A Brief Discussion on the "AWS" of the Crypto Field: Coinbase Cloud, Alchemy, and Middleware Each Have Their Strengths

Author: One-Sided Crypto

Today, let's talk about Coinbase Cloud and Alchemy, both of which belong to the Web3.0 infrastructure track. The content today may not have much discussion, but more of an introduction to understand what these two companies really want to do and what their visions are. The vision of companies at the forefront may be the future we will see.

To conclude, both Coinbase Cloud and Alchemy want to become the AWS of the Crypto field.

Coinbase Cloud

Brian Armstrong, Coinbase founder, photographed for Forbes by Jamel Toppin in January 2020

The emergence of Coinbase Cloud is largely due to the pressure from investors after going public. As the largest Crypto exchange in the United States, Coinbase, like all exchanges, derives almost all of its revenue from trading fees. Of course, non-compliant exchanges outside the U.S. also have listing fees in addition to trading fees.

Listing fees can also be quite high. A couple of years ago, when Bitcoin prices were relatively low, a second-tier exchange's listing fee could reach 10-20 Bitcoins, which was about $100,000 to $200,000 at that time. It is rumored that first-tier exchanges' listing fees can generally exceed $3 million.

Of course, these exchanges publicly claim not to charge any listing fees.

When Coinbase first went public, the company's profits were at their highest, with 97% coming from trading fee revenue. This resulted in a situation where, when Bitcoin prices fell and caused a market downturn, the market trading volume shrank, and the exchange's fee income naturally declined. This outcome was reflected in Coinbase's financial report this year, where the decline in trading volume in the third quarter led to a 44% drop in revenue (data from Forbes statistics).

A more intuitive reflection is that Coinbase's stock price is extremely correlated with Bitcoin's price.

Google Finance (it is even less than Bitcoin, and much less than Ethereum)

To address this issue, Coinbase began to vigorously develop other businesses starting in the second quarter, as reflected in the financial report where subscription and other service revenues continued to increase, especially in the third quarter when trading fee income declined, other revenues were still increasing.

In January of this year, Coinbase acquired a company called Bison Trails. This company's business consists of four parts:

• Node services, which provide services to those with many coins, helping them run and maintain nodes properly.

• Protocol layer services, which provide services to those who want to interact with public chains, as the company itself has already connected to many chains, allowing them to package a lot of data and interactions with chains for developers to use.

• Custodial nodes, where Bison Trails operates its own nodes, and other users with coins delegate their coins to them.

• Data and API services, which need no further explanation.

According to the company's introduction, they currently support about twenty to thirty public chains. Their most important job is to ensure the smooth operation of nodes, which requires them to frequently follow up with public chains and stay close to them to ensure they know the development progress, upgrades, etc., of public chains in real time. The team also detailed their work in this area.

After Coinbase acquired Bison Trails, the two founders of the company smoothly became the heads of Coinbase Cloud, doing essentially the same work but with more support from Coinbase. In the future, Coinbase will certainly continue to integrate its custodial and node services into Coinbase Cloud.

After the acquisition, Bison Trails expanded, and the team has doubled in size. More connections to public chains and better monitoring. More importantly, having Coinbase's backing will be more helpful in terms of customer trust. For Coinbase, this is a big strategy; as public chains continue to develop, node services will become more specialized, so finding a professional team to do this may be more appropriate.

On the other hand, this can somewhat alleviate the reliance on trading fees for revenue. Thirdly, Coinbase previously set up a sign-up list for its own NFT project, which had over 1 million submissions, so Coinbase is likely planning to create an NFT marketplace. Finally, as mentioned at the beginning, the bigger story here is about Crypto cloud services themselves. Amazon's AWS transformed from a small product into the main source of revenue for the entire company. If Crypto/Web3 truly reshapes the internet to some extent in the future, then the imagination for Crypto cloud services is no less than that of AWS.

Alchemy

Alchemy is currently the largest Crypto cloud service provider, launched in August 2020. There have been three rounds of publicly disclosed financing, with the latest round, Series C, in October of this year, with investors including a16z, Lightspeed, Redpoint, Pantera, etc. The latest round is valued at $3.5 billion, with a total of $250 million raised. Previous investors also include Yahoo founder Jerry Yang, Stanford University, Coinbase, LinkedIn co-founder Reid Hoffman, and others.

Compared to Bison Trails, Alchemy focuses more on helping the development of Web3 applications and does not emphasize node services as much (though they do offer them). The products highlighted on their official website include:

• Supercharged Blockchain API: A node that provides all services to help developers develop applications, supporting Ethereum, Polygon, Arbitrum, Optimism, Flow, etc.

• Powerful suite of developer tools: Development assistance tools, a Dashboard.

According to Techcrunch reports, Alchemy's clients include major NFT platforms: OpenSea, Nifty Gateway, SuperRare, CryptoPunks, Dapper Labs, Axie Infinity. There are also traditional companies engaged in blockchain business, such as Adobe. Many DeFi applications also use Alchemy's services.

Alchemy is also benchmarking against AWS's business.

• PC Era

• CPU GPU RAM Windows & Apple local computer software Word

• Internet Era

• Various internet protocols Cloud services AWS Internet software

• Blockchain Era

• Layer 1 public chains Alchemy / Coinbase Cloud Web3 applications

Currently, Alchemy is operating very well, and the funds raised have basically not been touched, with the company consistently in a very good profit state. The future goal is, of course, to actively promote the development of Web3 applications.

Although both Coinbase Cloud and Alchemy belong to infrastructure services, I tend to see them as part of the middleware layer.

Developers---Applications---Users

Developers---Middleware---Applications---Middleware---Users

In the early stages of development, we see more users directly reaching applications, and developers also directly reaching users through applications. However, as the industry develops, the number of underlying Layer 1 / Layer 2 that carry applications continues to increase, and the applications themselves are also increasing, which may pose significant challenges for both users and developers.

Imagine an internet world without GitHub and Google. Google, as an entry point, can actually be understood as the middleware between users and the final search results, the largest middleware. However, as the industry/ecosystem continues to develop, the amount of information at the endpoints increases, which will require more middleware.

On the other side of Crypto, wallets are a very typical middleware, helping users reach applications. However, in the initial stages, wallets really only reached users without doing more such as information filtering/recommendation/classification, etc. In addition to general middleware like wallets, specialized middleware will also emerge, such as those providing privacy protection services; more detailed liquidity management tools; asset management tools, and other middleware.

Of course, these are very superficial thoughts, and Middleware plays a very important role in lowering barriers, reaching more users, and attracting more users.

Author's Twitter: https://twitter.com/0xwayne_z