Cryptocurrency also has its own underworld, reviewing the influence of the "Coinbase Gang."

Author: Yueqi Yang

Compiled by: Shenchao TechFlow

For years, Coinbase has dominated Bitcoin trading in the U.S. market, becoming the preferred platform for users to buy and sell Bitcoin. Now, this cryptocurrency exchange is trying to reposition itself as a pillar of the entire financial system, leveraging its Base blockchain launched last year.

To attract users and achieve profitability, Coinbase needs to entice external applications to provide lending, international payments, and other financial services on its blockchain. The crypto giant has a key advantage: a vast network of former employees, many of whom have founded their own crypto startups, including about 40 startups backed by Coinbase.

One example is Moonwell, a decentralized finance application that allows users to lend cryptocurrencies on blockchains, including Coinbase's Base. Moonwell launched on Base on the same day the blockchain went public in August 2023 and has since become one of the most popular applications on the network, locking up over $145 million in cryptocurrency on the blockchain.

Moonwell's founder, Luke Youngblood, resigned from Coinbase in the spring of 2022 after working at the crypto giant for three years. Youngblood hopes to build a decentralized protocol—a leaderless organization governed by token holders—but he said this was difficult to achieve at Coinbase due to increasing regulatory risks and traditional corporate structures.

However, shortly after Youngblood submitted his resignation, he received a message on Slack from Shan Aggarwal, who is responsible for Coinbase's venture capital and corporate development. "He just said, 'Whatever you're doing, we want to invest in you,'" Youngblood recalled. "'Please let us know because we want to be able to invest.'"

Coinbase Ventures eventually became an early shareholder in Youngblood's new company. According to the company's statistics, over the years, Coinbase employees have founded about 100 venture-backed startups across various sectors, from non-fungible token markets to decentralized finance and social media networks.

More startups founded by former Coinbase employees are expected to emerge. Last year, former trading chief Vishal Gupta, who left the company, stated that his startup would debut in the coming weeks. Based on his experience, he plans to start a company in the crypto trading space.

"The culture of working at Coinbase is to get big things done, complete your tasks, and then go do your own thing," said Breck Stodghill, a partner at crypto investment firm Haun Ventures, who was an early engineer at Coinbase.

This practice dates back to Coinbase's early days when some employees received support from higher-ups when deciding to start their own ventures. Linda Xie, who joined as Coinbase's 30th employee in 2014, decided to leave the company three years later to start a crypto fund.

When she informed Coinbase co-founder and CEO Brian Armstrong, "He gave me a high five and said, 'Welcome to being a founder,'" Xie recalled. Xie stated that Armstrong subsequently offered to provide funding for her soon-to-be-established fund and acted as a reference when she needed it.

The philosophy behind this stance is that the growing crypto ecosystem brings more opportunities to Coinbase, even if it may lead to losing a talented employee in the short term.

"Before they leave Coinbase, we talk to them, and in many cases, we decide to invest and support these founders as they plan to leave Coinbase to start their own companies," Aggarwal said. Coinbase Ventures typically provides funding support ranging from $1 million to $5 million, with around 450 companies currently in its investment portfolio.

A Broad Support Platform

Successful founders emerging from Coinbase can expand their influence and market share within the crypto ecosystem while also benefiting their own development. Most of the startups supported by Coinbase do not compete with its core business of crypto trading but aim to build services that leverage Coinbase's infrastructure or integrate with Coinbase products.

"When Coinbase Ventures invests, you get the support of Coinbase as a larger platform that sits at the center of the crypto ecosystem," Aggarwal said, facilitating collaboration with the company.

Early investments from Coinbase Ventures can also attract investors like a16z, which invested in Coinbase when it was still a startup, and Haun Ventures' founder Katie Haun, who served on Coinbase's board. Many well-known crypto venture capital firms are staffed by former Coinbase employees who are familiar with the founders' backgrounds, helping to attract more investment.

Olaf Carlson-Wee, Coinbase's first employee, founded one of the earliest crypto investment funds, Polychain Capital, at the age of 26 in 2016. Fred Ehrsam co-founded Coinbase with Armstrong and later launched a venture capital firm focused on the crypto industry, Paradigm. (Ehrsam stepped down as managing partner of Paradigm last year and became a partner.)

Stodghill of Haun Ventures said that after leaving the company, he reconnected with former Coinbase product manager Rishav Mukherji. Mukherji founded the crypto infrastructure startup Neynar in 2023, and Haun was the lead investor in its $11 million funding round in May.

A Urgent Desire for Change

While Coinbase serves as a launch platform for founders and a broader talent pipeline in the industry, it also highlights that some founders feel the need to break away from this industry giant to innovate at the forefront of crypto technology.

Many founders supported by Coinbase have shared experiences similar to Youngblood's, expressing a desire to build in cutting-edge areas of crypto, such as decentralized finance or issuing a token. Others feel that Coinbase has lost the early entrepreneurial spirit that once attracted entrepreneurs who viewed themselves as owners of small companies willing to take on significant projects.

When Dan Romero joined Coinbase, he later founded the decentralized social media platform Farcaster. He played a significant role in addressing major challenges in 2014. For example, after Silicon Valley Bank suddenly exited, he flew to Europe to find new banking partners to keep operations running, as Armstrong recalled in a recent podcast.

By 2019, when Romero decided to leave, Coinbase had become a more mature company. "When I joined, there were only 20 people. Now there are 800, and I have a desire to go do my own thing," Romero recalled telling his managers. "Brian [Armstrong] understood."

During the recent bull market in the crypto space, Coinbase continued to expand, growing from 1,717 employees at the beginning of 2021 to about 5,000 at the beginning of 2022. Founders who left during this period indicated that part of their reason was to avoid dealing with increasing bureaucracy and cumbersome processes. Armstrong acknowledged that Coinbase had hired too quickly, leading to decreased efficiency, and after a series of layoffs, the employee count was reduced to about 3,500.

In some cases, Coinbase has fallen behind in the development of popular products. For instance, Coinbase announced plans to launch an NFT marketplace in October 2021, right at the peak of the NFT craze. However, the platform did not go live until six months later, by which time the market had significantly declined.

After launching the Base blockchain, Coinbase regained some support from crypto purists. According to data from DefiLlama, Base is now the sixth-largest blockchain and has become a small but growing source of revenue for Coinbase. The company charges transaction fees based on transactions occurring on the blockchain.

Base is a major source of Coinbase's $108.6 million in "other transaction revenue" obtained in the first half of this year. This still represents a small portion of its total revenue of $3 billion during the same period, but it has already surpassed the fees Coinbase earns from its custody services.