Coinbase's top brass detailed how the crypto exchange unicorn weighed a possible security token on its path to going public -- but ultimately set the idea aside given technological and regulatory constraints.
The crypto exchange hosted a Reddit ask-me-anything session last week, a move that came as it prepares to go public by way of a direct listing. That listing is expected to take place as soon as early next month.
Coinbase was asked whether it has plans to provide special share access to Coinbase customers, airdrop shares or provide direct access to share purchases via its platform.
In response, CFO Alesia Haas wrote that "[t]here's no opportunity to invest in the company at this time, prior to that direct listing."
Far more intriguing in the answer was an extended disclosure of Coinbase's exploration of a security token. Security tokens are digital representations of stocks and other types of securities. They've been advanced as a blockchain use case in the finance space by companies like tZERO and INX, both of which have created security tokens of their own as a means to obtain funding from investors.
Haas noted that "we wanted to be able to share with all investors and all the public actually how far the industry has come."
She went on to say:
"And then we looked really creatively, could we do something on the blockchain? Could we do a security token? And as we evaluated those options, what we came up with was the security token infrastructure is not quite there, that we didn't have the opportunity for all investors. Many institutional investors can't participate in security tokens, and we didn't have enough broker dealers that could trade it to provide liquidity to the market. And we, Coinbase, didn't have the right licenses or the right foundation to be able to offer that."
"It was really important that we were able to offer a security token that was native to crypto and could be treated like an ERC-20, could be used in DeFi, and have all of the features of crypto that we all have come to love," Haas remarked. "And until we can offer something that we feel like meets the customer or an investor, in this case, experience that we want it to have, we've found that we couldn't pursue that at this time."
Comments from both Haas and CEO Brian Armstrong suggest that Coinbase has lofty -- if not long-term -- ambitions around security tokens, though such efforts might not bear fruit until the regulatory environment in the U.S. becomes more accommodative.
Haas remarked that "hopefully someday soon we are going to make the right investments and get the right licenses and build the ecosystem that we want, that there can be security tokens, maybe on Coinbase, but maybe on other companies."