What Coinbase learned from Uber about fighting regulation
Uber taught the tech industry how to fight regulators, and crypto taught them to condense the battles at the federal level
Welcome to Cautious Optimism, a newsletter on tech, business and power.
Friday. The Brown University shooter, who also turned out to be the MIT shooter, is dead. This publication does not cover crime, but I’d be remiss to not report relief at CO’s Providence HQ at the conclusion of an awful chapter. Now, to work! — Alex
📈 Trending Up: China’s compute footprint … FTC fines … British pols at American tech shops? … even more AI models …
📉 Trending Down: Your digital privacy … Grok-Code-Fast-1’s popularity? … Nike in China … The Valley’s support of immigration? …
Things That Matter
OpenAI’s fundraising machine rumbles on: Yesterday, we took a look at the latest rumors of OpenAI raising new capital. Alongside Amazon considering investing up to $10 billion into the AI giant, we learned that OpenAI may be pulling together an even larger round at a valuation that could reach $750 billion.
That’s too little, apparently. The WSJ reports that OpenAI is in talks to raise “as much as $100 billion” at a valuation that could reach $830 billion.
To secure such enormous sums, OpenAI is apparently looking at sovereign wealth funds that can front such amounts. If that’s true, American AI ventures might be backed by more MENA owners, tying the region’s AI fortunes to the United States.
In a sense, sovereign wealth funds would be taking on a chunk of risk. If OpenAI implodes, the pain will be distributed across more of the world than just North America. As will the riches, should it succeed.
So long as OpenAI continues to grow like it has, I’ll be far from bearish on company’s valuation. With a fresh $100 billion in the bank and an IPO ahead of it, OpenAI can probably afford its plans for the next several years. It had better be huge by then and more able to fund its own operations. At least that’s the plan.
I’m starting to think that the Russian state may be up to no good.
The TikTok deal is a go: TikTok yesterday agreed to divest its US operations from its Chinese parent ByteDance. The details are simple enough:
TikTok’s US operations will operate under a new name: TikTok USDS Joint Venture LLC.
An investor group (Oracle, Silver Lake, MGX) will hold 45% of the company; existing ByteDance investors will hold a little less than a third, while the Chinese company will retain just under 20%. The remainder goes to “other new investors,” per the Hollywood Reporter.
TikTok’s algorithm will be retrained “on U.S. user data to ensure the content feed is free from outside manipulation,” per an internal memo seen by Axios.
Oracle will operate as the “trusted security partner,” and be responsible for “auditing and validating compliance with the agreed upon National Security Terms.”
Notably, TikTok US will operate independently in regard to “authority over U.S. data protection, algorithm security, content moderation and software assurance, while TikTok global's U.S. entities will manage global product interoperability and certain commercial activities, including e-commerce, advertising, and marketing,” per the same memo (emphasis ours).
It’s a big moment for Oracle, which now owns a large chunk of a critical consumer social media property and therefore wields a lot of influence over how the app operates.
We should remember that Oracle founder Larry Ellison’s family recently executed a major media transaction, bringing other national media assets under its purview. That family is currently arguing that Warner Bros. Discovery should abandon a deal to sell most of its assets to Netflix, and instead sell to Paramount Skydance, a company the family runs.
The Uber model of tech regulation
Let’s do a little thinking out loud this morning, yeah?
Coinbase wants the federal government to block states from regulating prediction markets. From Bloomberg this morning:
Coinbase Global Inc. said it is suing the US states of Michigan, Illinois and Connecticut over their attempts to regulate prediction markets.
“These states have taken or threatened action against other prediction market players in an attempt to gain jurisdiction over something they have no legal right to regulate, and are likely to do the same against Coinbase as we enter the prediction market space,” the company said Thursday in an emailed statement. It will ask for court orders affirming that the states cannot interfere with the Commodity Futures Trading Commission’s exclusive jurisdiction over prediction markets, it said.
It’s no surprise to see Coinbase getting into the prediction market game. Every digital platform wants a piece of this nascent sector because gambling is addictive, and who doesn’t want more engagement?
But the choice to preemptively sue several states is interesting, as Coinbase is moving on the conviction that the rules in question are purely federal and therefore outside the states’ remit. I think we’re hearing echoes of Uber in the above.
When Uber was growing and racing into new markets, it handled the eventuality of regulatory crimps by rallying its customers to push back against local interests. The company won, partially because its model proved popular with consumers, and partially because it didn’t ask for permission.
But it was a messy fight nevertheless. What Uber taught the tech industry, however, was that it pays to fight regulators when you’re selling a popular product. How does that relate to what Coinbase is doing?
Uber eventually won, but had to fight myriad local fires to get its way across the nation (and world).
Fighting local regulators was time-consuming, meaning the battle would have been easier if Uber could have won at the federal level earlier (thus limiting the power of states).
Crypto, which you could argue has always had more business with federal regulators than states, is adopting Uber’s approach (fighting).
But instead of arguing with cities, it’s raised a mountain of money and pushed Congress into its way of thinking.
Crypto has secured a wave of wins this year, including the GENIUS Act, which paved the way for stablecoins to enter the financial mainstream.
And tech companies learned following the 2024 election that if they threw money at the problem, they could get their way in Washington.
Enter AI. Tech companies want tissue-paper-soft regulation at the federal level, and hard limits on states’ ability to regulate AI on their own. If states get a say, then the AI industry will face an Uber-like situation, and will find themselves fighting on dozens of fronts at once.
Sadly for the AI crew, states have fans in Congress, and efforts to wangle a ban on state-level AI regulation through legislation have failed so far. But tech industry leaders now populate the White House, and they’ve got an EO out the door.
Taking the above lessons in stride, Coinbase has seemingly decided it doesn’t want to fight states on prediction market regulation. Instead, it’s arguing that the CFTC has primacy on the matter.
Why does Coinbase want to ensure that the CFTC is in charge of prediction markets?
Here’s CryptoNews from earlier today:
The U.S. Senate has confirmed crypto-friendly lawyer Mike Selig as the next chair of the Commodity Futures Trading Commission (CFTC), ending a prolonged period of leadership uncertainty at one of the country’s most important financial regulators.
The confirmation passed Thursday as part of a mass approval of federal nominees, with senators voting 53–43 under the provisions of Senate Resolution 532.
Bam!
Uber taught the tech industry how to fight regulators, and crypto taught them to condense their regulatory battles at the federal level, and last year’s election taught everyone you could win elections and influence with money.
Today’s regulatory questions (AI, prediction markets, etc.) lean on all three lessons: Ensure that a single regulatory body is in charge, and then work like heck to put your guy in its corner office.
What we need to understand is that tech has learned how to tailor regulations. The era of politicized tech is upon us more clearly than ever before. Expect more tech dollars to flow into elections, and more tech-friendly candidates to run and win.
This also explains why US tech companies are making so much noise about European tech regulation. Why not complain about the bloc’s laws if there’s a chance that they can get their way and gut the EU’s approach to regulation? After all, their allies are working on trade deals and have leverage!