The Ethereum Merge is Coming: Here’s what you need to know | by Coinbase | Aug, 2022

Tl;dr: Ethereum is anticipated to move to Proof-of-Stake (PoS) on or around September 15, 2022 making it more secure, less energy-intensive, and better for implementing new scaling solutions. Rest assured, your assets will be safe and secure during this period and no action is required to upgrade on your part. The following piece outlines what you can expect from Coinbase ahead of The Merge.

By Armin Rezaiean-Asel, Product Manager at Coinbase

On August 10, 2022 Ethereum completed the Goerli public testnet merge — its final trial before making the migration from Proof-of-Work (PoW) to Proof-of-Stake (PoS)* on mainnet (also known as the Merge). Ethereum is now anticipated to complete the Merge on or around September 15, 2022 (TTD 58750000000000000000000). Six years in the making, this milestone will reduce energy consumption for the Ethereum network by a projected 99.95% compared to PoW.

With the rise of DeFi and NFTs, the Ethereum network has endured traffic bottlenecks and unpredictable spikes in transaction (gas) fees. Although PoS on its own does not lower transaction fees, it does set Ethereum up to continue delivering on its scalability roadmap.

At Coinbase, we view this event as a major step toward scaling adoption of the cryptoeconomy and will support it in a variety of ways that align with our mission to increase economic freedom in the world.

What does the Merge mean for Coinbase users?

During the Merge, Coinbase will briefly pause new Ethereum (ETH) and ERC-20 token deposits and withdrawals as a precautionary measure. Although the Merge is expected to be seamless from a user perspective, this downtime allows us to ensure that the transition has been successfully reflected by our systems. We do not expect any other networks or currencies to be impacted and expect no impact to trading for ETH and ERC-20 tokens across our centralized trading products.

You will be informed via Twitter and the status page when ETH and ERC-20 tokens are available for deposits and withdrawals.

It’s important to always be on high alert for scams, but especially leading up to the Merge. We recommend you don’t send your ETH to anyone in an attempt to “upgrade to ETH2” as there is no ETH2 token. Your assets will be safe and secure during this period and no action is required to upgrade on your part.

After the merge, you can find your staked ETH (ETH2) balance under your Ethereum (ETH) wallet on the platform. Your staked ETH will be listed separately from any unstaked ETH or dapp wallet ETH balance you might be holding. As a reminder, ETH2 is the ticker Coinbase set ahead of the Merge to represent staked ETH and will no longer be used after the Merge — there is no ETH2 token.

Staked ETH (ETH2) balances won’t be unlocked at the time of the Merge or be available to trade or transfer until the Ethereum protocol upgrade completes. The upgrade is anticipated to be completed by early 2023.

For Coinbase Prime and Coinbase Exchange customers:

Coinbase Prime users with ETH and ERC-20 balances may experience temporary delays in custody withdrawal availability. We recommend initiating any withdrawals or deposits prior to this date, or after the Merge completes. We’ll send specific institutional customer communications before the transition to give our customers specific guidance on timing and SLAs during this time.

For Coinbase Cloud customers:

Customers running their staking or node infrastructure through Coinbase Cloud should expect to experience a routine upgrade with approximately 10 minutes of downtime in advance of the Merge. Customer infrastructure should experience little to no downtime when the Merge block is passed, and changes will be backwards compatible. Our Customer Success team will reach out to inform you of upgrade timelines and if any other actions are required to prepare you for the Merge.

For Coinbase Wallet users:

Coinbase Wallet users with ETH and ERC-20 balances, as well as NFTs or DeFi positions on the Ethereum network, should experience minimal to no impact. Assuming a successful transition, the network will remain operational, and users can continue to transact with their self-custodied crypto on the Ethereum mainnet once the transition is complete. As always, network fees will be set by the network based on demand, and as a reminder, Coinbase neither sets nor collects those fees.

For Coinbase Commerce customers:

During the merge time, we will be temporarily pausing the ability to process new payments as a precautionary measure to ensure that funds are protected. In-process payments will also be delayed. Once the merge is complete, payment processing will be re-enabled. There is no action required by users and in-process payments will be confirmed at this time.

