What does Coinbase Wallet’s latest DM feature mean for the ecosystem?

Crypto exchange Coinbase has launched a direct messaging feature on its wallet app, negating the need to copy-paste 42-character wallet addresses to and from other messaging platforms to send or receive digital assets, the company exclusively told TechCrunch+.

The feature also lets NFT and POAP holders connect with others who own the same asset by directly messaging their address.

All messaging is encrypted, Coinbase says, and is powered by XMTP, the open source messaging network. The inbox is also portable, meaning that messages, interactions, transactions and profiles can be transferred to platforms that are compatible with the network.

But that’s just the news. What is this new feature really good for, and how will people use it? We had a few thoughts:

Jacquelyn Melinek: Alex, you’ve been covering crypto for more than a decade now. What does this news mean to you?

Alex Wilhelm: I find it pretty bullish! One complaint that I have had with crypto in general is that it has long felt too financial. As someone who doesn’t really love spending time doing accounts, I have never really wanted an entirely new way to make my life more accounting-based.

I have to say, though, that adding messaging to wallets seems to transform them into something far more? So much so that calling them wallets seems like a bit of a misnomer. Perhaps we should call them identities?

Regardless, I am very curious to know if this is a feature that the crypto community writ large has been asking for or working toward. From my limited vantage point as someone who spends more time in meetings than breathing, it’s de novo!

JM: I think this feature isn’t necessarily something that has been asked for, but it would be helpful. Kind of like when I order takeout, I don’t always think to get cutlery (it’s not always necessary), but when I do, I’m like, “Great! A fork! I don’t have to do dishes!”

There’s also two buckets of users that this messaging is for: those who are solely looking for a more cohesive way to trade assets, and those who are trying to engage with the community. I spoke with Siddharth Coelho-Prabhu, director of product management at Coinbase, about this and he sees it that way as well.

It’s for the novice who may be nervous about sending funds and is double- and triple-checking to confirm that the address they copied to send crypto to is correct, and all the way to the seasoned crypto-native trader or community member who can transact with their eyes closed.

I think it also speaks to people wanting a unified space to talk and work with others in the community. Many people in the crypto world use a number of different applications to communicate, from Twitter and Discord to Telegram, Signal and WhatsApp. It can get complicated and confusing at times. I lose messages frequently because I just don’t have time to check every direct message I get. So having the option to be connected via a wallet address — and being able to directly engage with it — could be a game changer.

Do you think this opens the door to mainstream users or is it mainly for the crypto-centric world? What would it take to bridge that gap?

AW: OK, that was a lot, so let me hit on a few points. First, if messaging and wallet-to-wallet communication can help reduce the rampant fraud issue that crypto users deal with, then I give it a full cheer. It’s painful to read the frequent horror stories of folks who made a single mistake and then had their entire wallet drained. Of course, the scammers out there will update their tactics to exploit the new messaging service, but anything that makes crypto safer is a way to make it easier to use and adopt, so that’s cool.

For now, this feels very crypto-centric. I doubt anyone outside of currently active crypto users will want another messaging service, apart from folks who are hunting for a new encrypted chat service — I doubt that that is a very big group. For crypto users, however, this seems like a pretty obvious thing to build.

That said, if someone built a chat service that had a traditional UI atop this infrastructure, I could see it reaching mass adoption. But since the service is not on-chain and is instead more webbing between chains built by a centralized company, that would only be so “web3,” I suppose.

Can you help me understand just how big the opportunity is here? How many folks are using wallets today, and what sort of share does Coinbase have? I am trying to sort out what “scale” of response we can or should expect.

JM: Coinbase Wallet is available in over 100 countries and is one of the biggest crypto wallets out there. Given that its parent, Coinbase, is the second largest crypto exchange globally, it makes sense that users of the exchange also use its wallet. Similar to how I use Google products for my email, browser, and so on. Sometimes you just stick with the brands and companies that you know.

But some people might choose to have a Coinbase Wallet in addition to other wallets in other locations.

I think the other major crypto wallets are also focusing on expanding their product offerings, making security a bigger focus and going multichain. In April, Phantom, a crypto wallet that was once only for Solana blockchain users, started supporting the Ethereum and Polygon blockchains.

Coinbase Wallet supports hundreds of thousands of coins and decentralized applications but is focused on the Ethereum ecosystem. It’s also worth noting that Coinbase’s CEO Brian Armstrong recently said he thinks the company could become a “super app.”

Do you think this announcement is a move toward that goal? Can it give Coinbase an even stronger position when operating with institutions and retail players?

AW: Yes, this is certainly a move in the direction of a super app. Armstrong’s comments actually mesh well with what I consider to be the crypto-bull perspective. It goes something like this: Decentralization of ownership and control via blockchains is the future; therefore, many currently off-chain applications and services will be increasingly brought on-chain over time.

Now, Coinbase’s messaging service is not on-chain yet, but it certainly fits into that directional shift.

Regarding institutional investors and retail users: This is certainly aimed at the latter. I don’t think major players in finance are about to risk messaging through a fully encrypted service that is tied to crypto wallets, as I think it might give regulators conniptions. But a likely impact zone constrained to retail is not bad, given that super apps are built for consumers, not capital pools.

TechCrunch+ will circle back in a few weeks with what we can uncover regarding the uptake — or a lack thereof — of the new Coinbase messaging service to see how it is performing in-market.