YESTERDAY COINBASE AND THE SEC HAVE BEEN IN THIS MONTH'S-LONG
DISPUTE OVER DEFINING A LOT OF THE CRYPTO ENVIRONMENT, AND
THEY BROUGHT A CERTAIN AMOUNT OF CHARGES AGAINST YOU, TO
WHICH YOUR CHIEF LEGAL OFFICER YESTERDAY TOLD ME YOU GUYS ARE
WILLING TO FIGHT THIS PRETTY SIGNIFICANTLY.
WHEN YOU SELL THOSE CHARGES BROUGHT AGAINST YOU, WHAT IS
THE FIRST THING YOU DID, AND HOW FAR DO YOU THINK YOU ARE
GOING TO HAVE TO GO HERE? BRIAN: THIS IS NOT UNEXPECTED.
WE HAVE BEEN IN THE DISCUSSIONS WITH THE FCC GOING BACK TO
BEFORE WE WERE A PUBLIC COMPANY. WE STARTED SHARING HOW WE LIST
ASSETS ON THE PLATFORM, HOW WE THINK ABOUT OUR STAKING PROGRAM.
AND THROUGH A LARGE NUMBER OF DIALOGS THEY ALLOWED US TO
BECOME A PUBLIC COMPANY. WE HAD MANY DISCUSSIONS WITH
THEM IN THE LAST YEAR, WHEN THEIR TONE STARTED TO CHANGE
AND THEY STARTED TO COME TO US WITH MORE QUESTIONS ABOUT THE
BUSINESS. WE MET WITH THEM PROBABLY 30
TIMES OVER THE LAST YEAR, AND WE STARTED TO ASK THEM FOR
FEEDBACK. HE SAID, WE WOULD LIKE THERE TO
BE A ROBUST MARKET IN THE U.S. TO TRADE CRYPTO SECURITIES, OF
THE 1000-PLUS ASSETS WE HAVE REVIEWED TODAY.
WE HAVE REJECTED 90% OF THEM. WHAT FEEDBACK DO YOU HAVE FOR
THIS, FOR US? HOW CAN WE REGISTER?
HOW CAN WE WORK TOGETHER? UNFORTUNATELY WE WERE MET WITH
SILENCE. WE GOT NO FEEDBACK IN THOSE
MEETINGS. THE FIRST MEETING WHERE THEY
WERE SCHEDULED TO GIVE US FEEDBACK THEY CANCELED IT A FEW
DAYS BEFORE THAT, AND THEN WE GOT A NOTICE A FEW DAYS AFTER
THAT. IT IS UNFORTUNATE. WE WORK WITH REGULATORS ALL
OVER THE WORLD, OTHER REGULATORS IN THE U.S.
I AM A REASONABLE PERSON TO GO ALONG WITH, BUT UNFORTUNATELY
THE SEC UNDER THIS CHAIR HAS TAKEN A REGULATION BY
ENFORCEMENT APPROACH INSTEAD OF CREATING A CLEAR WORKBOOK THAT
CAN ALLOW THIS INDUSTRY TO BE BUILT IN A TRUSTED WAY.
SONALI: WHEN WAS THE LAST TIME YOU
PERSONALLY MET WITH GARY GENSLER, AND WHAT DID YOU SAY?
BRIAN: WHEN HE FIRST CAME IN AS THE
CHAIR I REACHED OUT TO HIM. I TRY TO MAKE AN EFFORT TO
CONNECT WITH HIM IN PERSON, BECAUSE THAT IS WHAT I TRY TO
DO WHEN A NEW REGULATOR TRIES TO COME IN.
UNFORTUNATELY WE WERE NOT ABLE TO CONNECT AT THAT TIME.
WE CANNOT GET ON HIS CALENDAR. WE FOLLOWED UP A FEW TIMES IN
THE YEAR AFTER THAT. WE EVENTUALLY GOT A MEETING
THAT WAS VIRTUAL. IT MAY HAVE BEEN COVID-RELATED,
BUT WE WERE ABLE TO GET A VIRTUAL MEETING.
UNFORTUNATELY IT WAS A PRETTY ICY RECEPTION.