We aim to support the Merge with the least amount of friction possible for our users — without compromising on security. We’ll continue to provide updates on our Twitter and Statuspage as more information becomes available.

As a reminder, the Merge is the culmination of years of work by the Ethereum Foundation, independent researchers, client teams, infrastructure providers like Coinbase Cloud, and many others. At Coinbase, our role is to protect users’ assets and help ensure a seamless transition across Coinbase products. For Ethereum network specific information, you can follow the Ethereum Foundation Blog as well as the Ethereum network on Twitter.

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Coinbase selected by BlackRock; provide Aladdin clients access to crypto trading and custody via Coinbase Prime | by Coinbase | Aug, 2022

Tl;dr: Coinbase and BlackRock to create new access points for institutional crypto adoption by connecting Coinbase Prime and Aladdin

By Brett Tejpaul, Head of Coinbase Institutional and Greg Tusar, Vice President, Institutional Product

Over the past few years, Coinbase has played a central role in developing and strengthening crypto markets as the safest, most trusted bridge to the cryptoeconomy. Today marks an exciting next step on our journey as we announce that Coinbase is partnering with BlackRock, the world’s largest asset manager, to provide institutional clients of Aladdin®, BlackRock’s end-to-end investment management platform, with direct access to crypto, starting with bitcoin, through connectivity with Coinbase Prime. Coinbase Prime will provide crypto trading, custody, prime brokerage, and reporting capabilities to Aladdin’s Institutional client base who are also clients of Coinbase.

Built for institutions, Coinbase Prime integrates advanced agency trading, custody, prime financing, staking, and staking infrastructure, data, and reporting that supports the entire transaction lifecycle. We combine these capabilities with leading security, insurance, and compliance practices to provide institutional clients of Coinbase with a full-service platform to access crypto markets at scale. Coinbase’s clients include hedge funds, asset allocators, financial institutions, corporate treasuries and other institutions.

Our scale, experience and integrated product offering represented what BlackRock believes to be a logical partner for Aladdin.

“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Chalom, Global Head of Strategic Ecosystem Partnerships at BlackRock. “This connectivity with Aladdin will allow clients to manage their bitcoin exposures directly in their existing portfolio management and trading workflows for a whole portfolio view of risk across asset classes.”

The Coinbase partnership between BlackRock and Aladdin is an exciting milestone for our firm. As the trusted partner enabling institutions to participate and transact in the cryptoeconomy, we are committed to pushing the industry forward and creating new access points as institutional crypto adoption continues to rapidly accelerate. We are honored to partner with an industry leader and look forward to furthering Coinbase’s goal of providing greater access and transparency to crypto.

BlackRock and Coinbase will continue to progress the platform integration and will roll out functionality in phases to interested clients. Access is available for institutions contracted with both Aladdin and Coinbase. To gain access or learn more about the capabilities, please reach out to

About Coinbase Prime

Coinbase Prime is the leading institutional prime broker platform for crypto assets, trusted by over 13,000 institutional clients.

Coinbase Prime is a fully integrated platform built specifically for institutions to support the entire transaction lifecycle including advanced multi-venue agency trade execution for 200 assets, custody for more than 300 assets, prime financing, staking and staking infrastructure, data and analytics, and reporting.

Institutions can access Coinbase Prime directly via a user interface or as an integrated platform via APIs to offer crypto related products such as ETPs and ETFs, custodial solutions, or brokerage for institutional, private wealth, and retail clients.

Coinbase Prime’s custodian, Coinbase Custody Trust Company, is a qualified custodian and a New York limited purpose trust company regulated by the New York Department of Financial Services. Coinbase Custody Trust Company is a fiduciary under New York state banking law.

To learn more about Coinbase Institutional’s solutions, including more information about Coinbase Prime, click here.

Disclaimer: This content is intended for informational purposes only, and does not constitute the provision of investment advice. For more information, please visit

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Introducing Coinbase Security Prompt — a safer and easier way of signing into Coinbase | by Coinbase | Jul, 2022

Siyu Liu, Senior Product Manager; Chetan Rane, Product Manager

Tl;Dr: We are excited to introduce the Coinbase Security Prompt: a faster and safer way for our users to verify their identity & activities when interacting with the Coinbase ecosystem.

