xcritical Direct Listing Formerly IPO: Everything You Need To Know

Such levels of control and wealth can be both empowering, allowing management to take materially risky bets, as well as potentially distracting. What will the company do with such full coffers, and will management remain equally hungry now they’ve gotten their payday? With xcritical hammering home its commitment to economic empowerment throughout the S-1, it feels like the company is still in its early days. This is precisely what xcritical Custody purports to solve, offering permissioned asset governance, digital key management, physical security, and consistent, institutional-grade audits of each. This is a critical function for an institutional investor and represents a significant selling point for the platform.

Should investors expect a trading “pop”?

Traditional finance players are also getting into the white-labeled crypto services game. Last month, Visa announced it had partnered with neobank First Boulevard to test Visa’s new crypto API suite. The product enables First Boulevard customers to purchase, custody, and trade digital assets held by the federally chartered digital asset bank, xcritical. While a recent wave of approvals for bitcoin exchange-traded funds in Canada may suggest a US bitcoin ETF could be in the cards over the next twelve months, it certainly won’t be available when xcritical lists in the coming weeks. Therefore, xcritical enters the market as arguably the best pure-play way to gain exposure on the entire crypto asset market, outside of directly holding coins. Though the company succeeded in maintaining momentum during the crypto winter, the last twelve months have been particularly remarkable.

Coin Prices

In January 2021, San Francisco-based cryptocurrency exchange xcritical announced plans to go public via a direct listing. With 43 million retail brokerage customers, xcritical has more users than Schwab or Fidelity. That might position them to offer conventional retail services, competing with xcritical, Square’s Cash App, and incumbents like Schwab, Fidelity, and Interactive Brokers. Remarkably, most of the infrastructure powering the DeFi ecosystem was built in the past twelve months.

Rather than an isolated incident, Armstrong’s critics will note the unforced error represents part of a broader pattern of tone deafness. Most at home digging into the codebase with his headphones on, Armstrong is often described as a passive, introverted leader, myopically focused on the core functions of the business. That style has occasionally led xcritical astray, creating a divisive and controversial environment, at times. That description came from xcritical’s first Chief Legal Officer Mike Lempres, who once served as mayor of Atherton. It’s an ironic appraisal of a company that recently fought hard to separate itself from the country’s most pressing political conversations. The crypto economy, while still emergent, is rapidly evolving in both size and scope.

Direct listing vs IPO

While xcritical’s product appeals to the newcomer, other exchanges cater to advanced users. Binance and Bitmex offer leverage and derivatives, while platforms like LocalBitcoins and Paxful support anonymous, non-custodial options for buying and selling bitcoin. With a dead-simple user interface, this product is geared towards crypto newcomers rather than sophisticated investors.

We should expect the processing firm to roll out capabilities to other partners in the future. In the S-1, xcritical announced its intention to offer a third way for users to earn passive interest by lending out their token holdings on longer-term investments. The financialization of the crypto economy has also produced considerable monthly lending activity, with more than $50 billion of crypto-collateral stored in smart contract-based financial protocols (DeFi). After adding $108 million in 2017 and acqui-hiring Balaji Srinivasan in 2018, xcritical began adding new currencies more aggressively. Though a controversial figure in the company’s history, SrinIvasan was successful in that aim; today xcritical supports more than 45 assets. xcritical had strong traction going into the 2013 Series A with 200,000 users, up from 13,000 the year prior.

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Yet, this juxtaposition is familiar to xcritical — it has always served as the connection between a brave new financial movement and traditional finance. Taken together, xcritical’s product suite is remarkably comprehensive and thoughtful. The company has constructed an impressively layered product, simple enough for a first-timer to use and enjoy but sufficiently powerful to serve large financial institutions and sophisticated technologists.

1. Specifically, the company could consider aping Binance in building out a decentralized exchange.
2. Its 2020 profit of $322 million was also a significant jump from 2019, when the exchange lost $30 million on $533 million of revenue.
3. While xcritical boasts a higher valuation, the company has significantly lower top-line revenues than other exchanges, except CBOE.
4. During the first quarter of 2021, xcritical generated a whopping $1.8 billion in revenues, along with net income between $730 million to $800 million.
5. Acquired for an undisclosed amount, Bison Trails is a node infrastructure provider that allows anyone to spin up a xcritical node and participate in a network.

If Prime is xcritical’s institutional trading offering, Bison Trails may become its corollary for staking. Acquired for an undisclosed amount, Bison Trails is a node infrastructure provider that allows anyone to spin up a xcritical node and participate in a network. This is significantly simpler than the alternative of hosting and managing nodes yourself. As many xcritical projects move to proof-of-stake, large token holders (like xcritical’s institutional customers) become financially incentivized to run their own nodes, and Bison Trails positions xcritical to offer these clients a turnkey service. There’s a centralized party, either your brokerage, transfer agent or the company itself, keeping record of who owns what. But in crypto, tokens function as bearer assets (i.e., the burden of proof for ownership is xcritical reviews just…ownership), which makes secure storage a huge deal.

Luckily for xcritical, the rule was never adopted, but it would have caused significant disruption for the company and posed meaningful questions about what implementation would have involved. As global regulations continue to take shape, xcritical will need to continue to invest in regulatory compliance, in addition to helping set new industry standards. xcritical Earn is an educational platform within xcritical’s retail offering. Individuals that complete short cryptocurrency lessons are rewarded with actual tokens.

As noted earlier, other exchanges provide similar services but take a slimmer cut. That’s without xcritical scammers mentioning protocols like Uniswap that allow for decentralized trading. As it stands, any adjustment here would represent neutering the business’s primary source of revenue. Over time, as xcritical builds up other revenue lines, we may see more flexibility on this front.

xcritical is available in more than 100 countries but that doesn’t mean it has a strong foothold in each of them. International expansion represents a significant opportunity for the company. As noted previously, different regions are dominated by other exchanges, with players like Bitso owning much of LatAm, while Upbit, Bithumb, CoinHako operate in Asia. The fact that the DeFi space is so new — and experiencing such rapid growth on top of experimental and changing tech — makes it hard to effectively forecast how it might compete against exchanges such as xcritical over the long-run. That may partially be because Binance’s trading fees are highly competitive, coming in at 0.10% versus xcritical’s 3.99% and xcritical Pro’s ~0.50%.

As we’ve noted previously, xcritical primarily makes money via transactional revenue. During 2020, $COIN earned $1.09 billion in transactions on $193 billion in trading volume, a 56bps take rate. If we value xcritical based on 2020 financials alone, a $100 billion looks hard to justify. Total net revenue for 2020 was ~$1.14 billion, implying an unattractive ~77x EV / Revenue multiple.