Good. So, I'm here with Sean. You are the Chief Business Officer of Coinbase. What does a business director do? I have no idea what that means.
That's right. He says, "Haha, business." Business. Yes. Uh, I actually handle all the strategic operations and then any commercial deals commercial deals that Coinbase makes.
So partnerships, mergers and acquisitions, investments, uh, and then, I think, a month and a half ago, I also manage investor relations. So I deal with all of our public market investors, uh, equity analysts in this community. Of course. Good. So you have a large portfolio of things that you manage.
One of the things that you also run is Coinbase Ventures, or maybe you ran it before, or it's buried under you somewhere. Helped launch this in 2018. Good. So, Coinbase Ventures, for those of you who don't know, is one of the largest investors in the industry. I think you are one of the biggest investors in the industry in the history of cryptocurrency under Coinbase Ventures.
Uh, and you guys invest without LP. So, you know, we run a regular venture capital fund. We have people who invest in us. You simply invest money from your Coinbase balance. What can you do as Coinbase that another traditional venture capital fund can't?
Yes, I would like to hear your perspective on this. Of course. This is actually a huge asset because it gives us a lot of flexibility. Uh, and I think the key difference is that we don't have an external LPS and we don't have the hard rules that we put into a typical fund structure, and, uh fund structure, and, uh , some of the things that allows us to do is that it allows us to take a very long-term view. For example, we can make an investment with a plan to hold the investment for 20 years, and this is a perfectly normal long-term horizon.
We don't have, uh, any definitions of when we need a return on capital or anything like that. Uh, secondly, it gives us flexibility in terms of our thesis or our focus areas. A lot of VCs, you know, start out as seed funds or Series A funds, or they're focused on Rw RWAS or, uh, the intersection of cryptocurrencies and artificial intelligence. We can adapt to adapt to any stage, sector, or area of activity, depending on what interests us as a fund at the moment. And also, in terms of the value proposition value proposition that we think is great for Coinbase and why we're investing so heavily with you guys, uh, we provide a strategic rationale that I think helps the founders justify justify why you want to include Coinbase on your capitalization list.
Uh, and really the key element is that Coinbase ventures serves as a conduit to the rest of Coinbase. Coinbase is a big company. We obviously play in many different areas of the crypto areas of the crypto space. Hmm, but we can help facilitate partnerships, uh, connect people with subject matter experts, uh , uh, whether it's policy, security, or something else. Uh, and then often in some cases it also leads to mergers and acquisitions.
Okay, let's be frank for a second. In most industries, a corporate venture capitalist who invests in a company that they're going to do business with is often perceived as, "Oh, this could be a conflict of interest, and maybe we need to fence it off, we need a Chinese wall or something." Historically, cryptocurrencies have created conflicts of interest: "Oh no, it's so boring. It's so businesslike." Hmm, and you know, it's been known that people took money from some exchanges, and it was something like a listing fee or something like that, or it was all mixed together.
Good. So tell me straight. What do you guys think about this at Coinbase? And is this different from what is happening in other places? How do you deal with conflicts?
Eh, I don't know how it works in other places. Hmm, nothing funny for us. Essentially, all of our information is protected by the Coinbase Ventures team. So when I say, for example, that we can help facilitate partnerships, mergers and acquisitions, etc., that's actually a different team.
Uh, now I'm sitting across from both of them. So I can help connect the dots between everything. But there is some information that we get when we invest in a company or evaluate a company that remains within the scope of Coinbase Ventures. Of course. Uh, and then, you know, uh Uh, and then, you know, uh , none of the investments or any of that kind of talk is related to a listing or uh, depends on a partnership.
Uh, we're separately potentially entering into some strategic partnerships, uh, and strategic investments, where you know we're investing, we're partnering with the company, and we're saying we're going to add a lot of value to that business as well. We would like to be a shareholder of the company or a token holder, uh token holder, uh , depending on the scenario. So these kinds of deals happen. Good. So that's interesting because you reminded me of a story that Jensen Hang from Nvidia told about anthropogenicity.
So, you know, it's obvious that if you look at cryptovc, there's been a kind of venture capital apocalypse over the last few years. A lot of people saved up a bunch of money in 2021, 2022 and spent it all on GameFi and all this nonsense. Um, they're back on the market, but they can't raise the money. Institutional investors say, "What did you do with the last 200 million I gave you?" Okay, you know, no, I'm not going to invest anymore."