At Coinbase, we believe that our users need to have access to the best security possible without sacrificing ease and convenience. Providing a safe, secure, and easy-to-use platform that users trust is our continuous commitment to all of our current and future customers. That’s why, we require all Coinbase accounts to use 2-Factor Authentication (2FA). 2FA is a security layer on top of username and password. Accounts with 2FA enabled require users to provide their password (first “factor”) and a 2FA code (second “factor”) when signing in. While Coinbase offers both hardware key and authenticator app support on both web and mobile for 2FA, many customers appreciate the convenience of SMS.

Thinking about that, we’re now going one step further in keeping our users’ accounts secure via Coinbase Security Prompt, a simpler, faster and safer 2FA method that improves overall account security. How? Instead of sending an SMS code, the new Coinbase Security Prompt sends users a push notification to their Coinbase mobile app, asking if they are trying to sign in. Now with Coinbase Security Prompts, users can authenticate a login action with a simple tap on their phone:

Our customers will automatically have a stronger security without losing the ease and convenience of using their phones, from anywhere. Security Prompt is resilient against SIM Swap attacks by removing the mobile carrier as an intermediary from the authentication process. It also reduces the risk of phishing attacks by providing detailed information about where the request is coming from, such as the location or browser type.

Starting in July through the rest of 2022, all of our eligible* users will gradually start to be automatically enrolled to complete their 2FA via Security Prompts. Users who are still receiving SMS codes as their 2FA method can get access to Coinbase Security Prompts by downloading the Coinbase app.

*Eligible users are those who have an active mobile login session, trying to login from a second device and are using our latest Coinbase app version.

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Coinbase wins Best Prime Broker Award | by Coinbase | Jul, 2022

by Brett Tejpaul, Head of Coinbase Institutional, and Elke Karskens, Head of EMEA Marketing

We recently won the Best Prime Broker Award in Hedgeweek’s annual European Digital Assets Awards. This success not only underlines the strength of our platform and our integral role within the cryptoeconomy, particularly in terms of further enabling institutional engagement, but also celebrates the incredible talents of our amazing team here at Coinbase.

Over the past three years we have seen widespread adoption of cryptocurrencies across the world. Coinbase now has over 13,000 institutional clients as of March 2022, including a wide range of banks, introducing brokers, pension funds, corporates, hedge funds and asset managers.

Increased adoption of crypto assets by institutional investors follows the wider trend of the asset class becoming more mainstream, underpinned by a belief in the range of benefits that can be unlocked.

The largest and most sophisticated hedge funds in the world have collectively decided that Coinbase offers the best crypto Prime Broker platform because of its extensive product suite and depth of experience in the sector. Our clients trust us as the largest crypto custodian that also combines multi-venue execution capabilities with a strong balance sheet to enable prime financing. Most clients also take advantage of our full suite of services that is completed by best in class data and analytics and staking directly from cold storage. The robustness of our operations is reinforced by our listing on NASDAQ and validated by the fact we are authorised and regulated by the New York Department of Financial Services.

As a market leader we will continue to work with individuals and other stakeholders in the wider financial and political world to shape policy to create a safer and more efficient financial system that’s accessible to all.

We would like to take this opportunity to publicly thank Coinbase’s entire institutional team for their hard work and dedication through an ever-shifting macro environment. We’re just as passionate and hungry as we’ve always been, and will continue to cement our position as the leading prime broker and digital asset custodian supporting institutions of all kinds in their engagement with the world of cryptocurrency.

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Quantitative Crypto Insight: A systematic crypto trading strategy using perpetual futures | by Coinbase | Jul, 2022

TL;DR: Perpetuals futures are financial instruments that have become increasingly popular in the crypto space. Coinbase demonstrates a hypothetical simple delta neutral strategy which takes advantage of positively skewed funding rates in the perpetual futures market to achieve a high return on investment.

