America’s leading cryptocurrency exchange Coinbase has announced that it is in favour of a direct public listing over a traditional initial public offering.
In December 2020 the company revealed that it had officially filed papers with the US Securities and Exchange Commission in order to go public. At the time it was also reported that investment banking firm Goldman Sachs would handle the logistics of the IPO.
As January winds to a close, Coinbase has now confirmed that it intends to become a publicly-traded company, not through an IPO as initially thought, but through a proposed direct listing of its Class A common stock.
Coinbase’s announcement is in line with the requirements on the SEC’s Form S-1 registration statement. The firm expects the Form S-1 to take effect after the SEC wraps up its review process.
IPO vs Direct listing
Companies looking to raise capital by selling shares on a public exchange can opt for two methods, an IPO or a direct listing.
As Investopedia outlines, an IPO requires a company to use a service provider called an underwriter that carries out the entire process and charges a commission for the work. It is important to note that an IPO also involves the creation of new shares, which is a key difference in comparison to a direct listing. In an IPO, the underwriters typically but the new shares from the company and then sell the shares through their existing network typically made up of investment banks, broker-dealers, various funds and financial institutions.
A direct listing is an attractive option for companies that do not want to dilute their shares or want to avoid a share lockup period. A direct public listing involves selling existing, outstanding shares without the use of an underwriter. No new shares are created and there is no ‘middleman’ involved but the caveat is that there is no guarantee that shares will sell.
Big month for Coinbase
Earlier in January Coinbase announced that it was in the process of acquiring blockchain infrastructure firm Bison Trails. The acquisition was driven by the firm’s belief that blockchain infrastructure is the bedrock of the ecosystem:
“Founded in 2018, Bison Trails’ mission is to provide superior infrastructure on multiple blockchains, to strengthen the entire ecosystem, and enable the pioneers of tomorrow. With its Participation product, Bison Trails powers staking and active network participation on ~20 crypto protocols. Bison Trails’ Query/Transact (QT) product makes it easy for anyone building a wide range of Web 3.0 applications to validate transactions, obtain information about them (query), and write data such as transfers or smart contract interactions (transactions),” Coinbase said in a statement.
Coinbase has had an ongoing relationship with Bison Trials since 2019, where it invested in the firm through Coinbase Ventures before launching a commercial partnership with Coinbase Custody in 2020.