WE CAME IN HAT IN HAND AND SAID, YOU HAVE ASKED PEOPLE TO
REGISTER. RESPECTFULLY, WE ARE HERE TO
REGISTER. WHAT WOULD YOU LIKE US TO DO?
HIS RESPONSE WAS, YOU KNOW, TALK TO YOUR LAWYER.
I'M NOT HERE TO ADVISE YOU. THAT WAS KIND OF HOW THE
CONVERSATION STARTED. AT THAT POINT WE REALIZED THERE
WAS A GAP. WE FELT LIKE THIS WAS AN
IMPORTANT TECHNOLOGY THAT WE FELT NEEDED TO BE BUILT IN A
TRUSTED WAY IN THE U.S., IN A WAY CONSUMERS WERE PROTECTED.
I DON'T KNOW WHAT HIS MOTIVATIONS OR PERSONAL VIEWS
WERE, BUT IT DID NOT SEEM LIKE HE WAS ON THE SAME PAGE. SONALI:
WHAT DOES THIS MEAN FOR YOU? IF THE GOVERNMENT CRACKED DOWN
SO HARD ON CRYPTO, ON COINBASE, THE SEC, DOES COINBASE EXIST IN
FIVE YEARS?
>> ABSOLUTELY WE DO. THE SEC CHAIR MAY HAVE A
CERTAIN POINT OF VIEW BUT IT IS NOT REPRESENTATIVE OF THE WHOLE
U.S. GOVERNMENT. THE SEC CHAIR IS AN OUTLIER IN
THE U.S. GOVERNMENT. WHEN I MEET WITH MEMBERS OF
CONGRESS, THE BROAD CONSENSUS ON BOTH SIDES OF THE AISLE, IT
IS A PRETTY REASONABLE VIEW THEY HAVE.
WE DO NOT KNOW EXACTLY WHAT THE TECHNOLOGY WILL BECOME WHAT WE
ARE
LET US APPLY SOME BASIC IDEAS AROUND MLK YC AND OTHER
FINANCIAL STATEMENTS AND MAKE SURE THERE IS NO WASHED RATING
AND LET US CREATE A CLEAR MARKET STRUCTURE WHERE
BUSINESSES CAN UNDERSTAND WHICH -- WHO SHOULD THEY TALK TO
ABOUT WHAT KIND OF ASSETS? CONGRESS IS RECOGNIZING THIS
AND THE WHITE HOUSE IS AS WELL. DIVIDED ADMINISTRATION PUT OUT
AN ADMINISTRATIVE ORDER A YEAR AGO PASSING ALL OF THE BRANCHES
OF GOVERNMENT TO SORT OF ST SAY GET YOUR DUCKS IN A ROW
REGARDING CRYPTO.
>> DO YOU HAVE THE FINANCIAL RESOURCES TO DO THAT?
>> EVEN IF THIS TAKES SOME TIME, THAT IS OK.
IN Q1 WE HAVE ADJUSTED EVEN A POSITIVE AS A COMPANY EVEN IN
THE DEPTH OF THIS CRYPTO BEAR MARKET IF YOU WANT TO CALL IT
THAT, WE HAVE OVER $5 BILLION IN THE BALANCE SHEET.
FRANKLY EVEN IF THIS COMPLAINT CAME IN FROM THE SEC IT IS
BUSINESS AS USUAL TODAY. ARE CONTINUING TO TRADE THE
ASSETS WE HAVE ON OUR PLATFORM AND WE TRADE OVER 200 AS IT ON
OUR PLATFORM, THE SEC COMPLAINT MENTIONED 13 OF THEM.
A SMALL PERCENTAGE OF THE ASSET THAT WE TRADE.
ALSO HAVE BUSINESS OVERSEAS AND OTHER COUNTRIES.
WE DRIVE A LOT OF REVENUE FROM OTHER SOURCES THAT ARE NOT
LINKED TO TRADING FEES.
THIS WELL-CAPITALIZED AND ADJUSTED ACCORDING TO Q1.
WE HAVE A GREAT LEGAL TEAM POLICY TEAM THAT IS WORKING ON
THIS AND WHAT I WANT 99 PERCENT OF THE COMPANY TO BE FOCUSED ON
IS JUST BUILDING GREAT PRODUCTS BUILDING GREAT -- BUILDING
GREAT INFORMATION FOR OUR CUSTOMERS.