By The Coinbase Data Science Quantitative Research Team

Systematic Trading Strategy

A systematic trading strategy is a mechanical way of trading that is aimed at exploiting certain aspects of market inefficiencies to achieve investment goals. These strategies employ disciplined, rule-based trading that can be easily backtested with historical market data. Rule-based trading follows strict, predefined trading methodologies that are not impacted by market conditions.

Systematic trading is a fully grown area of investing that spans a wide range of strategies and asset classes. With the ever-growing crypto market, in which thousands of tokens are being traded and derivatives offerings are being expanded, systematic trading will play an important role in goal-based investing with efficient capital allocation and rigorous risk management. In this piece, we explore a delta neutral strategy to demonstrate the basic building blocks of systematic trading.

Spot Trading: Buying or selling assets that results in its immediate transfer of ownership. For crypto spot trading, one can directly buy or sell crypto assets via centralized exchange, retail broker, or decentralized exchanges. (For example: Coinbase Prime, Coinbase Exchange)

Derivatives Trading: Derivatives are financial contracts whose values are dependent on underlying assets. These contracts are set between two parties and can trade over a centralized/decentralized exchange or over-the-counter (OTC). A futures contract, one of the most popular derivatives, obligates parties to transact an underlying asset at a future date at a predetermined price. Derivatives, such as futures, are highly regulated financial instruments. For example in the United States, the CFTC regulated the derivatives market including commodity futures, options and swaps market as well as over-the-counter markets.

Delta and Delta Neutral: The delta measures the rate of change of the derivative contract’s price with respect to changes in the underlying asset’s price. For the underlying asset itself S, it is called delta one because the rate of change of S relative to itself is 1. Futures contracts that track closely the underlying asset, are approximately delta one. To achieve a delta neutral portfolio, one can take offsetting positions in spot and derivatives markets to construct a portfolio with an overall delta equal to zero. The zero/neutral delta portfolio is not subject to underlying price movements.

Perpetual futures have become a popular way to trade crypto assets. Unlike traditional futures that have expirations and associated delivery or settlement dates, perpetual futures don’t expire. These instruments are periodically cash settled with funding rate payment and there is no actual delivery of the underlying assets. Perpetual futures have to be either closed out to exit or held indefinitely.

Perpetual futures have their value closely pegged to the underlying assets they track with a funding payment mechanism built into the contract. It allows investors to easily take directional positions without worrying about physical delivery of the underlying assets. Perpetual futures have several advantages: it’s easy to take long or short positions, contracts can have high leverage, and there is no expiration to the contract — eliminating the need to roll futures.

We will use two scenarios to illustrate how the funding payment mechanism works:

  1. When perpetual futures are traded at a premium to spot prices, the funding rate is positive. Long futures traders will pay the short counterparty a funding amount proportional to the funding rate determined by the exchange.
  2. When perpetual futures are traded at a discount to spot prices, the funding rate is negative. Short futures traders will pay the long counterparty.

For illustrative purposes only.

As illustrated above, the larger the futures price diverges from the spot price, the bigger funding payment will be exchanged under a clamp threshold from exchanges. It’s an effective way to balance the supply and demand in the futures market and hence keep futures tightly anchored to underlying assets.

Based on the above discussions, we explore a systematic delta neutral trading strategy that monetizes the rich funding rate in the perpetual futures market. A one-step setup of initial positions is required and no further rebalance is needed. We first take a long position on the underlying asset, at the same time take a short position on the perpetual future with the same notional. Given that the price of a perpetual future closely follows its underlying asset, the net position is delta neutral and has little exposure to the price movement of underlying assets. The strategy draws its performance from the funding rate payments since it is on the short side of the perpetual market.

Below is how it can be set up with BTC and BTC-PERP on 2x leverage:

  1. Deposit USD Y amount as collateral
  2. Long BTC with notional 2xY
  3. Short BTC-PERP with notional 2xY
  4. Every 1 hour, the position either collects or pays the funding on 2xY BTC-PERP position.

Here’s an example of a one period performance:

A trader opens a long position on Bitcoin. The open price was $9,910 USD and position size was 2 BTC. The trader at the same time opens a short position on BTC-PERP at $10,000 and with position size 2*9,910/10,000 = 1.982.