So a lot of these funds are winding down, which means there's less capital in this space . Jensen Hong gets an offer for Anthropic, a Series B or something like that. Um, and Anthropic is like, " Please give us money." And Jensen Hong says, "Why would I give you money I give you money ?" "I run a cash flow business.
Talk to VCs. VCs can give you money can give you money . And he was reflecting on this story, like he didn't realize that what they were trying to do, what Anthropic was trying to do, was on such a scale that VCs just couldn't fund it. They just didn't understand the scale of what Anthropic was trying to achieve. And he said, "That was one of my biggest mistakes, not because I didn't invest in Anthropic, obviously it would have been a great deal, but rather because it took them longer to get to where they are because I couldn't step up and give them money."
Okay. How do you assess Coinbase's role at a time when Coinbase was actually writing bigger checks and a lot of other people in the industry were writing smaller ones? Yeah, you know, that's a good question. You know, when we launched Coinbase Ventures in 2018 year, it was a pretty similar dynamic. There weren't really any crypto venture capitalists back then.
You know, there were about three of them were about three of them . And we essentially saw the early days of DeFi, the early days of on-chain developers. And we started writing very small checks purely for the purpose of, first of all purely for the purpose of, first of all , supporting the ecosystem, essentially asking, "How do we get more entrepreneurs to grow this space?" because we felt like as the space grew, Coinbase would grow, and then, you know, it's a very positive ethos. And I think you're absolutely right, uh, there 's kind of that direction in cryptovc right now, especially late-stage capital.
For example, if you're, uh, a Series For example, if you're, uh, a Series B, Series C, Series D company and you're raising a growth round, there are three or four funds, including Dragonfly, that, uh, can actually participate in that round. So, uh, we think it's a very similar dynamic where Coinbase can actually grow a lot of our balance sheet, because we're basically still extremely bullish on this space. Uh, and hopefully now we have more of a set-up infrastructure that we can build on to actually support these companies and grow not just from a consulting perspective but also commercially. Okay. So, in terms of commercial support for companies or projects, um, you guys have this partnership with Hyperlquid.
I don't know if " don't know if " partnership" is the right word, the relationship with Hyperlid, um, now Hyperlid is obviously one of the darlings of crypto. Um, Hyperlid seems pretty obvious that they're after the core business of Coinbase, right? They're trying to do crypto trading, they have spot assets now, they have RWA ( assets now, they have RWA ( revenue-driven assets), so much so that you also have equity trading, prediction markets. Um, they're kind of aiming for the throne. Um, how do you think about that kind of relationship where they seem to be pretty direct competitors to your core product, but still support it?
Let me ask you a question. What company in the crypto company in the crypto space wouldn't view Coinbase as potentially competitive? Um, Ethereum potentially. Yeah . Yeah.
Yeah. Okay. I mean, well, basic, I mean basic, I mean maybe a little competitive. Um, sure. But there's, but there's, there's equals, right?
There are equals. No. No. I, I, I, I'm kidding No. No.
I, I, I, I'm kidding , the thing is, Coinbase plays in so many arenas that, like, any company in the crypto company in the crypto space could view Coinbase as a potential competitor, right? In some ways we compete, in others we do compete, in others we do n't. And, you know, I think the key point is that it's obviously the core of our business in trading. It's also the largest revenue pool that exists in the crypto space today. Uh, and that's what Coinbase is known for.
So we're definitely competing there. I think we, we think that, uh, Hyperliquid and Coinbase, especially in our target business, they serving different customer segments where, you know, the on-chain trader who prefers self- policing is different from someone who is willing to go through KYC and prefers a more regulated platform. But beyond that, Coinbase also has, uh, a number of infrastructure businesses that effectively power the entire crypto ecosystem in different ways, whether it's markets, USDC, Base, uh, our developer platform that Eric and Yugo talked about earlier. uh, so we're thinking about partnership opportunities where possible, but just to be clear that we're going to compete in other areas. Yeah, that makes sense.
And of course, no Americans use Hyperlid, right, guys? Right. No Americans. Right. Right.
They know. Uh, okay, so in addition to investing, you also do a lot of M &A. Uh, you buy a lot of startups. Uh, maybe someone in that audience might get acquired in the near future. You, guys, you've done 35 acquisitions over 40 actually.
Over 40. Okay. Uh, you've been very acquisition-oriented. Uh, and some of your own executive team came through mergers and acquisitions. Um, so when you buy a team, okay, or a company, let's say, um, um, technology team, for example, what makes an acquisition successful?
You've seen enough of that. You've had a lot of experience. What do you think makes an acquisition successful? You see, okay, good target, good company target, good company , good team, but what makes it fit into Coinbase? Yeah.
