According to leaked emails, Coinbase is temporarily shutting down its affiliate program. The emails were received by two creators and shared with Business Insider, which was where they were originally published. The emails show that the payment plans being offered by Coinbase now are significantly smaller than previous ones.
According to the leaked text: "This has not been an easy decision, nor was it made lightly, but, due to crypto market conditions and the outlook for the remainder of 2022, Coinbase is unable to continue supporting incentivized traffic to its platform."
The emails added fuel to the intrigue already surrounding the company due to its decision to phase out Coinbase Pro and to merge its USD and USDC ledgers to facilitate deeper liquidity.
Upon hearing the news of cutbacks facing the affiliate program, some people seemed convinced on Twitter that a liquidity crisis is on the horizon.
These liquidity-related speculations may have led to the $248 million worth of stablecoins that were withdrawn from the exchange over a single day. The figures below show the total amount of stablecoins in reserve over the last two years. Coinbase seems to be experiencing a draw down trend while Binance's reserves are on a steady rise. On July 15, Coinbase lost 50% of its stablecoin reserves, whereas Binance lost 1% on the same day.
Despite growing concerns, multiple people have risen up to defend Coinbase. NJ Skoberne took to Twitter to express his case:
“As the guy that literally set up the affiliate program in 2019, shutting it down has nothing to do with liquidity.”
From what I've learned, NJ Skoberne is not alone. Multiple onlookers think the same thing: shutting down an affiliate program does not mean liquidation. All of the industry experts I spoke with thought the rumors were just that – rumors.
For example, Dan Ashmore, a data analyst from Coinjournal.net, thinks the shutting down of the affiliate program doesn't signal a liquidity crisis but in fact may be a symptom of the larger bear market in crypto. Just like the recent layoffs, he believes the temporary shutdown of the affiliate program is a strategy to "trim expenses amid turbulent conditions".
In the same vein, Brian Armstrong, CEO of Coinbase, tweeted that recent decisions by the company are indicative of nothing more than "growing pains". His tweet read:
“Despite reducing headcount recently, we still have a lot of growth to absorb. I put a post together discussing how we're learning to operate more efficiently at this new size and scale.”
The post he is referring to can be found here. It summarizes Coinbase's plans to use APIs and shared services to cut down on work duplication, work with smaller teams, etc.
Spoiler alert: no mention of liquidity.
He also tweeted:
“I suspect things will feel markedly different internally by the end of the year, although from the outside it may look the same. Excited to keep building and shipping awesome products during down markets – this is where we get our best work done.”
Echoing Armstrong’s sentiments, Jeff Schumacher, CEO and founder of NAX, thinks that this is a great time for Coinbase to build. “Back in 2018, Coinbase made impressive inroads in obtaining market share and were able to go public because of their efforts. Now they are looking for ways to create better value for their shareholders”.
But what if it did?
Not to wish any ill, but what happens to the burgeoning cryptocurrency space if an exchange like Coinbase shuts down? Analysts like Ashmore think that if this hypothetical were to become a reality, Coinbase’s disappearance would be a “hammer blow” to the industry. That's because the company is “one of the biggest on-ramps for both institutions and retail clients to transfer from fiat into crypto.” Liquidation, therefore, would have “far-reaching effects” and has the potential to create a wave of panic throughout the industry.
Similarly, Schumacher pointed out that since cryptocurrencies are the "poster child" for all things blockchain, the liquidation of an exchange like Coinbase will not help matters. Moreover, since the company holds $6 billion in cash on hand and their unsecured corporate debt converts trade at 10% to 11% yields, Coinbase's disappearance has the potential to disrupt the whole financial industry.
On the other hand, companies like Algorand Foundation – which has a coin that trades on Coinbase – think they can weather the storm. I spoke to Daniel Oon, head of DeFi at the company, who thinks "widespread adoption" can help counter an upheaval caused by an exchange shutting down. For example, their coin ALGO is traded against 138 pairs globally and across 25 widely recognized exchanges.
Hopefully, we won’t have to test how companies fare in the absence of Coinbase. For now, it seems that Brian Armstrong's tweet about "absorbing growth" is not a cryptic admission of a crisis on the horizon, but rather a confirmation of Coinbase settling into its role in the financial industry.