If the price of Bitcoin then increases to 12,500 USD and BTC-PERP increases to 12,613, the unrealized profit from BTC position is 2*(12,500–9,910) = 5,180, and unrealized loss from BTC-PERP position is -1.982*(12,613–10,000) = -5,180. The profit and loss offset each other nicely. During the same period, if we assume a funding rate of 0.3%, we will collect a payment of 10,000 * 1.982 * 0.3% = 59.5. With periodic funding payments, the strategy accrues over time.

In our backtest, we deposit USD $1MM as our collateral and then enter into BTC long positions and BTC-PERP short positions with the same amount of notional. Given the strategy has minimum risk to the underlying price fluctuation, we can leverage up our positions by 10x and the leverage ratio stays stable through the period with negligible auto-deleverage/liquidation risk. With a holding period of approximately 1Y, the strategy performed with a return of ~40%.

Data source: Coinbase and FTX

In order to confirm the achieved performance, backtests with different holding periods and different entry/exit dates were performed: 1 month, 3 months, and 6 months. The table below shows median metrics related to these backtests:

Data source: Coinbase and FTX

From the simulations above, the longer the holding period, the higher the annualized return.

We just demonstrated a systematic trading strategy with spot BTC and perpetual futures. It is a basic strategy that only requires the initial setup of spot and derivative positions; no further active position management is needed before closing out. To make the strategy more robust, one can devise additional trading rules for risk management under market stress scenarios. It will also be interesting to explore ideas on running more dynamic trading rules that adjust leverage ratio to enhance return.

The core of the strategy is funding arbitrage between the perpetual futures market and fiat currency borrowing. Below we take a closer look at the funding rate distributions in the futures market. The rate is concentrated in the bucket around 2%, which can be thought of as a breakeven rate. But there is a long positive skewed tail which contributes to our strategy’s performance.

Data source: FTX

Below we also look at the autocorrelation function (ACF) of funding rate to understand how past observations are correlated to future occurrences. It is clear from the autocorrelogram below that the funding rate itself exhibits serial correlation up to about 20 days.

Data source: FTX

It is also interesting to see how funding rate and spot prices are related. It is evident from the below chart that when spot prices quickly move up, so is the funding rate. And the reverse applies as well.

Data source: Coinbase and FTX

When spots are quickly ramping up, trend followers are chasing the market, possibly with leveraged positions in the futures market. The demand for funding in the futures market pushes up funding costs. When the market takes a downturn, there is less appetite for funding, so funding costs decrease and can even go negative.

Execution risk for delta PnL offsetting. We demonstrated a delta neutral strategy for which PnL from spot leg and perpetual futures leg offset from each other is expected. Oftentimes, prices between spot and futures could diverge and cause non-trivial delta PnL. This can be mitigated by entering into/existing from the positions gradually in relatively small sizes.

Slippage cost, the effective price paid/received when Coinbase executes orders against an exchange or DEX. When the order size is big compared to order book depth, advanced trading algorithms are necessary to mitigate slippage cost.

Funding rate risk, funding rate is stochastic. It can fluctuate above/below zero. When the rate drifts below zero, the strategy underperforms. Historical markets showed a positively skewed funding rate distribution. However, there is no guarantee of its path in the future.

Leverage risk, auto-deleveraging/liquidation. In order to have a sizable return, the strategy has to be levered up. Given the strategy is delta neutral, it’s safe to run 10x leverage under normal market conditions. However, in a stressed market when spot price and perpetual futures price diverge for a prolonged period of time, the strategy bears risk of auto-delverage or even liquidation, which could result in significant capital losses.

We have demonstrated how to run a systematic trading strategy in the crypto market with a basic one-step setup. Systematic trading in crypto is an uncharted territory in which many of the existing strategies in traditional financial markets could be equally applicable. However, with innovations coming from different angles (e.g, decentralized exchanges, liquidity pools, DeFi lending/borrowing) many new opportunities and possibilities arise as a result. We, as part of the Data Science Quantitative Research team, aim to develop and research in this space from a quantitative perspective that can be used to drive new Coinbase products.

