Coinbase Stock Decline and Future Potential

Today saw a significant drop in Coinbase’s share price, reaching its lowest level since the company’s public debut on April 14th. While market fluctuations are often unpredictable, several factors may be contributing to this decline. These include the initial high valuation at the time of its direct listing, anticipated reductions in trading margins due to increased competition, and the expiration of the lock-up period, potentially leading to insider selling and downward pressure on the stock.

Investor Perspective on Coinbase’s Long-Term Value

The future trajectory of Coinbase’s stock remains uncertain. However, early investor Garry Tan believes a common misperception surrounds the company’s future prospects. He suggests that a key revenue source for Coinbase could be a startup named Bison Trails, which Coinbase acquired late last year for approximately $80 million in stock.

Tan has described Bison Trails as an “AWS inside of the cryptocurrency exchange,” highlighting its potential significance.

Interview with Bison Trails CEO, Joe Lallouz

To gain further insight, we recently spoke with Joe Lallouz, the co-founder and CEO of Bison Trails. The company, which secured $35 million in funding, now operates as an independent product line within Coinbase.

Lallouz, who previously co-founded a company acquired by Etsy, discussed the opportunities his 70-person team is pursuing and how they are navigating a growing competitive landscape. The following is an edited version of our conversation. The full interview can be accessed here.

From Hardware Marketplaces to Crypto Infrastructure

TC: Your previous venture focused on connecting hardware manufacturers with buyers. What prompted your move into the crypto infrastructure space?

JL: We consistently use ‘we’ as I collaborate closely with my co-founder, Aaron Henshaw, on all our ventures for around 20 years. Following the acquisition of our previous company by Etsy, I remained in a leadership role for several years. It was during this time that my interest in cryptocurrency, Bitcoin, and blockchain technology was sparked – initially as an investor.

With our engineering backgrounds, Aaron and I found the concept of programmable money particularly compelling. We began angel investing and observed a shift in career paths among exceptionally talented individuals towards blockchain development. We became convinced that blockchain technology would profoundly influence software development over the next two decades.

The Path to Bison Trails

TC: What steps did you take next?

JL: We engaged in extensive experimentation, each of us independently developing three or four different products that ultimately didn’t evolve into Bison Trails. However, these endeavors provided invaluable insights into the needs of the blockchain ecosystem. A significant gap existed in the infrastructure space.

Simple tasks like connecting to a blockchain, reading and writing data, and performing blockchain-specific functions like staking and mining proved surprisingly time-consuming.

Competition in the Blockchain Infrastructure Space

TC: You’ve built a company to simplify these processes. However, you aren’t the only player in this field. Alchemy recently raised funding to pursue a similar goal. Are you direct competitors?

JL: Not precisely. This is a collaborative community, not a zero-sum game. Everyone focused on advancing blockchain technology – whether it’s new blockchains, infrastructure, or related services – is working together.

I am familiar with Alchemy, as well as Infura and other companies making significant contributions to simplifying blockchain development. This is common in emerging technologies, where multiple companies address the complexities of a new field from different perspectives.

Who Benefits from Bison Trails’ Services?

TC: Who are your primary customers?

JL: We support a wide range of clients, from major crypto companies to individual developers. Prior to the Coinbase acquisition, we partnered with Coinbase to power their staking nodes for proof-of-stake protocols. We also assist numerous companies entering the space, including those with smart contracts and large financial institutions building new crypto products.

Banks, neobanks, and other organizations are all leveraging blockchains, and many have been Bison Trails customers for years.

Understanding Proof of Stake vs. Proof of Work

TC: You mentioned the transition from proof of work to proof of stake. Proof of work involves mining, while proof of stake seems like a system where longer-term holders are rewarded. Is this a fair assessment?

JL: It’s even simpler than that. A blockchain is essentially a shared ledger maintained by a distributed network. Proof of work relies on mining to validate transactions. Proof of stake functions similarly, but instead of miners, token holders vote on the state of the ledger.

This incentivizes token holders to ensure the accuracy of the blockchain, eliminating the need for complex mining algorithms and large mining operations like those used by Bitcoin.

The Importance of the Shift to Proof of Stake

TC: This transition is already underway.

JL: Absolutely. Ethereum’s shift from Ethereum 1.0 to Ethereum 2.0 is a prime example. Ethereum’s popularity stems from its support for intricate smart contracts, enabling the development of applications on its platform. The move to proof of stake aims to improve scalability, reducing transaction costs and increasing processing speed.

This is a crucial step towards broader blockchain adoption.

Bison Trails’ Features and Business Model

TC: Could you elaborate on the specific features Bison Trails offers and your pricing structure?

JL: We function as a platform similar to Google Cloud or AWS. Builders and participants in a blockchain can leverage our services without needing a dedicated engineering team to manage nodes and ensure connectivity. This simplifies tasks like connecting wallets to blockchains, integrating new chains, and participating in staking on Ethereum.

Our business model is what we call crypto-native SaaS. Customers pay us in U.S. dollars, crypto equivalents like stablecoins, and a small percentage of the rewards earned through proof-of-stake participation.

For the complete conversation, including insights into Joe Lallouz’s investment portfolio, please visit here.