After a year of hype and key hires, Coinbase announced Tuesday it has cancelled plans to build a new matching engine in Chicago.
The cancellation of the firm's migration to a matching engine built for Wall Street means 30 employees were laid off this morning, a stunning move given the firm was telling clients it would be ready to launch later this year.
It's the latest update in the saga of Coinbase's pivot away from Wall Street following the exits of key members of its institutional team including Adam White, former head of its institutional platform GDAX, Christine Sandler, its former co-head of institutional sales, and most recently Dan Romero, who replaced White in 2018.
"Coinbase moves quickly to build new products and offerings to meet the rapidly evolving crypto ecosystem," said a spokesperson. "We’re proud of our speed of execution. We are a culture that is committed to repeatable innovation, knowing full well that not everything we attempt will succeed. We continue to grow our institutional team and build on our foundation of products."
Still, it is a puzzling development for market observers who remember Coinbase's big splash into Chicago last April and its promises to offer traders access to low-latency performance trading and the ability to link up directly to the matching engine via co-location services.
"I can't believe this is happening," said one former Coinbase employee.
Insiders told The Block that the decision to wind down the Chicago team was made at the executive level and it's not clear if employees had any indication the firm was considering axing the unit. Just two weeks ago, Coinbase's Chicago product manager Paul Bauerschmidt updated The Block on the firm's progress on the new matching engine.
"I think from a timing perspective we're now in a pretty great place," Bauerschmidt told The Block. "We're looking to release something later this year." A spokesperson would not confirm if Bauerschmidt was among the lay-offs. The former CME Group executive did not respond to a request for comment via LinkedIn.
Rough estimates of the investment in the new matching engine thus far — based on a year of salaries and real estate costs — suggest the firm could be looking at a multi million-dollar loss. One source, a former employee of Nasdaq, said salaries for matching engine engineer talent can range from $200K to $400K. On top of that, "times any salary amounts by 20% for recruiters," an exchange CEO noted.
The team's salaries alone could have totaled upwards of $6,000,000 last year, according to The Block's estimates. That's not taking into consideration bonuses, rent for the office, or the cost of technology.
Nonetheless, it's possible Coinbase simply no longer feels it needs the added glory of a shiny new high-frequency, low-latency matching engine. The exchange already dominates the market, holding 50% of trading volume for regulated exchanges in the US, according to sources. Its San Francisco HQ is also said to have made "enormous progress (20x)" scaling their existing matching engine. And to be sure, the retired-investment is a cost Coinbase can afford; the firm brought in over $500 million in revenues, as per Reuters.
Furthermore, one market structure wonk said the move away from an HFT-aimed matching engine makes sense. "Actually [it] makes sense — it was illogical to focus on HFT in a market structure that doesn't require it," Dave Weisberger, CEO of CoinRoutes, noted. "Most of the [Chicago traders] aren't ready for [high-frequency/low-latency] crypto," another source noted. "Block and OTC seems to be all they want."
Despite the exodus, Coinbase's Chicago base will reportedly continue to house a handful of employees in other divisions.