The biggest threat to Coinbase are decentralized exchanges like Uniswap & Sushiswap. During the peak of DeFi summer, Uniswap handled more trading volume than Coinbase. [0]
Uniswap airdropped its token $UNI to all users on Sept 17, 2020. Uniswap is already at a $17 billion market cap. Coinbase is expected to IPO at ~$100 billion.
Coinbase is more about turning non-crypto currencies into crypto currencies while UNI/SUSHI are more about turning crypto currencies into different crypto currencies.
In my POV, there's only two ways to get into crypto:
- Centralized exchanges with KYC
- Mining
Coinbase is a KYC centralized exchange and enables people to turn their bank account $$s into crypto. Uniswap and Sushiswap are only relevant once someone has crypto and needs to exchange between various tokens.
No one wants to pay you for legal above-board work in bitcoin[0] because bitcoin is not a useful currency (for reasons that have been rehashed plenty of times in HN comments.
Nonsense. I have been getting paid in BTC or (when BTC fees ramp up temporarily) in other coins like Ethereum and XRP for years for completely legal, non-criminal, not even grey work and know of many jobs, job forums and other compensation sources that happily pay in crypto for perfectly legal work, either by default or if you request it as your method of payment. You basically just invented a fact and casually stated it as if true.
I also should note that for work done for clients outside my country of residence, I preferred crypto payments because local exchanges allowed me to have the payment in my bank account, in local currency in minutes 24 hours a day, any day of the week, as opposed to waiting 24 hours or even days by any other non-crypto payment method
If your customer is willing to spend BTC they own for your services, and you’re willing to exchange your services for some amount of BTC — then it’s very straightforward, zero extra hoops to jump.
Imagine now your customer is in a non-US country, and you are in another non-US country with another currency. Using USD wire transfer is jumping through hoops in this context, and might not always be fast, cheap, or possible at all with some pairs of countries.
> If your customer is willing to spend BTC they own for your services[..]
In this scenario, would one's rate be set in BTC, or fiat?
I'm struggling to understand how a (non-crypto) business could want to hire a contractor at - let's say - 0.016 BTC/day, then watch the real (fiat) cost of that rate change value as the crypto markets move.
"We hired a contractor at what was $100/day but right now it's costing us $1000/day because we agreed to fix her rate in BTC" ?
Isn't this essentially like agreeing to pay someone in gold, or any other random commodity?
> In this scenario, would one's rate be set in BTC, or fiat?
You set the rate in USD, and do the currency conversion upon sending.
> I'm struggling to understand how a (non-crypto) business could want to hire a contractor at - let's say - 0.016 BTC/day
You’re right, BTC is too volatile to set the price in it in advance. But it is a perfectly good payment method.
It’s true that if you need the money you receive in BTC to feed your family tomorrow or they starve, then BTC is not convenient and too risky due to price fluctuations. But if you’re a reasonably compensated professional or a business with healthy margins, there’s very little downside in receiving 10—20% of money as crypto, and potentially very high upside.
It would be foolish for a business to enter into BTC-denominated contracts because that would expose them to a huge foreign exchange risk in return for nothing.
So you're saying these people don't want to use BTC? If they used BTC exclusively for everything this wouldn't be an issue. Dollar denominated contracts only matter if all you have is dollars. By that I mean that if you buy 0.01 BTC today and hold them until the contract is completed then you face zero foreign exchange risk.
If you don't possess the BTC on the day you signed the contract then you basically created an option with a zero dollar strike price. You aren't truly using the currency the way helloworld1 and others imply.
If they used BTC exclusively they wouldn't have foreign currency exchange risk. Instead they would have alternating periods of hyperinflation and hyperdeflation, coupled with highly uncertain tax liabilities, because taxes are still paid with real money. So, not much better. And this is assuming that there are no technical limitations or prohibitive costs preventing the adoption of BTC as exclusive currency.
This doesn't really address the comment it replies to though. Paying someone for work in a dollar stablecoin still obviates their need for a crypto onramp.