Um, success and failure always comes down to how the company is integrated the company is integrated . So everybody, when they're doing mergers and acquisitions, and when I talk to other companies that want to start doing mergers and acquisitions, they're all focused on what deals should we do, how do we structure the deals, how do we close the deal how do we close the deal , all those types of questions. It's extremely important, don't get me wrong, but it doesn't really determine whether an acquisition is going to be successful or not. Um, the common themes that I've seen, uh, that make acquisitions really successful at a company like Coinbase is, first of all, having a consistent champion of the deal. Someone who's literally willing to stick their neck out to say, "I'm going to make sure this acquisition is successful."
And that person has to act as a sherpa for the business once it starts, once it's digested, because they need to, you know, help them acclimate to the environment, culturally integrate, and all that stuff . But if you have, like, a change of sponsors, a change of champions, that's always, uh, a failure mode. Uh, the second option is a very clear thesis on, uh, the acquisition strategy and a detailed, like, operational plan. So operational plan. So , if you can't tell me what you want to do at day 90, day 180, and then a year from now, then I can usually say you that it probably won't work.
There 's a tendency to say things like, "Oh, we'll just work it out. We'll work it out later. This deal makes so much sense deal makes so much sense ." And then you put it aside and realize, " and realize, " Actually, you're not going to get this, or we missed something, so we, um, potentially can't do this as well as we thought we would." So that's the second.
And the third—a huge part of the due diligence process—is, honestly, just assessing the team and the cultural fit. I think the biggest, best acquisition we've made was the team at Coinbase, and it started almost immediately, playing on the same team from day one team from day one . We've also done acquisitions where there was a little bit of a culture shock. It's just different ways of working. Uh, we don't write documentation, we do things on demand.
Okay, interesting. You don't write documentation? No, some companies do n't. Oh, some companies don't write a lot of documentation, we write a lot. So I just I use this as an example of, you know, we acquired a company and they had never used Slack.
And when they went into Coinbase Slack, they were like, "Oh my God, this is like: Were they on Teams?" Uh, yeah, they were in Teams. They were in Teams. Brutal. You hear that?
If you're in Teams, Coinbase won't acquire you. Teams is a red flag. Okay. Okay. Okay.
Good to know. Um, okay Good to know. Um, okay . So, I-I, you were, uh . So, I-I, you were, uh , responsible for a lot of M &A deals.
What was the deal that you were on that was my masterpiece? It wasn't necessarily the biggest, it wasn't necessarily something like, "Oh, we did a great deal," but I just hit it. I think people would expect me to say Darabit just because it was last year and it was the biggest deal that had been done in the crypto space, but I would actually say Tagi. Uh, we're investors. It was 2020, right?
Early days. Uh, it was before institutional crypto really became a thing. And I think at that point for about three years now people have been talking about institutions coming in. But, uh, it didn't really happen, and, you know, we had some hiccups during the 2018 bull run. We reinvested in that segment.
We launched an asset management platform, a custody platform custody platform , an institutional segment. Then we had to bring it back to the bare market. In 2020, our custody business grew to a significant scale, and we realized that we needed a brokerage product that specifically served hedge served hedge funds, asset managers, and all these clients that wanted to be involved in the crypto involved in the crypto space. Uh, but we couldn't. So it was a very controversial deal because COVID was happening at the same time, and we were still in the depths of the bare market, but we ultimately pushed through it.
And our timing turned out to be impeccable, because right after the deal closed, the whole corporate treasury story about bitcoin started to pick up steam. And so Tesla, SpaceX, all these companies started calling we were saying, "We want to buy a billion dollars of bitcoin." And before that, you couldn't make a billion dollars of bitcoin unless you had an institutional prime broker who could break the deal, uh, and execute it in a much more sophisticated way. Um, that helped us meet a lot of the market demand in 2020 and 2021 as institutions entered the crypto market crypto market , and now that's become the foundation of our entire Coinbase Prime platform, which is kind of the centerpiece of our institutional product. Yeah.
So you guys really caught the trend, and it was a time when crypto M& A was very rare of that size. It was the biggest deal in crypto at the time. Yeah, yeah. Yeah, I remember that. I remember that.
Um, okay, very interesting. So you guys are now becoming this exchange for everything, similar to how Hyperlquid is doing. You have is trading assets in the real world. You have, uh, prediction markets. You as the head of investor relations, the head of public relations, the head of investor relations, you cover as wide a range of platforms as possible.
You talk to people who are interested in buying Coinbase stock and you ask yourself, "This is why you should buy our stock." What do institutional investors who look at Coinbase see differently than us crypto-pills, you know, brain-damaged people when we look at Coinbase? What differentiates you from other investors compared to others, particularly the " everything for everything" exchange, from how you're positioning Coinbase right now? Yeah. I think institutional investors view Coinbase as a scalable player that's mature, that's global, that has a very strong security track record, being the largest custodian in the world, and that's ahead of the pack in executing this diversification strategy.
One of the main drawbacks crypto exchanges drawbacks crypto exchanges , especially spot crypto exchanges, are extremely volatile. It's like a bull market: revenues go up, volumes go up. If you 're in a dead market, volumes and revenues go down. And we saw that pretty early on at Coinbase and made a very deliberate decision to invest in diversifying the business. We started a custody business.
We invested in co-founding USDC. Right now, you know, about 50% of our revenue comes from non-trading fees, which is encouraging, but there's still inherent volatility in our business. So we're volatility in our business. So we're , um, pretty early on in that. And I think that.
And I think people are looking at a lot of the things that we're doing in the blockchain and supporting agency payments as effectively effectively calls right now because public market investors want to see how this is going to translate into money, like how and when does this go through the income statement ? And, um, a lot of those pieces are still in the pipeline. early stage. But you know, when we talk about, um, some of the momentum that we're seeing with X42 and the adoption that we're seeing with X42, it's extremely exciting. It's going to take time for that to materialize that to materialize , um, but I think people have been tuned in to the option of having that impact in one name for a long time.
Right. Right. Um, so the other part of the Coinbase portfolio, of course, is the base, the second tier that you guys helped launch. Um, it was a breakthrough success, but it does n't have a token. Um, we 're in proto-token administration right now, a bunch of tokens.
Um, you even have token launch pads that you've acquired and created. Um, when is the token, that's a good question. Um, we're in proto-token administration. Maybe we're just going against the grain. I don't know.
Is that what's happening? No, we're, seriously, we're still looking into this . Um, we're looking into that. And you know, we've always said that our plan is to decentralize Bass. Um, we're investing heavily in incentives and, um, community growth, but we want everyone to own or feel like they have a fractional ownership in Bass.
The thing is, when you look at a token, especially for a public company, it's really a one-way door. And so we just want to make sure that we think very carefully about how we design the token structure, the distribution, the "I" mechanism, how it gets to Coinbase, how it gets to other parties, and we don't rush into it because, uh, this is a very important decision, and, um important decision, and, um , you know, we're doing this work so that we have the opportunity to do it . It will happen . It will happen , uh, but we're not ready to talk about specific timelines yet. Sure.
Sure. Okay. You just tell me in Morse code, like blink, blink, depending on whether it happens this month. Hmm, there's been a vibrational shift in cryptocurrency. There's been a few vibrational shifts.
Uh, but one of the vibrational shifts was the idea that maybe decentralization is a little bit overrated, and I think that kind of ties into the story that you were just telling about Bass. Uh, I think with the rise of hyper-rareness, the rise of meta-revenue, uh, this idea of, you know, look: the high priests of decentralization have been giving us the same sermon for years, and it does n't really seem to be translating to users, to adoption. And maybe it's like, look, you need enough decentralization to be able to bring this thing to market, and anything more than that is just, you know, uh, a waste of time. Uh, for Coinbase h, how do you guys feel about that, and how do you think about how the values of cryptocurrency have really changed? As I I remember in the early days, Coinbase felt very protected, that Bitcoin Maxis was very angry with them.
Um, I understand that you don't care what Bitcoin Maxis has to say Bitcoin Maxis has to say . Um, how does that translate to Coinbase? We love Bitcoin Maxis. You love Bitcoin. We love everybody.
They don't love you back. They don't love you back. I mean, if you think back to the early days, people were talking about the benefits of decentralization without mentioning the downsides, like the tradeoffs, what you actually lose from decentralization. So we were talking about all the benefits of it. Uh, and I think after seven or I think after seven or eight years, you start to see that one of the biggest downsides is the slow execution.
It's harder to make decisions. It's harder to build great products. And I think in today's market, I don't know of any user who would gravitate to our platform and the first thing they would say is, "I was really impressed because it's decentralized." People gravitate to hyperliquidity. People gravitate to hyperliquidity.
because it's a great product. It's an awesome product. People want a good product. And to have a good product that's consistently on the cutting edge, you need some element of control to drive the roadmap and drive execution. And so I think there's been a shift now that people still believe in decentralization.