THE VAST MAJORITY OF THE COMPANIES TO KEEP BUILDING.
>> HOW LONG DOES REGULATORY OVERHANG LAST?
THIS COULD TAKE MANY MONTHS. DO YOU THINK THAT YOUR
INVESTORS MAY LOSE SOME DATA OR YOUR CUSTOMERS WHILE YOU GO
THROUGH THIS?
>> THIS IS NOT A NEW CONCEPT. THERE HAS BEEN A LOSS OF
DISCUSSION, THE SEC HAS HAD RHETORIC AROUND THIS FOR
SEVERAL YEARS THAT I THINK HAS INFLUENCED THE MARKET.
THE INVESTORS IN COINBASE ARE OF THE BOYS THAT, IF THEY ARE
-- THEY ARE COMFORTABLE IF THAT SOMETHING IS BEING REVEALED.
THEY ARE TAKING A LONG-TERM VIEW THAT COINBASE IS A
DIFFERENT COMPANY. WE ARE THE ONLY COMPANY THAT
WAS BASED HERE IN THE U.S. THAT WENT PUBLIC THAT HAS
AUDITED FINANCIAL STATEMENTS AND HAS TAKEN A COMPLIANCE
FIRST APPROACH. EVEN IN THIS RECENT SEC
COMPLAINT THAT YESTERDAY -- IT WAS UNFORTUNATE THAT THEY DID
IT BACK-TO-BACK WITH OTHER COMPLAINTS THAT WENT OUT THERE
THAT MAY HAVE BEEN INTENTIONAL TO TRY TO CONFLATE THE TWO.
I THINK PEOPLE ARE SMARTER THAN THAT AND THEY RECOGNIZE THAT
THIS COMPLAINT AGAINST COINBASE THERE WERE NO ALLEGATIONS.
ALLEGATIONS OF MISAPPROPRIATION OF CUSTOMER FUNDS AND WASH
TRADING, MYSELF AND THE EXECUTIVE TEAM WERE NOT NAMED
PERSONALLY AND IT IS DEBATING THE LEGAL TECHNICAL QUESTION OF
SOME OF THESE ASSETS ARE COMMODITIES OR ARE THEY
SECURITIES? THAT IS SOMETHING THE COURT
WILL HAVE TO THING ABOUT. WE HAVE BEEN ASKING THE SEC FOR
A LONG TIME. HOW TO GET MORE CLARITY.
IT IS NOT OUR FIRST CHOICE WE WOULD RATHER DO THE REGULAR
HEDGES PUBLISHED A CLEAR RULEBOOK BUT THEY WILL NOT DO
THAT THE COURTS ARE THERE IN THE U.S. TO SET OURSELVES UP.
>> THIS WAS ABOUT SECURITIES.
PART OF THIS WAS ABOUT STAKING ALSO, STAKING OBVIOUSLY IS
BECOME MORE IMPORTANT PART OF THE CRYPTO ECOSYSTEM, DO YOU
PLAN BASED ON HOW THE REGULATORS ARE TREATING STAKING
TO WIND DOWN YOUR STINKING SERVICE?
>> AGAIN -- STAKING SERVICE?
>> STAKING ONLY REPRESENTS 3% OF OUR NET REVENUE.
IT IS PART OF THE DECENTRALIZED BLOCKCHAIN'S.
COINBASE'S STAKING PRODUCT IS BUILT ON A WAY TO BE COMPLIANT
AND WE HAVE BEEN DIFFERENT THAN SOME OF THE OTHER ONES OUT
THERE WHICH HAVE BEEN CALLED STAKING. WHAT -- WE ARE GOING TO
CONTINUE OUR OPERATING BUSINESS. DOES COINBASE HAVE THE ABILITY
TO SERVICE THE SCALE.
STAKING IS A DECENTRALIZED PART OF THE DECENTRALIZED PROTOCOL.
COINBASE IS REALLY JUST A PASS-THROUGH MECHANISM.
WE ARE HELPING PEOPLE ACCESS THESE PROTOCOLS.
SOME OF THE NOTICE CALLS HAVE LOCKUP PERIODS.
WE ARE JUST MAKING THE INFORMATION AVAILABLE TO THE
CUSTOMER.
THE FUNDS ARE BACKED 1-1 WHEN YOU ARE STAKING SOMETHING IT IS
BEING PLEDGED INTO THESE DECENTRALIZED PROTOCOLS AND WE
DO NOT HAVE THE ABILITY TO MOVE IT SOMEWHERE ELSE AT THAT POINT.
WE ARE GETTING PEOPLE ACCESS TO THE DECENTRALIZED PROTOCOLS.
>> THE BUSINESS WITHDRAWALS HAVE A MATERIAL IMPACT ON
ETHEREUM'S PRICE AND HOW DOES COINBASE PREPARE FOR SOMETHING
LIKE THAT?
>> WHAT DO YOU MEAN?
>> IS THERE A BROADER RUN YOU HOW TO BE PREPARED FOR?
IN OUR BUSINESS WE ARE NOT A BANK. ONCE WE DO NOT DO FRACTION
RESERVE.
BACK ONE TO ONE AND YOU DO NOT NEED TO TAKE OUR WORD FOR IT.
AUDITORS, WHO HAVE GONE IN AND VERIFIED ALL OF IT.
YOU CAN CONFIRM IT OUR FINANCIAL STATEMENTS.
IF PEOPLE WANT TO WITHDRAW FUNDS 100% OF IT IS THERE.
BARATUNDE:
HOW DO YOU >> HOW DO YOU ANSWER THE INDUSTRY?
ON THE OTHER END, FINANCIALLY, RATES ARE HIGHER.
KEEPING THEIR MONEY IN A BANK.
WHY SHOULD THEY KEEP THEIR MONEY WITH YOU?
>> THAT HAS BEEN THE EVOLUTION OF STABLECOINS AND WE ARE
ACTUALLY IN CONSORTIUM WITH ANOTHER COMPANY IN THE SPACE.
WE HAVE CREATED A UST COIN WHICH IS THE SECOND CARD TO
STABLECOIN OUT THERE AND AS YOU MENTIONED THE INTEREST RATES IN
THIS ENVIRONMENT HAVE BEEN BOTH A GOOD SOURCE OF REVENUE FOR US
BUT IT IS ALSO SOMETHING THAT WE HAVE PASSED ALONG TO
CUSTOMERS.
CUSTOMERS CAN EARN REWARDS ON USDC AND GET ACCESS TO SOME OF
THESE HIGHER INTEREST RATE ENVIRONMENTS.
>> BARTER QUESTION ABOUT THE INDUSTRY.
-- A BROADER QUESTION ABOUT THE INDUSTRY.
HOW MUCH OVERHANG WILL IT HAVE?
>> IT IS HARD FOR ME TO SAY. YESTERDAY WITH THIS COMPLAINT
THAT CAME OUT, CRYPTO WAS UP. I WOULD NOT HAVE EXPECTED.
I DO NOT KNOW IF IT MEANS PEOPLE KNEW SOMETHING WAS
COMING BUT THEY EXPECTED IT TO BE WORSE THAN IT ACTUALLY WAS?
OR IF THEY JUST FELT THAT THEY ARE A BELIEVER IN IT OR
SOMETHING? I DO NOT TRY TO PREDICT WHAT
WILL HAPPEN IN THESE MARKETS. WE DO NOT OPERATE A HEDGE FUND
OR ANYTHING LIKE THAT. WE WANT TO PROVIDE A GOOD
SERVICE TO OUR CUSTOMERS AROUND THE EXCHANGE AND ALL OF THE
PRODUCTS WE OFFER.
>> I WANT TO ASK ABOUT ARTIFICIAL INTELLIGENCE.
WE HAVE BEEN TALKING ABOUT ALL DAY.
AS A CURRENT ENTREPRENEUR HOW DO YOU SEE AI -- CRYPTO
ENTREPRENEUR HOW DO YOU SEE AI AS A COMPETING FACTOR?
DO YOU SEE IT DOVETAILING WITH YOUR INDUSTRY AT ALL?
>> AI IS ONE OF THOSE IMPORTANT TECHNOLOGY TRENDS THE U.S.
