A Tangled Web: Will Coinbase Ventures Lead to Conflicts of Interest?

Notwithstanding the rumors about the company's culture and known lawsuits over alleged insider trading, Coinbase itself has added to the controversy through a stated commitment to investing in the people it knows.

Those most enthusiastic about the new business are alums who have gone on to other notable ventures that continue to expand cryptocurrency in ways that Coinbase, through its already varied set of products and services, can't or won't.

"Coinbase Ventures will support early-stage technical teams building the future. I look forward to seeing what they do," said Olaf Carlson-Wee, the co-founder of Polychain Capital and a former Coinbase employee.

Further, defenders say effective policies could do much to mitigate issues - Coinbase has a policy in place to deter information sharing and employee trading based on such information.

According to Tim Swanson, director of research at crypto consulting firm Post Oak Labs, since Coinbase is the most prominent consumer-facing cryptocurrency service in the U.S., its decisions on who to invest in could greatly help or hinder any cryptocurrency or token in the market.

What if Coinbase blocked retail investors who use cryptocurrency from the exchange to participate in ICOs - especially those in competition with token-based startups that Coinbase invests in?

Coinbase has sometimes disabled accounts that use cryptocurrency for online gambling and other ventures, such as white hat hacking, that the firm sees as risky.

Swanson said he's optimistic about reports that Coinbase may register as a brokerage firm regulated by the Securities and Exchange Commission.

Swanson said he is concerned the network of projects and companies started by Coinbase veterans may be less transparent than comparable ecosystems such as the "PayPal Mafia" - the nickname for a group of former PayPal founders and employees who went on to form their own, often interconnected, ventures.

Since 2016, several former Coinbase employees have left the exchange to form their own cryptocurrency startups or hedge funds, including Carlson-Wee with Polychain and Nick Tomaino, the founder of crypto hedge fund 1confirmation and who formerly worked in Coinbase's business development department.