https://startupsandecon.substack.com/p/the-unstoppable-grift-how-coinbase

My last post made a bit of a splash, you could say.

Thanks Jack!

But there was one area I didn’t have time to dig into fully - the link between Coinbase and Coinbase Ventures. The conflict of interest looked so bad, Coinbase issued a statement a week after my post, noting that they kept strict separation between their Ventures and asset listing teams and had never sold a token. Problem solved, right?

And then FTX, Coinbase’s fast-rising competitor, raised $2B for their own ventures fund. And now a16z is raising $4.5B for their latest mega-fund. Lots to dig into.

But before we get to that, let’s talk about the last post where I wrote that Coinbase’s listings didn’t perform very well. What if we added Binance for a comparison? Would that help us understand if there’s something particularly weird going on?

What I found supported my idea that there’s a “Coinbase curse” - the average returns on Binance blew Coinbase out of the water - although the difference in the returns was staggering.

And the thing is, I think Coinbase knows that. Because if you look at the direction they took in 2021, they made a sharp turn to not only add a lot more assets, but being first to list coins, even some on the first day.

That seems risky to me. These are coins with tiny floats that may have only been founded as little as a year prior, and now they’re in the hands of tens of millions of retail investors - who the data shows are often less sophisticated than investors in stocks.

Why else does it matter? It’s also clearly the direction all of the industry is going in: exchanges creating huge venture funds and then aggressively listing coins (often that they’ve invested in) faster and faster. All while they shovel tens of billions of dollars into web3 startups to create an “ecosystem” of more coins that they can use to generate trading revenues.

But I’m wondering when that strategy might backfire. Because when I looked at the data, Coinbase not only did worse than Binance, but coins with less than six months of history underperformed, and the “Day Zero” listings - those listed immediately, nearly all of them affiliated with Coinbase Ventures - did the worst.

Was every exchange this aggressive to list coins faster? I looked at all their venture activity and found that every major exchange had in fact listed their own investments mere months after investing in a venture round - sometimes even listing them at the same time.

Is there anything that can slow this snowball? Or has the grift simply become unstoppable?

The Heavyweights Meet

For years, the lines were drawn. Coinbase was the cautious, do-gooder exchange, and Binance was the bad boy exchange who threw caution to the wind and gave listings out freely. In fact, CZ himself writes in his “listing tips” that they have “no hard requirements” and that saying nice things about Binance is essentially half the battle.

By the end of 2020, Coinbase barely had 50 coins listed, versus hundreds on Binance. But in mid-2021, Coinbase suddenly pivoted its strategy, aiming to become the “Amazon of assets.”

As I wrote in my last post, listing on Coinbase is a mixed bag - driving an initial pop but then getting worse over time as the coin starts to lag Bitcoin and Ethereum. Coins that Coinbase explicitly rejected did far better than those listed. My theories were a mix of insider selling and dollar liquidity.

What about on Binance? Would listing there have the same effect? I took a look at the same 129 coins Coinbase had ever listed and looked instead for the returns since the day Binance had listed them, usually long before Coinbase (107 coins). The numbers are stark: