Sands of Change: Institutional Momentum in Digital Assets - TOKEN2049 Dubai 2025

Hello everybody. How we doing? Wow, that is tough. How we doing? Yes.

Thank you. You. Thank you. I appreciate that. All right.

Very excited uh to be joined by Usman from Coinbase. Um this is going to be hopefully a special conversation. Uh Usuzman runs a lot of the derivatives business, all of the derivatives business um and a lot of the trading business at Coinbase. So Usuzman, welcome man. Thank you.

Good to be here. Yeah, I think um I would be uh very curious to hear maybe about just how you guys are thinking about derivatives in general. Um it is a highly it's a it's a a part of crypto that has been more open internationally, less open in the US. You guys are starting to think about how you play more and more in derivatives. I'm just curious the Coinbase derivative strategy.

Yeah. Well, look, um, I think over the last 7 years, there's been a big shift in the crypto ecosystem where the vast majority of liquidity happens actually in derivatives and happens to, like you said, happen outside of the US. Um, and a lot of that is because the rest of the world has been a bit more open to innovation. Um, and uh, for a long time we we didn't kind of go into that uh, part of the world and part of the product. But uh 18 months 18 24 months ago we made a decision to launch the international exchange to really uh come into the world of derivatives uh it was the first time uh I think we really had product market fit for outside of the US um and a real product to to tackle where 90% of the liquidity is.

So it's it's a derivatives as a whole is a one of the core tenants of the firm uh firm's future goal. Um and and Brian has gone on uh on record many times to say that it's one of the top three things uh that the firm should be focusing on. Derivatives are one of the top three things Coinbase should be focused on. Why is that? Well, it's um like I said, it's 90% of the global liquidity of uh in crypto happens in derivatives.

um for every $1 you you trade in spot, you typically see eight to nine on uh um in derivatives in per um and it's it's one of these things where Coinbase has spent uh 12 years developing a market leading product in the spot market, especially in the US and amongst retail and institutions, but the derivative landscape is somewhere where we haven't really stepped into. So this is a we're excited to be stepping into it for the last 18 months. Do you think that do you think the derivatives volume for Coinbase will come from US institutions who you've got the trusted brand, you've got the name, you're publicly traded company or are you going to start picking away market share at some of the international players? So I see it as a as a two-prong approach. I mean there's no reason why it has to be either or.

um we have a US derivative offering, but we also have an international derivative offering for clients who who qualify and and yeah, we're leaning in with um our brand and the fact that we are very transparent um and operate with the highest integrity um which means that for a lot of traditional financial players um they uh they can face Coinbase, right? They uh they counterparty risk is a real thing for them and and Coinbase meets the hurdles that they that they have. Um, and look, the international exchanges that have uh dominated the space over the last few years have done an amazing job. Um, but you know, there's there's clearly enough room for growth for another player to come in. Yeah.

How do you think about go to market with a derivatives business? Is it there? Because you you've got the makers and the takers, right? You've got institutional crowd, you've got retail crowd. Who is the uh who is what is the go to market strategy for for a derivatives business?

Well, I find the marketplace um the go-to market for a marketplace is very similar whether it's spot or derivatives. Um and it becomes a bit of a flywheel. So ultimately in crypto the core is is retail, right? You really need to to win the hearts of retail in order to really succeed. Um in order to do that, you need to have liquidity.

So we need so what we've been focusing on in the first year or so of our uh existence on the durative side is building up liquidity with market makers. um bringing them onto the um platform, making sure that we can provide deep enough order books and uh wide enough uh product set. Um and then we lead in with our retail, right? So we've got a great brand. Um internationally we have uh a bit less awareness than we have in the within the US.

So we've been really focusing on driving uh sales and marketing um for the advanced trading platform um which is going to be key to to really winning uh the international uh piece. And once you get that then it becomes a flywheel where other market makers and liquidity providers come on because it's uh more interesting flow to interact with. So I had the block works data team before this look at some of the volumes and stuff at least from what we could find and it looked like the platform so far very uh very high volume very low open interest. What is the that that's tied to that dynamic? Yeah, exactly.

So the right now um the vast majority or overwhelming majority of our activity is from high frequency traders uh and and market makers and the high frequency traders that drives a bunch of volume but very low open interest. Correct. Exactly. Now that we're entering the next phase of our growth where we're going to be targeting uh directional clients both retail and institution who have medium to longerterm duration um and that should drive uh the open interest. Hm.

How do you think about the the initial group that I think about when you when when you guys are launching this is um kind of the big often times like the the Asian exchanges, but there's also uh more onchain players like someone like Hyperlid. Maybe people in this room use Hyperlid. How do you think about Coinbase competing against uh someone more onchain like a Hyperlid? Well, look, I think uh Hyperlid have done a tremendous job with what they their product. um clearly have a have dominated market share in that sort of hybrid between uh sex and X.

Um I think I wouldn't directly put them as our direct competitor because we obviously focus on uh regulation KYC. Um so a lot of institutions coming into the space need to have some confidence that the liquidity liquidity that they're interacting with um is acceptable to them. Um, so I think there's always going to be a space for what they do. Um, and it doesn't directly compete with uh our product offering. Liquid, uh, liquidity is acceptable.

Does that mean the liquidity is big enough or liquidity is KYC and the latter? The latter. Yes. Okay. is that how do you I mean how do you this is less of a coinbased question but how do you think about KYC in light of there's all this credit coming on chain and treasuries coming on chain and uh the big sticking point is KYC so how do you think about like the growth of DeFi and onchain products but also you have to do this I mean KYC is the the blocking factor here yeah and I know there's a delicate balancing act here between the principles of what cryptocurrency is about and uh bringing in trfy assets onto the train which need to be KYCed and ultimately Coinbase is trying to bridge the gap between them.

Um and and I I guess I'll pivot very slightly into the tokenization topic because this is kind of related. Um and the way I see it is if I'm a financial institution and I have assets in real estate, in equities, in bonds, in rates, they're all separated out in liquidity wise. And imagine a world where you can tokenize all of that into one aggregate liquidity pool and then you can start either leveraging that or um or utilizing that as collateral um all in total rather than having segregated liquidity. So that's super important if you think about how big the non-crypto asset class is which is basically everything um and bringing that on chain. So in order for that to happen I think KYC is is 100% necessary um for what we need to do.

So verify pools of liquidity is is I think it's going to be a huge growth focus for the next couple of years and Coinbase is uh aiming to be right in the center of that. Yeah. Uh so Kraken just acquired this company called Ninja Trader. Yeah. Um I think billion billion a half dollar acquisition.

So now Kraken uh historically crypto exchange can on can can offer equities. Um so you're seeing crypto exchanges starting to offer equities. You're seeing equities brokerages like Robin Hood starting to do more and more crypto stuff. How do you think about this kind of convergence of all these assets moving onto one platform? Well, look, I think the the my overwhelming view is that a rising tide lifts all ships, right?

More players come into the space and uh and increase liquidity and increase uh users into the ecosystem, the better. Um I think we provide a very different offering to uh um to the more trady focused people stepping into into crypto. Uh and I think um there's space for everyone. Yeah. Can we talk sentiment?

Yeah, sure. What is the uh so lot a lot of us in this room I think have a very good very good access to maybe what the retail sentiment of the day is but maybe less of a good access into the the real institutional sentiment. Can you maybe walk us through when you're in the meetings with the big the big funds? What is the sentiment towards crypto right now? It's actually been better than ever.

What is the let me change it. What is the sentiment towards assets beyond just Bitcoin and ETH? That changes things. Um I think look I think institutions uh can make a very strong case for Bitcoin. Um and it's very clear that um that's their first fora into the digital asset space and actually that's been reflected in the recent price action where even traditional financial assets and equities have had multiple standard deviation moves with the recent uh tariff announcements whereas Bitcoin stayed pretty resilient.

Um I think they view alter alts as a completely different segment uh to Bitcoin. um and they're yet to really dive into that. You obviously get the uh specialized uh uh institutions that focus on uh the alt tale um the cryptonative firms. Uh but in terms of traditional financial firms coming into the space, I think it's going to be some time before they go beyond Bitcoin and maybe ETH. Um but the crypto native firms have been um enjoying the trading environment um for uh the tail um but they've been really concentrated in the top 50.

Yeah. What are um who who becomes the you the biggest users on the platform? Like if you think about I don't know 24 months from now is it the large cryptonnative funds the liquid funds? Is it uh big macro is it big hedge funds who are now starting to open up a crypto desk? Is it the millenniums of the world?

Who who becomes the biggest traders on the platform? Well, I I do think it would be the trady firms coming into the space. A lot of them tr already look at crypto via the whatever mechanism they can get involved in such as IBIT um as a release valve for any macro geopolitical risk that they can access 24/7 right so they're already trying to embed it into their uh mandates now if we can bridge the gap between uh traditional financial assets and and digital assets then I think they would be the biggest players uh in the space so we just had Samara Cohen on the podcast on a blockworks podcast. She's the CIO of Black Rockck and she talked about the entrance of noneotional buyers into the industry. So the last 10 years all the buyers of crypto assets have been emotional buyers who somewhere in your personality cryptos tied up or you know you really believe in the mission or the vision or the ethos of the industry and now with the the ETFs and more institutional flow you have very non-emotional buyers.

Yeah. What does that do? And especially as you as you guys roll out derivatives that that brings in more and more and more non-emotional buyers, what does that do to price action, volatility, uh I'm using those specific metrics, but like general impact on market dynamics. I think fundamentally it will reduce liquidity um uh volatility uh and it will become a lot more tradable and a lot more sustainable. Um I think volumes will increase and uh and I mean the Bitcoin itself has a very unique dynamic where you know it's a finite supply.

So as more players come into the space it's not like they can bring in more into the marketplace. So I think we'll see um a lot more steady uh price action uh in in Bitcoin. Um and I think some of that will flow down into the other alts as well where we'll have a lot more stability um uh and and probably a bit less of idiosyncratic moves happening in the space. Hm. Do you think we've seen the end of the four-year cycle?