1) Not everyone has a job where they can be paid in crypto. 2) Some people want to invest larger amounts into crypto. Both these cases require an onramp.
and yet, almost nobody does this. Because it's impractical so far. I would look forward to the day when it does become practical, but i cannot see when that may be.
It’s not that unfathomable, it’s just not something you’re about to get in place of a direct deposit any time soon. I’ve seen internet artists and musicians offer to take commission payment in crypto before. Assuming the ecological issues of cryptocurrencies are possible to sort out, this kind of peer-to-peer usage feels nearly ideal, especially when many smaller businesses have trust issues with internet peer to peer payment providers such as PayPal.
There's already an entire industry growing up around enabling cryptocurrencies to be spent using traditional payment rails too, though, for those who don't want to see their governments print away the value of their money.
Coinbase itself has a debit card that deducts directly from your crypto balance and allows you to swipe the card anywhere that normally takes Visa. They're even a card issuer for Visa in their own right, so they don't have to do it through partner banks.[0]
Spending crypto is easy, whether the vendor opts into using it or not, so if you do get paid in it, it's easy to use.
I think we must be talking past each other or something. The purchasing power of every single fiat currency has trended down since the elimination of hard money standards, so as far as I can tell, every single government is printing away the value of its money.
I don't see how that's "failing to do so" if "so" refers to "printing away the value of their money"?
As others mentioned you're forgetting an economy which just uses crypto as the means of exchange, which for many has always been the long term goal.
But you're also forgetting P2P crypto marketplaces like LocalCryptos[1], which (for Ethereum) allows you to have smart contract escrow and therefore the middle-man is only really required in the case of disputes. I personally have transacted > $100k with LocalEthereum, not once having an issue with a trade, and most settling in under 30min.
> As others mentioned you're forgetting an economy which just uses crypto as the means of exchange, which for many has always been the long term goal.
Taxes are owed in income or capital gains, whatever form that income or capital takes, but taxes can only paid in legal tender. Until the IRS et al hang out a wallet address for payments you will still need to touch the ordinary financial economy.
A good number of people (in the US at least) legally pay no taxes every year. So it's hypothetically possible to live entirely within crypto (legally) already.
But yes, that was more talking about the future. That is the matter at hand, after all – Coinbase's future (or lack thereof).
Presumably people who make less than $22,000 USD and have no capital gains, which definitionally cannot apply to anyone dealing with cryptocurrencies (as they're securities).
The long-term capital gains rate is 0% for single people whose income and short-term capital gains are under $40k per year, or married people under $80k.[0]
"People who pay no income tax" absolutely can apply to people using cryptocurrencies.
Every time I have a discussion about crypto on HN I want to go buy lots of crypto because there are clearly still some smart people that really don't get it, to the point of seeming deliberately obtuse.
Given that the median family income in the U.S. is almost 15% less than $80k[0], the majority of U.S. households don't have to worry about this problem.
You can try to make it out to sound really widespread if you want, but the facts don't support you.
And the fact that people with lower incomes stand to benefit more from crypto than people of higher means who already have access to reliable banking systems is part of the point.[1]
My top level point is still the same. The government won't settle debts in crypto. Taxes are the main one, but there are also fees, levies, duties etc etc which will need to be settled in fiat. That is not likely to change.
can you help me understand the income point you made? I'm not sure I totally follow.
If I make less than $40k a year, I pay 0% capital gains? But what about income tax? You have to have some form of income, which will be taxable. I don't see how to keep that so low your effective taxation will be 0% while having enough money to live on? Am I missing something? Forgive my unfamiliarity with the tax regimes here.
If you had said this 6 years ago I would have laughed, now I'm just sad at how bastardized this project has become. You know you can just... use a bitcoin wallet and do an on-chain transfer?
You can send, receive and even buy Bitcoin with fiat with CashApp after you go through their KYC procedures within the app. [1] https://cash.app/bitcoin
Coinbase tells me there are no fees for crypto to crypto conversion, just when I initially buy crypto with cash. What does a decentralized exchange give me that beats that?
They make money off the spread on exchanges. Exact same principle as Forex “no fees” - it’s the difference between buy/sell rates.
On the OTC side (which I guess you’re referring to?, CB sets their own spread , which makes it more akin to a fee. Even if CB is technically correct saying “0 fee”, they can still charge any price they want for buying vs selling.
Uh that'd be stealing and would make them immediately lose credibility. But if you're really concerned about it, move funds to your wallet as soon as you buy.
You don't have the private keys. If coinbase loses them, you're out of money. Possibly. They're insured supposedly, but if you have your own private keys then the only entity you have to deal with in this case is yourself (this can be both a positive and a negative, depending on how careful you are)
There is a "Coinbase Wallet," though, which is somewhat confusingly a separate app where you actually do hold your own private keys.[0]
You can seamlessly link your exchange account and your Wallet account so you can move the money right into your own Coinbase Wallet with your own private keys as soon as you're done with the exchange.
I'm not sure the parent comment meant that wallet, but Coinbase does "give you a wallet" if you want, complete with your own private keys.
It would be, except that you can easily link the two accounts. Sure, that's roughly equivalent to making sure you have the Coinbase exchange address assigned to your wallet loaded into Metamask and your Metamask address loaded into the Coinbase exchange, but that takes a level of understanding that linking Coinbase Wallet to Coinbase exchange doesn't require.
Coinbase does "provide you a wallet." It just isn't part of the exchange.
This will change in some years though. Conversion will cost less gas with L2. Things are progressing quickly on those problems. Dexs and liquidity pools will have near zero fees.
Personally, I think unless coinbase pivots, their current business model is not sustainable in the long term. But right now, coinbase is capturing value in a way that the early majority of crypto's adoption curve can digest.
I'd also add on that Coinbase is in a position to build payment features (e.g. chargebacks) a la Paypal for transactions within their platform, that a DEX cannot provide.
Bisq is surprisingly smooth if you want to exchange fiat to crypto without intermediate centralized exchange. Great to see a solid implementation of colored bitcoins in the wild with great UX.
I would argue the biggest threat to coinbase is another crypto winter where volumes fall by 90%! And eventually the asset class becoming mature, so fees also fall by another 90%
>And eventually the asset class becoming mature, so fees also fall by another 90%
Are we talking fees for coinbase pro, or the spot price offered by coinbase on their website? The prices for the former are already pretty low, with most exchanges charging around 0.2% on their lowest volume tier. The prices for the latter might be high, but I can totally imagine it staying high considering that forex rates at your local bank is equally as bad (around 1-2%). As a point of comparison for both, transferwise charges 0.4% for converting euro to usd.
The fees. 0.2% is not low compared to any mature market for trading. As a point of reference, Robinhood is free. Interactive Brokers will charge you a fraction of a cent in commissions, so on a $30 stocks that's about 0.01%
Stock trading is cheap for a variety of factors that's not applicable to crypto (eg. payment for order flow, stock lending [1]). A stock brokerage can also skimp on security because the legacy financial system has an undo button for oopsies. Finally, a 0.2% fee is relatively competitive with a "reasonable" commission of $5-10/trade (the going rate before brokerages became commission-free) as long the trade is below a few thousand dollars.
Why will those factors not be applicable to crypto? (People taking custody of their own cryptoassets may mean that the exchange can't lend them out, but as exchanges continue to pass the test of time more and more people may be willing to leave assets on exchanges.)
AFAIK the only reason why there's a market for lending stocks is because the SEC prohibits naked short-selling. If you want to short-sell, you need to locate a share somewhere and "borrow" it, which leads to brokerages offering to do that for a price. For crypto this isn't required because you can short using CME bitcoin futures, which is cash settled and therefore doesn't require you to locate/borrow anything.
On crypto venues you can spot borrow crypto but there you're right that there is not much demand for this, and as a result lenders don't get paid much.
