The other side of Coinbase: compliance becomes a competitive disadvantage, and the ability to make money is far inferior to Binance, and even worse than Huobi OK

Wu said the author | Colin Wu

Editor of this issue | Colin Wu

Wu said the author | Colin Wu

Editor of this issue | Colin Wu

The long-awaited Coinbase finally disclosed the full text of the S1 form on the 25th, including the company's financial data since its inception, as well as the company's judgment on the future. Just like the tribute to Satoshi Nakamoto on the cover of the prospectus, the successful listing of this leading company in the cryptocurrency industry will bring the industry into the next stage of "compliance development", which is conducive to the entry of ordinary investors and institutions outside the currency circle. , which is not a small positive for the industry.

After reading the prospectus, the first reaction of many people is that its earning power is actually not strong, far inferior to Binance, which Coinbase regards as a competitor, and even inferior to Huobi and OKEx. The reason is naturally that Coinbase is subject to strict restrictions on security tokens and derivatives under US law, which also leads to the fact that most of Coinbase's revenue comes from spot transactions of Bitcoin and Ethereum.

According to Coinbase data, its revenue in 2020 will be approximately US$1.3 billion, compared to US$530 million in 2019; its profit in 2020 will be approximately US$320 million, compared to a loss of US$30.4 million in 2019. In comparison, according to Changpeng Zhao’s disclosure to Bloomberg, Binance’s profit in 2020 will be between US$800 million and US$1 billion; Binance’s profit in 2019 will be US$577 million.

Huobi once disclosed that its revenue in 2019 was 680 million US dollars, which also surpassed Coinbase in 2019. OKEx is about the same order of magnitude in 2019, with a profit margin of about 50%. This shows that the earning power of Coinbase is not only far inferior to Binance, but may even be inferior to Huobi and OKEx. (Of course, the data of the three major exchanges are disclosed by themselves, not audited data, which may be exaggerated)

In terms of reasons, Coinbase itself also stated in S1 that regulation has strong restrictions on it, resulting in competitors having a considerable advantage over it.

Coinbase said: Our main competitors are companies located outside the United States whose business models depend on being unregulated or regulated in only a few low-compliance jurisdictions, while also operating in regulated countries, including the United States. Products are offered in strictly regulated jurisdictions without having to comply with the relevant regulatory requirements of such jurisdictions. Due to our regulated status in multiple jurisdictions and our commitment to legal and regulatory compliance, we are unable to offer many popular products and services.

Coinbase proactively mentioned Binance. Coinbase said: We also compete with many companies that are solely focused on the cryptocurrency market and have varying degrees of regulatory compliance, such as Binance.

As we all know, one of the core profitable businesses of the three major exchanges comes from derivatives, but Coinbase is strictly restricted in this regard. In addition, Coinbase has very strict selection of currency listings, and is extremely cautious about the securities involved. The S1 form indicates that the vast majority of Coinbase’s revenue comes from transactions between Bitcoin and Ethereum. For example, after the U.S. SEC punished XRP, Coinbase immediately suspended trading and then removed it from the shelves, but Binance and others did not have this problem.

Coinbase is talking about the first of the potential advantages of competitors: the ability of competitors to provide products and services that we do not support or offer on the platform (due to the restrictions of regulators, banking partners and other factors), such as securities type Tokens and derivatives (such as tokens that constitute securities or derivative instruments under US or foreign laws).

At present, the top four derivatives exchanges are all exchanges established by Chinese founding teams: Binance, Huobi, OKEx and Bybit. Binance currently offers more than 162 derivative products, basically none of which are available to US users. In terms of currency listings, Binance will list 184 currencies in 2020, a year-on-year increase of 33; Coinbase only has 125 trading pairs in total. In comparison, Binance has 948 trading pairs, Huobi has 864, and OKEx has 546 (according to coingecko data).

For the three major exchanges, the trading volume of derivatives has far exceeded that of spot. In 2020, the 24-hour peak of the Binance spot exchange is 15 billion U.S. dollars, and the highest 24-hour contract trading volume is 37 billion U.S. dollars, an increase of 34 billion USDT year-on-year.

In addition, the three major exchanges have issued their own platform tokens, most of which are in their own hands, and they can use platform tokens as cash flow for investment, thus greatly increasing operational flexibility . If the value-added part of the platform currency can be calculated as profit, the value-added value of BNB held by Binance in the past month may exceed billions of dollars.

Yang Haipo, founder of Coinex, pointed out in an interview with tokeninsight that the entire exchange industry is divided into a "compliant" market and a non-compliant market, both of which are very important. The "compliance" market is relatively limited, both in terms of currency listing and trading methods, the restrictions are very high. This is why there is a need for a "non-compliance" market, and the decentralized technology of the blockchain itself is also to liberate the restrictions brought about by "compliance".

He believes that the "outside compliance" market will always become the mainstream of the entire currency circle, or it is an advantage in itself. There are many innovations and ways to play in sales and products in the "outside compliance" market. Even if there are some bubbles in it, it is generally promoting market development. So he doesn't think "compliance" is a major trend.