What can we see from Coinbase’s second postponement of USDT transactions?

Text | Liang Yushan

On April 28, Coinbase tweeted again to announce the postponement of USDT transactions, and the reason given this time was also API issues.

Logically speaking, Coinbase has experienced multiple rounds of bull and bear markets, and its listing is enough to indirectly demonstrate that its team has technical capabilities. So why did it postpone the launch of USDT twice due to API issues?

1. Why did Coinbase postpone USDT transactions for the second time?

A reasonable guess is that Coinbase took compliance issues and market sentiment into consideration.

As we all know, Coinbase's most distinctive label is "compliance", catering to regulations and listing coins cautiously. In 2017, Coinbase General Manager Dan Romero tweeted that he hoped to add several new digital currencies based on customer feedback, but considering the regulatory situation in the United States, he was more cautious.

For Coinbase, which attaches great importance to compliance and seeks to go public, listing the "controversial" USDT is undoubtedly a decision that goes against its goals. In May 2020, Coinbase Custody tweeted that it supports USDT ERC-20 custody. The tweet was then shared by the cryptocurrency exchange Bitfinex and confirmed by Paolo Ardoino, chief technology officer of Bitfinex and Tether. However, a month later, Coinbase Custody quietly deleted the tweet supporting USDT, and the list of supported assets on the website did not mention USDT. This year was the year when Coinbase was desperately preparing for its listing.

Since Coinbase is aware of the risks that USDT may bring, why did it announce the listing of the asset on the 9th day after its listing? One of the reasons is that Tether and the New York Attorney General (NYAG) Office ended their two-year dispute in February this year and reached a settlement. Tether paid $18.5 million in compensation and promised to submit documents on USDT reserve support every quarter for two years.

It is not difficult to see that Tether plans to formally respond to the USDT asset reserve issue and improve its negative image. This also provides a rational explanation for Coinbase to launch the asset. However, judging from the results, Tether's attitude seems to have failed to reverse investors' negative views of it. Under the tweet released by Coinbase Pro about launching USDT, many netizens expressed their opposition, and some even said, "This is a bad decision, and I believe you (Coinbase) will regret it."

From this, it can be inferred that for a listed company that has already entered the capital market, is responsible to investors, and needs to pay more attention to compliance and supervision, Coinbase will more or less take into account public opinion.

Under the influence of public opinion, Coinbase will surely rethink whether it is appropriate to be so eager to list USDT. After all, Tether has not yet fully proved its asset reserves, nor has it released its first asset reserve report, and is far from truly achieving high transparency. This is exactly inconsistent with the image of Coinbase, which attaches great importance to compliance and strict listing of coins.

2. Why is Coinbase in such a hurry to launch USDT?

According to the timeline, it took only 9 days from Coinbase’s listing to its announcement of the launch of USDT.

Why would a compliant platform be so eager to list an asset that has not yet been truly recognized, when the platform itself has already launched a compliant stablecoin (USDC)?

The answer is: Coinbase has strongly felt the impact of the booming DeFi on CeFi, and USDT is an extremely important asset class in the DeFi world. Grasping USDT means indirectly grasping DeFi users.

(The above picture shows the trend change of DeFi stablecoin users; as of April 26, the number of USDT users exceeded 12 million, and the number of USDC users reached 3.4 million)

(USDT and USDC daily new address changes)

By listing USDT, Coinbase can not only provide its platform users with more diversified deposit channels and capture more transaction fees, but also further improve the user retention rate of its wallet (Coinbase Wallet) and earn a certain amount of "traffic fees".

More importantly, listing more assets in the DeFi world can not only help the listed company Coinbase expand its revenue sources and increase revenue, but is also its only available "defense method".

In early March of this year, Coinbase stated in a letter included in its new prospectus submitted to the SEC that “we are competing with a growing number of decentralized and non-custodial platforms, and our business could be adversely affected if we are unable to compete effectively with them.”

Coindesk, a foreign media outlet, wrote in an article quoting this passage: “Coinbase: DeFi could hurt us, and U.S. regulations make it difficult for us to fight back.”

Not only Coinbase, but other centralized exchanges are also anxious about the booming development of DeFi, which is why the three major domestic exchanges accelerated the development of public chains at the end of last year and the beginning of this year. For Coinbase, which has been busy with compliance, it has obviously missed the best time to build a public chain. So how should it deal with the drastic changes in the cryptocurrency market?

At present, the fastest and easiest way to achieve is to list popular assets with high trading frequency online to enrich the platform's trading asset categories.

3. Conclusion

From Coinbase Pro's eagerness to list USDT to Binance, OKEx and Huobi's full efforts to promote their own public chains, we can see that DEX has begun to reshape the business logic of CEX. In the future, the competition between DEX and CEX will inevitably revolve around the competition for new assets. Trading platforms will evolve from competing for users and market share to competing for new assets.

On the surface, Binance, OKEx and Huobi are entering the public chain market and building their own DeFi ecosystem. In essence, they have realized the threat brought by the explosion of Uniswap. The advantages of no listing fees and asset first issuance are challenging the profit model of CEX. This also explains why when these exchanges’ public chains were launched, their on-chain DEXs also exploded. All efforts are made to compete for new assets. Only with new assets can there be users, traffic, transaction fees...

The revolutionary effect brought about by DeFi (decentralized finance) has already fermented, the "centralization" has faded, and the "financial" attribute has been enhanced. The future competition between DEX and CEX will inevitably revolve around new assets.