That is precisely where Coinbase doesn't excel. I know several people who bought crypto on Coinbase in 2017 and forgot about it. They are now trying to restore their account but Coinbase support takes¡months! to complete this step. The best days for Coinbase are already behind them. I recommend looking into other exchanges & not to rely on exchanges for storing your crypto.
You can redeem stable-coins like True USD or PAX to a US bank account after passing KYC, with 1 token=1 USD. You can redeem up to 60k/day on PAXOS for a $20 flat fee per redemption, on tier 1 KYC.
It also works the other way, so they are an on-ramp, just with a slightly higher fee. However i wouldn't 100% rely on these regulated stable coins as an off-ramp if the crypto market implodes and everybody runs for the exit.
Right. To a bank. After passing KYC. On an exchange like Coinbase. That's my point: Coinbase is well positioned to be the on and off ramp for crypto by being legitimate enough to interface with the US financial system.
My take is that needing on/offramps proves crypto (and coinbase) is nothing but a huge casino at this point. I've been involved for 7 years and i still can't spend my crpto directly or without some serious gymnastics involved. So tired of people saying the tech is new, 'we are early adopters', etc. I'm personally steering clear of coinbase if they go public.
The only promise of bisq is to be woken up at 6am one day with police kicking down your door. That's where criminals go to offload their non-privacy coins for Monero and to drain grandma's bank account.
1) considering the astronomical fees of uniswap currently I think Coinbase is fine. Even when fees will be fixed you still can only swap erc20 tokens and ether, not currencies from other cryptos. Projects like Axelar might change that though as they’ll be able to support cross swaps between different blockchains.
2) Coinbase do on/off ramp which you can’t do with uniswap
Are you agreeing or disagreeing that it is a threat? Linux did take a ton of market share from Microsoft on the server side.
Linux is also not a good analogy IMO, because Uniswap has a lot of direct retail/consumer usage whereas Linux isnt used directly by the average person.
Without personally taking a position one way or the other I think it’s fair to point out that perspectives on DeFi in general and AMMs in range from “the future of finance” to “scammy ICOs with Solidity code and a whitepaper”, even among people who are into crypto.
One thing with the eth/uni world.. it seems like fluffy unicorn land. It's full of new lingo and bits to assemble (metamask etc) to maybe get something working. The crowd for this might be very small.
Metamask is the only name I could remember, when you listen to people discuss how to use uniswap, the amount of step to do is quite random and it's full of lingo and basically, it feels like setting up the latest js toolchain, a big shiney blur. Then they'll go on and talk about other systems, like polka dot and its parachains and its another universe, then you have multichains, and oracles and whatever.
It's more like early TCP where you have to install and set up the whole network stack of the month than early WWW to me.
So is your critique that the tech is just in its early stages of development and hard to use for non-techies right now? Or are you seeing some reason it can't eventually become as easy to use as the internet, even though that was also really complex and hard to use in its first decades?
Different types of networking still appear "randomly chaotic" to lay people. To people who know how they work, they're no more complex than cryptocurrencies are to people who know how they work.
The fact that something requires specialist understanding at its most basic levels does not in any way prevent building upon it and simplifying it until it reaches such a level of abstraction that any layperson can use it even though they don't understand it.
The biggest threat is Bitcoin (and other popular cryptocurrencies) stop going up or experience a crash. Sure, there are true believers, but I suspect most people are just looking for an asset that's going up. It could be gold, Nikes, NFTs, Pokemon cards, or bitcoin.
Or stocks, I suppose, but at least they have revenue.
The biggest risk to the world financial system is that people are going to realize the dollar isn't backed by anything, lose confidence in it, and it's going to crash.
I don't know what you want to be holding if/when that happens, but I'd like to own some provably scarce resource that can be transmitted digitally.
The (U.S.) dollar is backed by the U.S. Army and always will be. Confidence decreases? The U.S. will likely start a war with the country whose currency tries to replace it (on "national security" reasons).
In that scenario, trust shifts to somewhere the U.S. cannot easily regulate. In case of crypto, that can just be banned and rendered useless, as long as the rest of the world is USD-bound.