You can track crypto spot and derivatives markets with Coinbase Prime analytics, a set of institution-focused market data features that provide real-time and historical analytics for cryptocurrency spot and derivatives markets. Being elegant and user-friendly, Coinbase Prime analytics features provide a comprehensive analytics toolkit built to meet the needs of sophisticated investors and market participants.

The team would like to thank Guofan Hu and Nabil Benbada for their contributions to this research piece.

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Coinbase Institute Research: Crypto Prices and Market Efficiency | by Coinbase | Jul, 2022

By Cesare Fracassi, Chief Economist, Coinbase Institute

TL;DR: How should we evaluate the recent highs and lows of crypto prices? In taking a market efficiency view, crypto prices are a reflection of the market’s assessment of the future prospects of digital assets. This view can help us understand the historical trends in crypto prices and its correlation with the overall financial markets:

  • Over the last 5 years, crypto markets saw very large returns due in part to adoption by institutional and retail investors, and the laying of the foundations of web3.
  • Whereas crypto markets were originally uncorrelated to the financial markets, the correlation has risen sharply since 2020. Thus, the market expects crypto assets to become more and more intertwined with the rest of the financial system.
  • Nowadays, the risk profile of crypto markets is similar to those of oil prices and technology stocks.
  • The recent decline in crypto markets can be attributed for ⅔ to worsening macro-factors, and for ⅓ to a weakening of the outlook for cryptocurrencies.

Over the last eight months, the market capitalization of all cryptocurrencies went from a peak of $2.9T to a current level of less than $1T, a decline of over two thirds. This is not unusual in crypto markets: Since 2010, total crypto market capitalization experienced a quarterly decline of 20% or more (a typical measure of bear market conditions) nine times.

Each time a sharp decline in crypto prices occurs, media and expert commentaries usually take one of two forms:

(i) the “Crypto is dead” response, where crypto is painted as a gigantic Ponzi scheme fueled by the desire not to be left out of great returns (Fear of Missing Out, or FOMO in short) followed by anxiety and despair when prices decline (Fear, Uncertainty, and Doubt, or FUD in short). The price drop is the sign that the bubble bursted, and we should run for the exits before prices go down to zero.

(ii) the “HODL” response, where crypto is seen as a groundbreaking technology. Crypto winters and summers are a feature, not a bug, of disruptive innovations, like national banks in the early 18th century, railways in the mid 19th century, and the internet and artificial intelligence in the late 20th century. We should hold and ride through the volatility, as crypto prices will resume their rise in the near future.

However, neither of these explain both the historical trends we have seen in crypto and how we are seeing the correlation with overall stock markets today. But there is a third way to interpret changes in prices, the “market efficiency” response, where prices are a reflection of the market’s assessment of the future prospects of digital assets.

Market Efficiency

Examining the crypto markets based on an understanding of market efficiency can help us interpret the data. For example:

  • From June 2017 to June 2022, crypto market cap rose 860%, indicating that the outlook about cryptocurrencies today is much brighter than it was back then: The adoption by institutional and retail investors, and the laying of the foundations of web3 (i.e., decentralized finance applications, non-fungible tokens, decentralized identity solutions, tokenization of real assets, and decentralized autonomous organizations) were part of the reason for these exceptional returns.
  • Since 2020, the correlation between the stock and crypto asset prices has risen significantly: while for the first decade of its existence, bitcoin returns were on average uncorrelated with the performance of the stock market, the relationship increased quickly since the COVID pandemic started. This suggests that the market expects crypto assets to become more and more intertwined with the rest of the financial system, and thus to be exposed to the same macro-economic forces that move the world economy.
  • In particular, crypto assets today share similar risk profiles to oil commodity prices and technology stocks. Beta is a typical measure of systematic risk for financial assets. A beta of zero means that the asset is uncorrelated with the market. A beta of one means that the asset moves together with the market. A beta of two means that when the stock market rises or falls by 1%, the asset increases or decreases by 2%. The animation below shows that the betas of bitcoin and ethereum have jumped from 0 in 2019, to 1 in 2020–2021, and to 2 today — they are now very similar in risk profile to a more traditional asset, technology stocks. (We wrote about this in our Coinbase Institute May 2022 Newsletter.)
  • As the U.S. Federal Reserve and other central banks around the world recently began to increase interest rates, long-term assets like crypto and tech stocks became heavily discounted and their values dropped rapidly. It might be useful to consider how much of the current decline is due to worsening macroeconomic conditions, as opposed to souring outlook specifically for cryptocurrencies, especially considering the crypto market cap declined over 57% year-to-date in 2022. It’s worth noting that during the same time, the S&P 500 declined 19%, and if macroeconomic conditions were the only cause of the decline, we would have expected crypto assets, with a beta of 2, to drop by about 38%. We can thus roughly estimate that two-thirds of the recent decline in crypto prices can be attributed to macro factors, and one-third to a weakening of the outlook solely for cryptocurrencies. This is similar to what happened during the 2000–2001 dot-com recession, where the S&P 500 declined 29%, and the Nasdaq composite index (composed heavily of tech stocks), with a beta of 1.25, declined 70% from peak to trough.