We still believe in decentralization. Uh, and we think that's the right end state. And I think the question is how do you get there and over what period of time? Hmm, but this idea of progressive decentralization really balances with the ability to just build a great product. Uh, which is critical because you have to actually launch these products and have real users and use them.
Uh, and that's, I think, the direction that we're probably going to take, and that's the direction that the market seems to be going right now. Yeah. I mean, right now, as I said, we're in this permissive regulatory environment. Everyone's very realize that we want clarity to be passed. We want to have this long-term legislative framework that will put us in a good position.
Uh, but right now, if you look at Poly Market or maybe Coinbase, I do n't know what the odds are on the Coinbase forecast market. Right now, on Poly Market, the odds of Clarity being passed are 50/50. Um, and if not, you know, listen, the regulators in the agencies are probably going to be very constructive, but, you know, maybe in 2028, a Democratic administration will come in and they'll change what's going on in the agencies. How do you think about positioning Coinbase for a world that might eventually turn against some of the progress that we've made in cryptocurrency over the last few years? Yeah, that's a good question.
I mean, I mean, first of all, we're optimistic that we're going to be able to get clarity. Um, you know, going through the legislative process in the United States–it's a whole ordeal. We did it brilliantly. It's very rare to see two bills that deal with just one industry pass through the legislature in the same administration, but we're pushing for it. Um, there's a lot of stakeholders that need to be brought to, uh need to be brought to, uh , the negotiating table, but the conversations are very productive, and I would say we think the odds are better than 5050.
Um, if you were a betting man, what odds would you bet on if you were a betting man? If I were a betting man , uh, I don't know , uh, I don't know , probably 60 to 60, 70%, 65. Yeah. Bet on 65. Okay.
65. Um, in the reverse scenario, you know, if this doesn't work out, I think it would be a real loss for the crypto industry because, as you mentioned because, as you mentioned , it's an opportunity to solidify a structure that can serve as the foundation for the next wave of crypto businesses and founders to actually, uh, build in this space. As for Coinbase, we've been operating as a business for over 10 years, mostly under these circumstances. So this won't be the biggest change for us. We've already developed operating principles that basically talk about how to do business in compliance without formal legislation.
So we'll just go back to those operating principles that we have principles that we have . But we think that kind of ambiguity is harmful to this space because when you look at a lot of the big institutions that are basically lining up with their tokenization and on-chain and on-chain initialization, waiting for clarification. If there's ambiguity, then they can say, " You know, we'll wait another two years " or "We'll wait another three years," and I think that's detrimental to the growth of the ecosystem as a whole. Yeah. So there's been this malaise in cryptocurrency that you've seen since October, prices are falling, there's been a lack of retail engagement in the market.
Um, like Are you going to position Coinbase so that people will continue to invest in Coinbase even though cryptocurrency is in this long-term state? Why should I still buy Coinbase stock? Yes, you should buy Coinbase stock because Coinbase is a full-fledged financial infrastructure for the future of finance the future of finance . All assets will eventually be tokenized and traded on-chain. And Coinbase offers a vertically integrated platform on a basic layer 2 blockchain , USDC as a transaction layer, a set of APIs that support trading and payments.
And looking at Coinbase purely as a crypto exchange or a brokerage, I would say that is a very short-sighted, uh, view that is significantly outdated. So even in a world where, as you mentioned, there is malaise in cryptocurrency prices, if you look at the fundamentals of the ecosystem right now, there is a lot to be excited about. The stable coin supply is $320 billion and growing. The tokenized real assets are $30 billion to $40 billion and growing. growing.
. Uh, on-chain trading continues to grow. You see a greater variety of protocols that are generating revenue. It used to be layer one or layer two blockchains, but now there are applications that are generating revenue. So I think all of these things are really exciting.
Uh, and there 's also the growth of new use cases like payments. And on the payments side, it's completely uncorrelated with the price of crypto. When we talk to customers who want to use Coinbase's payment services, they say, " We don't care what the price of any crypto asset is. We're just interested in moving money and moving money efficiently." So I think the underlying fundamentals are very, very strong right now.
And crypto prices are going to go up, they're going to go down. I think eventually they're going to catch up. But there's a very strong case for the rest of the ecosystem that supports the really strong growth story of Coinbase and crypto. Right. Well, we're on time, but we were joking behind the scenes about what it should be called Coinbase stage, because it seems like all we're doing here is showing Coinbase.
Um, but let's ask for a round of applause for Sean.
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