If a crypocurrency becomes popular in another country using another currency to on- and off-board, see my comment.
It would take a miracle for cryptocurrencies to suddenly replace fiat without being bound to any fiat currency. Essentially, all the world would need to switch trust at once.
Nah. High frequency trading on L1 is too expensive, especially long term as state grows.
Biggest threat is L2 exchanges. CEX-style speed and convenience and DEX-style non-custodiality. My money is on Nash since they went the legal path plus fiat on-ramping, i.e. actually competes with Coinbase's main source of profit.
Sushiswap is mostly a joke / ripoff. The Uniswap team has been able to consistently deliver good stuff, while Sushiswap has been trying to selfishly extract value from the trend.
The basic form of AMMs involve "liquidity pools" that contain two assets. The equivalent amount of AssetA and AssetB by value, this value ratio is set by the initial pool creator but if its out of line with market expectations people will buy and sell until it is corrected. For illustrative purposes lets just say Ether (Ethereum native token) and Link (from the Chainlink project).
So this pool is really two pools, in the ballast analogy think of each as two separate silos next to each other filled with liquid evenly. When someone outside of this wants the LINK token, they must bring Ether, which adds Ether to the Ether silo, and subtracts Link from the Link silo. Despite the quantity changing, value wise the remaining Link has gone up in value proportionally, which is kept track of simply because the system understands that the ratio has changed. The ratio winds up matching market prices everywhere. It will match the price of Link priced in Ether priced in dollars on all the other price tracking services. So that's pretty genius.
User experience wise, every order is essentially a market order, as there is no way to have different sized orders at certain price levels get matched. (you have to understand how posted-order exchanges work to understand that sentence, in traditional markets, volume has nothing to do with price movements it simply winds up having a 99% correlation by coincidence.) In AMM systems every trade moves the ratios based on the size of the order, and how big the silos are to begin with.
But that's where there is the permissionless nature of anyone being able to join the liquidity pool, and earn a portion of all trades that pass through it. So this aspect is more advanced than requiring professional market makers (or pretending they don't exist in crypto while being extorted by all centralized exchanges to contract with them, but never admitting to your community that they're there so that the regulators don't curb stomp you and your project).
So now, any community that wants liquidity can just create a liquidity pool, instead of begging exchanges to list their token and spamming Coinbase and Binance's twitter and telegram all day forever. It is completely permissionless, but now you've reached the edge of what that system can do. The further advances are all external, for example, you absolutely can create limit orders by just monitoring the ratio of a liquidity pool, the ABI of those smart contracts have a convenience function you can call. And also joining liquidity pools are incentivized by third parties, and this is what yield farming is. It is all the craze because it is intrinsically linked to the growth of AMM system's liquidity and volume. When you join a liquidity pool, you receive a liquidity pool share which is a new token that represents your % of the pool. The "LP" acronym is ironically the exact same function as a Limited Partner in a pe/hedge fund. This share is a bearer asset which can be deposited in other places that let you earn third party tokens that have their own utility and price. This is farming. You plant your share and earn a yield.
The final thing to point out is that the liquidity pools have cross liquidity pool routing.
So back to our example, Lets say you have Tether instead of Ether. The AMM systems will take your tether, route it through an existing Tether/Ether liquidity pool, your the Ether through the Ether/Link liquidity pool and give you Link. They will do 4-5 hops or more and judge the most liquid route.
So yet again, more advanced than posted-order exchanges because you don't have to beg for any particular trading pair, and you don't have to switch assets in advance manually.
If you understand this then you've made it to last summer. Where we are at now is that there are plenty of services that let you trade using liquidity between multiple AMMs, 1inch exchange is the most popular for that, the current developments are the ability to trade across multiple AMMs on multiple blockchains. But note, individuals build their own bots to do it whether a big project has made this easy for others or not.
Uniswap airdropped its token $UNI to all users on Sept 17, 2020. Uniswap is already at a $17 billion market cap. Coinbase is expected to IPO at ~$100 billion.
[0] https://www.theblockcrypto.com/data/decentralized-finance/de...