There is one topic that the market-efficiency view is mostly silent about: the direction of crypto prices in the future. The most important pillar of the market efficiency hypothesis is that any traded asset, from stocks to bonds, commodities, and even crypto, incorporates into its price the market’s expectation about the future value of the asset. For example, if the market expects Tesla to sell a very large number of cars in the future, the stock price today will be high to reflect that expectation. If Tesla meets that expectation in the future, its stock price will not rise, because it already incorporated that event into its price today.

Similarly, then, changes in prices occur only when there are changes in the expectation of the future outlook about the assets. Thus, according to the market-efficiency view of crypto markets, only changes in the outlook of the crypto industry relative to what is already expected will bring changes to prices.

NOTE: The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Coinbase or its employees and summarizes information and articles with respect to cryptocurrencies or related topics that the author believes may be of interest. This material is for informational purposes only, and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations or (iii) an official statement of Coinbase. No representation or warranty is made, expressed or implied, with respect to the accuracy or completeness of the information or to the future performance of any digital asset, financial instrument or other market or economic measure. The information is believed to be current as of the date indicated on the materials. Recipients should consult their advisors before making any investment decision. Coinbase may have financial interests in, or relationships with, some of the entities and/or publications discussed or otherwise referenced in the materials. Certain links that may be provided in the materials are provided for convenience and do not imply Coinbase’s endorsement, or approval of any third-party websites or their content.

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Coinbase Commerce Updates: Faster Payments, No Fees, More Currency Options | by Coinbase | Jun, 2022

Tl;dr: We’re announcing two big updates to our Commerce platform: instant, free payments from Coinbase users to Commerce merchants, and seven new cryptocurrencies that can be used for payments through Commerce.

One of Coinbase’s goals is to become a platform that brings together consumers and businesses in the cryptoeconomy. By making cryptocurrency transactions easier and more accessible, we are continuing to drive towards this goal. One of our key strategic pillars is to build products that enable crypto as a new financial system. Coinbase Commerce supports this pillar by providing access to safe and convenient payments.

Instant and Free Payments:

Earlier this year, we launched instant and free payments from Coinbase users to Coinbase-Managed Commerce merchants. This new feature leverages Coinbase’s unique access to both Coinbase customers as payers and to merchants as payees to enable instant, free payments using off-chain transactions. An off-chain transaction involves an account-to-account transfer processed outside of the blockchain through a separate channel, which means we can offer this benefit to payers with Coinbase accounts.

Payer Benefits

Consumers have told us that fees are among the top reasons they choose not to pay in cryptocurrency. Following this launch, existing Coinbase users will be able to complete crypto payments for free if they are sending money to a Commerce merchant on our Coinbase-Managed product, and funds will be settled to the merchant instantly. This makes online and in-person payments even more seamless.

Merchant Benefits

One of the biggest drawbacks for merchants looking to accept cryptocurrency is price volatility. Instant transactions (10 minutes or less) along with auto conversions to fiat currency can help to ensure that you are receiving the right amount from the payer.