I think that the four-year cycle is something that happened in the past and I think going forward uh we've got to have much more elongated windows. Yeah, I I I tend to agree with that. Um so I w So I walked in at registration and the Coinbase advance signs were all over. Yeah. Um uh that's the product manager for Advance.

So product Yeah. at Coinbase. Let's go. Um uh and then you guys also had a presence at token in Singapore. Yeah.

I know you guys don't have a big presence marketing and stuff like that at a lot of the US conferences like I don't see it at DS or ETH Denver things like that. What is the why why is that? Um is it because the is it because the folks who trade derivatives are here? Is it like why Well, it's not entirely intentional. I mean the the in the US we have a we have a strong presence.

Uh I think you could probably I imagine you agree with me if I say that anyone in the US that has entered into crypto has at some point opened up a Coinbase account. True. Right. So the awareness problem is a lot lower in the US than it is outside of the US. Uh and outside of the US, Coinbase Inc.

is known that the actual Coinbase brand is known. But I think what we're aiming for um is really driving awareness of the advanced trading product that Coinbase is not just a platform where you can on-ramp and off-ramp and just buy your first Bitcoin, but it's actually where serious traders can come in and actually deploy capital and and risk manage and and and do a lot more than just buy and sell. Yeah. Do you think uh do you think the US is moving quickly enough on regulations? I think for specifically for pers and derivatives and things like that.

Yeah, look, I think um we're at the dawn of a new era, right? Uh I think uh looking back uh the US has has stifled innovation um for very obvious reasons, very public reasons. But I think now uh the US is really moving fast and if they can keep this momentum up um the rest of the world is going to have to catch up. And I really think the US is really leading the charge and actually you're seeing western governments like the UK or with their stable coin guidance and uh and Europe with the Mika guidance really trying to step up and catch up with what the US is providing in terms of regulatory clarity. What do they if you uh snap your fingers you have anything in the world you get the regulators to approve something what what does that actually look like?

Like what are you waiting for them to do in the US? uh in the US we're just rating for full support of the asset class um amongst um trady clients essentially I think that would be the big pivotal movement where uh it's it's people aren't worried about using their uh mandate to come into digital assets um and they don't have to raise separate funds for digital assets if they can incorporate that in their current macro uh mandate then I think that would be a gamecher yeah so the other interesting thing I've picked up from this conference is all of the big Asian exchanges are looking to enter the US. So while you guys are looking to go more international, buy bit and OKX and Binance are all looking to do something in the US. Do you uh what do you think is going to happen with that strategy? Do you think they'll be successful?

Uh I think um we you know we welcome anyone to come into the US. The more more people that come in like I said rising tide lifts all ships. I think it's a very it's a very comms friendly uh it's very to to be clear I think our our US strategy does has not slowed down. Yeah. It's just that we have a lot of muscle in the US.

So we I think we're very confident in what we're doing in the US and we're going to continue doing that. That isn't slowing down in any way. It's just the the it looks like we're focusing heavily on the international side because we're going from essentially from zero to to where we're going where where whereas you already have such what your market share in the US is probably 75% already or more. Yeah. Yeah.

What is um we we have a couple minutes left here. What is something that uh the room maybe doesn't know about how the derivatives market or the per market or whatever works in crypto? What is something maybe you can teach us a little something about really kind of the underbelly of how this part of the market really works? Well, I think um the biggest change we see from you know people coming for the first time into per is really being blown away at the liquidity, right? Like I would not and like if you if you trade spot and you've never traded per just give it a try.

Like it's phenomenal how much uh liquidity you can access. Um and I think the um the opportunities that the funding models provide are are quite compelling because you can do things like basis trading and um and actually get paid to go long in some cases. So I think really understanding the funding dynamics and how much uh liquidity you can access using per is something that everyone should explore. Yeah, it's a good product. Yeah, it's great.

Good product. Great innovation. Yeah, it is. It is. Um, all right.

As we think about wrapping this up, take me forward. So, it's uh it's mid 2025 right now. If it's like a year and a half from now, you guys have been able to accomplish all of your wildest dreams, what does that actually look like? Who are your what what kind who are the customers? What does the product look like?

What's the market penetration? Well, I mean, we want to be uh dominating the global market for crypto and derivatives full stop. um however that looks like. But in terms of clients, we want to make sure that every serious retail trader uh is using Coinbase. So we want to make sure that every institution um whether market maker or non-market maker is accessing liquidity via Coinbase, whether that be for spot uh or for derivatives um whether in the US or outside of the US.

Um and we want them uh to be able to utilizing utilize the whole platform for their their mandate. And we're focusing on three main pillars. We're making making sure we we come up with all the uh possible listings so to provide the assets so they can trade. We want to make the whole platform capital efficient for both retail and institution so they can get the best bang for buck. Um and then we also want to increase the top of the funnel.

Uh make it easier to access Coinbase. If you're an institution, you can be plugged in via different brokers. If you're retail in certain countries and you're familiar with the local uh broker, you can access it via them. So essentially being the real infrastructure um in the backbone of the crypto economy, listings, capital efficiency, top of funnel. Yep.

Awesome. Usman, thank you very much. Thank you everybody. Appreciate the time. Thank you.