NEEDS TO GET RIGHT ALONG WITH CRYPTO AND WE ARE SEEING A
SIMILAR QUESTION START TO HAPPEN IN CONGRESS WHICH IS HOW
SHOULD THIS BE REGULATED? THERE ARE A COUPLE OF
INTERESTING INTERSECTIONS BETWEEN AI AND CRYPTO.
IN AI IT IS SO EASY TO MASS GENERATE THINGS WHETHER IT IS
IMAGES OR AN ARTICLE. THE PROMENADES OF THOSE OUT OF
THE AUTHENTICITY OF IT CAN BE A LITTLE BIT HARD TO FIGURE OUT.
IN A WORLD OF CRYPTO, WITH NFTS AND WHATNOT YOU CAN ACTUALLY
HAVE A DIGITAL SIGNATURE THAT PROVES THIS WAS ISSUED BY
BLOOMBERG OR BY BRIAN ARMSTRONG AOR BY WHOEVER.
THE OTHER THING THAT MIGHT BE INTERESTING IS THAT A LOT OF
THESE AUTONOMOUS AGENTS. PEOPLE ARE USING THEM TO ORDER
GROCERIES OR BUILD THIS WEBSITE OR SPIN UP THE SERVER.
THEY WILL NEED FINANCIAL MONEY. THERE WERE ANY MONEY TO DO
THINGS IN THE WORLD. THESE AI AGENTS.
I THINK ACTUALLY IN THE FUTURE YOUR GOING TO SEE A LOT OF
CRYPTO TRANSACTIONS HAPPENING BETWEEN AI AGENTS.
BETWEEN AI AND VARIOUS BUSINESSES AROUND THE WORLD.
CRYPTO IS THE NATIVE MONEY OF THE INTERNET.
THE INTERNET IS GLOBAL AND DECENTRALIZED AND EVERYBODY CAN
PARTICIPATE IN IT. IT WOULD NOT MAKE SENSE TO USE
THE DOLLAR OR THE EURO IN A TRULY GLOBAL CONTEXT IF YOU
WANT TO BE COUNTRY AGNOSTIC. I THINK AI WILL USE CRYPTO MORE.
>> HOW MUCH ARE YOU WORKING ON THE FUTURE?
>> WE ARE NOT TRYING TO BUILD SOMETHING THAT IS ALLOWING BOTS
TO TRANSACT IN CRYPTO AT THE MOMENT.
WHAT WE ARE DOING IS PUTTING GOOD INFRASTRUCTURE.
PICKS AND SHOVELS IF YOU WILL. WITH COINBASE CLOUD, WE ARE
MAKING OUR APIS ARE ON HOW CRYPTO IS STORED AND TRANSACTED.
COMMERCE HAPPENS. WE ARE EXPOSING THOSE LIKE
AMAZON WEB SERVICES. WHAT BUSINESSES WILL INTEGRATE
THOSE OVER TIME. WE ARE ALSO USING AI IN OUR
BUSINESS IN A FEW OTHER WAYS. WE USE IT FOR FRAUD PREVENTION.
UNFORTUNATELY WE GET PEOPLE TO GO UP AND PUT IN ITS OWN
CREDENTIALS THAT WE HAVE DEVELOPED A VERY GOOD MACHINE
LEARNING TO DETECT THAT. WE ARE OCCASIONALLY TESTING IT
IN A FEW OTHER AREAS TOO. THAT IS AROUND OUR DESIGN
TEAMS. THEY WILL LOOK AT MAJORITY OR DOLLY AND SORT OF
GENITIVE AI. SHOW ME FIVE IDEAS OF WHAT AN
INTERFACE MAY LIKE LIKE. -- LOOK LIKE.
AI IS A GREAT ASSISTANT. IT DOES NOT -- I DO NOT THINK
AI IS TAKING PEOPLE'S JOBS AND TAKING TASKS OFF THEIR PLATES
TO MAKE JOBS MORE EFFICIENT.
TO HAVE A RESEARCH ASSISTANT, TUTOR, A MENTOR, THERAPIST,
EVERYBODY CAN HAVE ONE OF THESE PAIRED WITH THEM.
>> THANK YOU FOR YOUR TIME AND TAKING OUR QUESTIONS.