment, seeking feedback about future accounting standards to address topics that are of the highest priority to investors, businesses and other stakeholders. As a leader in the crypto space with more than 68 million retail customers and 9,000 institutional clients, we saw it as both a privilege and responsibility for us to provide our input.

Today, we responded to the request with an open letter. Here are some of the highlights:

Not being able to account for crypto assets at market values because of current standards does not provide useful information to our investors.
Crypto is quickly gaining mainstream adoption. Over the last year, the total crypto assets’ market capitalization grew more than 5x with a total market value over $2 trillion* as of September 15, 2021. More importantly, the innovation is just beginning. Now is the time to improve the accounting for crypto assets.
We proposed two projects for improvements to US standards with respect to accounting for crypto assets. We believe the FASB should add both proposals to its agenda for future standard setting:
Broadly improving the accounting and reporting by holders of crypto assets
Clarify that specialized accounting guidance for broker-dealers should also apply to entities making a market in digital assets

Our mission is to increase economic freedom in the world, through a fair, accessible, and efficient financial system. We are furthering this mission through a constructive relationship with the FASB, enabling us to address the challenges in accounting for crypto in a collaborative way. Our letter is a step towards driving progress and providing relevant and useful accounting and reporting information to the public. As always, we look forward to an ongoing, constructive dialogue with FASB and its staff.

*Per CoinMarketCap, total global market capitalization for crypto assets was $350 billion during September 2020, compared with over $2 trillion as of the date of this letter.

Our open letter to the Financial Accounting Standards Board: “We believe there is a pervasive need… was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

An overview of the use of cryptocurrencies in terrorist financing

September 21, 2021 Coinbase

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By the Coinbase Special Investigations Team

Following the fall of the elected Afghan government and rise of the Taliban in its place, many speculated that the group had or may turn to cryptocurrencies as a way to finance its operations. As part of our compliance program, Coinbase tracks these types of transactions and often works with law enforcement agencies around the world on interdiction and enforcement efforts.

After conducting an exhaustive analysis of global crypto transactions, our Coinbase Special Investigations Team is sharing its findings below. To conduct this research, Coinbase relied on cryptocurrency data analyzed by Coinbase Analytics across various blockchains. This data study provides a holistic overview of terror funding using cryptocurrencies across the entire industry and is not limited to Coinbase.

A quick step back

With institutional and consumer interest in crypto at an all-time high, alongside the continued rise of DeFi, 2020 and 2021 have seen cryptocurrency achieve the mainstream adoption that the space has anticipated for many years.

While the industry has come a long way since Satoshidice, Mt. Gox, and the Silk Road, illicit activity has dwindled but not fully ceased. However, representing far less than 1% of all activity in the crypto space in 2020, illicit activity is no more of a concern for the cryptoeconomy than it is for the traditional financial system.(1)

Further breaking down illicit activity, we find that transactions associated with terrorist financing (TF) in 2020 made up less than 0.05% of all illicit volume. As such, terror funding in cryptocurrencies remains extremely low in overall terms.

Nevertheless, so long as any organization thinks it can use crypto for TF, we are committed to proving them wrong. To that end, we provide this update on our ongoing work.

Overall funds raised by TF-related organizations

Our Coinbase Special Investigations team focused its research on the largest TF-related organizations’ fundraising efforts over the past few years. (2),(3),(4)

Assessing these organizations’ fundraising over time, we find that Hamas has raised the most funds, by far. This is likely because Hamas actively solicits donations primarily in the form of BTC on their website and related Telegram channels.

Hamas’ fundraising volume is trailed by an al Qaeda-related exchange service and a Saudi-led jihadi activist movement.

Changes to fundraising efforts per organization over time

Breaking down these TF-related organization’s fundraising efforts, we find that Hamas’s fundraising efforts are staggering compared to the other organizations analyzed. Hamas first began soliciting donations in Bitcoin in January 2018, with a singular donation address. Within a few months, their fundraising tactics evolved to attempt obfuscate the funds raised by providing fresh donation addresses when accessing their donation page

Periods of intensified fundraising activities by Hamas appear to correlate to the time frames of the most intense geopolitical conflict.

Removing Hamas’ fundraising efforts from the above chart, we find that the other TF-related organizations’ fundraising efforts trend for a finite period of time. For example, ISIS’ fundraising was primarily done between February and October 2020. This is likely due to various authorities taking its fundraising website down only for it to reappear months later.

Growing donations in altcoins

Further breaking down these TF-related organization fundraising efforts over time by currency, we find that although fundraising efforts continue in BTC across the TF-related organizations of interest, fundraising in ETH, ERC20s and XRP has fluctuated.

Beginning in August 2020 through August 2021, terror organizations began receiving ETH, ERC20 tokens, and XRP donations. This fundraising can solely be attributed to a Saudi-led jihadi activist movement, which began soliciting donations in the form of BTC, ETH, XRP, and various ERC20 tokens in 2020. The movement’s leader has advocated for the recent Taliban uprising in Afghanistan and appears to have incited violence against governments and countries, including Pakistan, Israel and the US on Twitter. A previous website belonging to the movement website was cited in a West Point study of Islamic terrorism.

Breaking down this movement’s fundraising by currency, we find that they have primarily raised funds in altcoins.

What Coinbase is doing about this

Coinbase is committed to minimizing — and ultimately ending — the use of crypto as a fundraising tactic for terrorist actors. Coinbase does not just actively research and identify trends in TF, we also take action. Preventing TF is a team effort that includes the Coinbase Special Investigations and Global Intelligence teams. After identifying a terror funding campaign, Coinbase takes at least three critical steps:

Blocklist any crypto addresses associated with these organizations to prevent users from sending funds to them.
Leverage Coinbase Analytics to detect wider terror organization campaign efforts and identify possible participants and accessories.
Coordinate with law enforcement and regulatory agencies, such as FinCEN, the FBI and others.

When it comes to terror funding, it is important to be accurate, but swift. Thanks to blockchain analytics, we can trace and accurately identify TF campaigns and do our part to stop them. TF may only make up less than 0.05% of all illicit activity, but it is and will always remain one of our highest priorities at Coinbase.

Footnotes

1) This percentage was taken from transactions on the BTC, ETH, LTC, BCH, and XRP blockchains/ledgers.

2) Please note that the selected organizations’ fundraising efforts have been amalgamated into generalized buckets. Coinbase included information in this analysis that could be independently confirmed through blockchain analytics.

3) Cryptocurrency USD values estimated at the time when donations were made.

4) Data last retrieved on August 24, 2021.

An overview of the use of cryptocurrencies in terrorist financing was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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