Nathan Scherotter, Vice President of Direct-To-Consumer at Commerce client Constellation Brands commented on the company’s excitement about the new capability for the Robert Mondavi NFT store: “Coinbase was the perfect partner for Robert Mondavi to launch our NFT project. The product, team and infrastructure allowed for seamless crypto transactions, automatic conversion and easy integration. Without Coinbase’s Commerce product we would not have been able to accept crypto for this project, and being able to offer instant and free payments is a huge win.”

More Crypto Payment Options on Commerce:

We’ve also added support for seven new crypto assets on the Commerce platform. Merchants and consumers now have more options for their crypto payments. We’ve been getting requests to enable payments with additional cryptocurrencies and we’re excited to add this new capability that will meet the needs of both sellers and payers.

We now support BTC, ETH, USDC, BCH, LTC, DOGE, DAI, USDT, APE, and SHIB. Merchants can easily manage which cryptocurrencies they want to accept, turn off the ones they don’t, and choose to hold or auto-convert any cryptocurrency balance to USD.¹

By removing friction and increasing flexibility within the crypto payment process on both sides of the ecosystem, we are taking another step towards mainstream adoption and leveraging the network effect of our brand. Log in to your account to explore these new features. You can also visit our Help Center or contact us if you need support.

Keep an eye out for more exciting Commerce updates to come later this year!

¹Only Coinbase-managed accounts are eligible for auto-conversion. Settlement limits apply for auto-conversions:

  • $1M — BTC, ETH, USDC, DAI
  • $500k — LTC, SHIB, USDT
  • $250k — APE, BCH, DOGE

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A message from Coinbase CEO and Cofounder, Brian Armstrong | by Coinbase | Jun, 2022

By Brian Armstrong, CEO and Cofounder

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


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

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

  • Economic conditions are changing rapidly: We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue (our largest revenue source) has declined significantly. While it’s hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment.
  • Managing our costs is critical in down markets: Coinbase has survived through four major crypto winters, and we’ve created long term success by carefully managing our spending through every down period. Down markets are challenging to navigate and require a different mindset.
  • We grew too quickly: At the beginning of 2021, we had 1,250 employees. At the time, we were in the early innings of the bull run and adoption of crypto products was exploding. There were new use cases enabled by crypto getting traction practically every week. We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets. It’s challenging to grow at just the right pace given the scale of our growth (~200% y/y since the beginning of 2021). While we tried our best to get this just right, in this case it is now clear to me that we over-hired.
  1. The need to manage expenses: As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn. Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.
  2. The need to increase efficiency: We have now exceeded the limit of how many new employees we can integrate while growing our productivity. For the past few months, adding new employees has made us less efficient, not more. We have seen ourselves slow down considerably due to coordination headwinds, and difficulty fully integrating new team members. We believe the targeted resourcing changes we are making today will allow our organization to become more efficient.

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

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

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

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

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

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

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

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

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



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

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Scaling Node Operations at Coinbase | by Coinbase | Jun, 2022

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

By Min Choi, Senior Engineering Manager — Crypto Reliability

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

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

Data provided by

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

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

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

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

  • On May 9 at 12:44 PM PDT, Algorand version 3.6.2 was released.
  • On May 9 at 1:13 PM PDT, the ARM service filed a ticket to notify our engineers and track the incoming change.
  • On May 9 at 1:43 PM PDT, the required code change was automatically generated for build and deployment.
  • On May 9 at 2:13 PM PDT, the change was automatically deployed to all our non-production environments for Algorand.
  • On May 9 at 2:43 PM PDT, an error in one of the three deployments was detected and the ARM service escalated to an engineer to help investigate.
  • On May 10 at 6:27 AM PDT, the engineer resolved the deployment problem and began service validation testing in preparation for production deployment.

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

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

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

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

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

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

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

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

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

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Update on Hiring Plans. By L.J Brock, Chief People Officer | by Coinbase | Jun, 2022

By L.J Brock, Chief People Officer

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

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

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

How we’ll navigate this moment:

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

2. We will rescind a number of accepted offers.

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

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

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

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

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

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


Forward-Looking Statements

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

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