Why Coinbase’s acquisition of Tagomi could pose neutrality problems, according to Su Zhu

Su Zhu, the founder of Singapore-based crypto investment firm Three Arrows Capital, thinks Coinbase's recent acquisition of crypto brokerage startup Tagomi could prove to be a mistake.

On this week's episode of The Scoop, Zhu – once a Tagomi client himself – discussed his thoughts on the deal, which he argued will compromise Tagomi’s "neutrality."

Tagomi entered the space in 2018, when it emerged as an aspiring prime broker, offering services meant to streamline trading across market venues. The firm is known for its so-called best execution strategy for crypto, an order-routing approach that it uses to execute crypto trades at best price.

Pantera Capital, Digital Currency Group, Paradigm and Peter Thiel’s Founders Fund took notice, becoming key investors. Then, near the end of last month, Coinbase acquired the firm after months of speculation. The deal is expected to close by the end of 2020. 

But in a conversation with The Block’s Frank Chaparro this week, Zhu said the acquisition could end up being more trouble than it's worth due to its potential to create conflicts of interest. Zhu said there are possible situations in which Tagomi could give preference to Coinbase for trades that it might have also routed through competing exchanges.

There is no evidence that Tagomi plans to do anything like this, but Zhu made the case that the possibility is enough to disrupt Tagomi’s other business relationships. Just the perception of a conflict of interest might pose problems for the firms involved, he argued.

You can listen to the entire episode below: