Inside Coinbase’s $375m Acquisition of Echo | Shan Aggarwal

Transcript

Our vision or our mission at Coinbase has always been to create more economic freedom in the world. And we we believe that crypto and blockchain protocols allow you to have more open and accessible financial services. And so Echko really gives us the components to actually do this compliant fundraising on chain in a way that we think better connects capital or investors with investment opportunities. This episode is brought to you by Block Damon. You'll hear more about them later in today's episode. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the

Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone. Welcome back to Empire. Very excited about this one. Uh today's an acquisition day. There's a big acquisition uh that was just announced. Wanted to bring my friend Shawn on the podcast. Sean uh has been at Coinbase for over seven years, coming up on eight years now. Has led a bunch of their M&A efforts over the years and is going to give us a little behind the scenes of yeah why they why they made this Echo deal. But Sean, first off, welcome to the show, my friend. >> Yeah, thanks for having me. Good to see you, Yano. And uh glad to be here.

>> Yeah. Um, so I feel like a lot of people know the Coinbase Exec team for maybe it's uh Emily or Paul or Brian, but I feel like you've done a nice job of staying a little bit behind the scenes. Um, but you've led uh like a lot of the, you know, venture stuff and M&A stuff and corp dev stuff in general comes through your team. So, I'd love to just get like your backstory and like what you've Yeah. your your journey over the last several years and then we can get into Echo, the M&A strategy of Coinbase, all that fun stuff. >> Yeah, for sure. I started at Coinbase in May of 2018. Uh company was about 150 people at that time, working out of a a relatively small office in one front.

And um you know, I first got into crypto before Coinbase uh when I was at a a venture capital and uh early stage growth firm called Greycraftoft. And I was investing in a lot of fintech uh and media. I was always interested in kind of like what was up and coming. And so I read the Ethereum white paper in early 2017 and a light bulb went off because kind of reminded me of uh the early app store era where there was sort of this like new developer playground where people could build interesting new applications on a new platform. Um and obviously that was right around the time of the ICO era. So I was spending a lot of time uh kind of poking around the community and participating on that end.

And uh in 2018 wanted to make the the leap full-time into the industry. So joined Coinbase and um at that time Coinbase didn't really have a corp dev team. Emily had joined just uh not too long before that and kind of built up the M&A muscle that we have at the company. Uh helped start Coinbase Ventures in 2018 and scale that up. Um, one of the first things that I got to work on was uh leading our series E uh round in uh 2018 where we raised um around uh at an $8 billion valuation.

And that was kind of my first introduction to crypto volatility in earnest because you know we raised that round. Bitcoin was sort of riding its highs at around 20K and in the midst of that crumbled very quickly down to about 3,000 and I saw a lot of people uh you know get weak hands and try to retract their um commitments. So it was it was a fun experience kind of finagling that round to close and then um I led investor relations up until our IPO. So actually got to write a good part of our S1 and go through that direct listing process. Um, a fun fact which is, you know, now with all of the talk around tokenized equities and everything that, uh, a lot of people don't know is

actually we tried to tokenize coin when we went public and we had sort of a a dual track process that we were working on at that time, but uh, we just ran into a brick wall um, on the regulatory side. So, we ended up dropping it then so that we could we could get out. But that was a really interesting experience being sort of the first public company um that was a crypto company and writing an S1 before the age of AI, right? So, you know, you had to do it with with no >> do it the old school way, right? Yeah. So, starting from scratch. Um >> and then recently I've been leading uh all of our efforts across uh partnerships, M&A, investments and then now also business operations and strategy. So at the high level, I think

about my role as helping guide the company's strategy and ensure that we're operating as efficiently as possible. >> Nice. And congrats on the promotion, chief business officer. Exciting. >> Um uh okay. Well, first of all, I want to talk about Echo, but um you guys tried to coin you guys tried to tokenize Coinbase's stock. I didn't know that. Tell me about that. >> Yeah, we did. Uh we had a whole internal effort around it called uh Project Clementine. And you know the focus was really we wanted to list Coinbase obviously on NASDAQ and have kind of a digital twin that was list that we could list on Coinbase and make uh tradable uh on chain and at that time you know it was a different SEC different regulatory

environment. So uh and also just education around crypto and tokenization was much earlier than it is today. So, uh, we had really good discussion and healthy debate um, on that trying to to get it through, but ultimately we couldn't really find a regulatory path forward for it. So, rather than holding up the the rest of the traditional direct listing, we we ended up going forward and then doing the listing in uh, April of 2021. >> Nice. Um, all right, man. Let's get into Echo. So, we're we're recording this, by the way, a couple days before the announcement. So, I haven't I haven't actually seen the announcement. I haven't seen any of the details. I just know you guys are buying Echo. I know what Echo is. Um I would I would love to hear about this deal. Let's let's get into it.

>> Yeah. So, we're super excited to be acquiring Ekko and really the motivation or the big picture for us is to make capital markets more open and accessible. And uh with Echko, we basically have an endto-end solution that uh allows us to offer builders and protocols and asset issuers the ability to uh fund raise in a compliant way on chain. um and do so from their most uh loyal and engaged customers, the actual people who are using their products rather than uh just from like institutional VCs. And so I think our our vision or our mission at Coinbase has always been to create more economic freedom in the world. And we we believe

that uh crypto and blockchain protocols allow allow you to have more open and accessible financial services. And so Echko really gives us the uh components to actually do this compliant fundraising on chain uh in a way that we think better connects capital um or investors with uh investment opportunities. >> How did the deal This is OB Echo is obviously Kobe's company. How did how did this deal come to be? Kobe come to you guys? You guys came to Kobe. Like how did this deal come to >> it was a little bit of joint um kind of chatting. Uh we've been working with Ekko for quite a while. They started on bass. Um we actually launched a echo group with the base ecosystem fund earlier this year. Uh and it was kind of

in a similar vein where we had gotten a lot of feedback that people wanted to invest in the companies that we were investing in and support the base ecosystem and the companies in the base ecosystem were looking for more capital and so that was a good first step and I think as we just got deeper into it we realized like hey there's actually a much bigger opportunity here where uh we can really take this to the next level and uh open it up much more beyond just the base ecosystem fund so that you know projects uh across the entire ecosystem can be running sonar sales and public token sales from uh uh people in their community.

>> Nice. What's the total deal value? >> Uh the total deal value um it's a little bit in flux right now. Uh but it'll be around 350 to 400 million depending on where the share price is. >> Nice. Okay. So some some combo of cash and stock. >> It's a mix of cash and stock. Uh yeah, and then obviously the share price is moves around quite a bit, but um it's in that range. Yeah. >> Yeah. I remember when you guys did the dare bid acquisition, it was like, you know, the headline number was I'm going to botch this a little bit. It was like a $2 billion deal and then uh a week later it's like it's a $3 billion deal and then it's a $4 billion deal. And so yeah, obviously yeah, good good for the founders who are taking Cointo. Um how

do you come on the on the acquirer side? Um how do you come to how does a deal like this come together? And I think there's a lot of founders who are probably I want to get into maybe two things here. One is Echko and Coinbase coming together. The other is I think there's probably a lot of founders listening to this that say, "Oh, may maybe one day Coinbase could buy my company." Um, and so I want to talk about a little bit of how these deals really come to be. Maybe you could shed some light on that. >> Yeah, I mean it's a good thought. We've acquired 40 companies since I joined, so we tend to be pretty acquisitive. It's um this one's actually our eighth of this year. And you know like the way that we think about M&A generally um is we try to think about what's our product

strategy and what are our priorities over a multi-year time horizon. Um and that's just based on listening to our customers and what we hear from both the investors in our ecosystem as well as the the developers uh and what they need. Um and uh once we go through that process and we have a good sense for like okay great this is the direction that we need to go the next question is like okay what's the best way to actually execute on that right because should we actually like staff a team and build a product um we can obviously do that but there's a there's trade-offs associated with that you're starting from scratch so you might not have the right expertise internally or you might make mistakes along the way and it's going to take you longer to actually get

like a really high quality product out there. Um, and so we kind of go through that scoping and figure out like how long do we think it will take us to build what's our confidence level and the ability to actually like execute on that. Um, is there a reason where we really need to be in market faster? Uh and then simultaneous with that, we'll do a uh a scan of the market and say like who are the best companies and founders that are out there and if there's an amazing company that already has uh uh what we've built outside and we feel like there's a really good cultural match with the team then we don't have any hubris about it. We're like actually isn't so much better for us to just acquire that company, bring them internally to Coinbase, empower that leader to actually uh you know

drive uh greater impact from a platform like Coinbase that has you know obviously global scale at this point and um and broader reach. >> Yeah. So it's it's a build versus buy conversation basically. >> Yeah. Yeah. Yeah. ultimately, but starting from like the strategy of like what do we want to achieve, you know, and it's always a hard thing. Like a lot of people reach out to me and say like, "Hey, yeah, we're running a sale and like we want to sell our company and you know, at Coinbase has its hands in a lot of different parts of the market." So like you can rationalize doing a lot of things, but we need to really like focus our efforts and focus our M&A dollars and focus our integration effort really on the things that we feel like are aligned with the direction that we want

to go. Um and uh otherwise you there's a risk that you get pulled in too many different directions and then you know things get a lot uh really complicated and messy quickly. So >> yeah, how do you think about um like how to price how to price an acquisition? So this this acquisition you said like 300 to 400 or something depending on the the price of obviously Cointo um on the day of the deal. But yeah, how like how do you get to that? I'm guessing it's not a revenue multiple because I I don't think Echo makes right now. Like how do you come to a price?

>> Yeah, it's really dependent, right? Like you have mature businesses like a derabit that have recurring sustainable revenues and profits and that's you know been across multiple cycles and you can do more of a traditional financial analysis to to think about uh uh what the valuation there looks like. Um, but then on top of just the obviously historical performance, the reason that we're usually interested in acquiring a company is not just based on what the company has accomplished before the acquisition, but it's more really about like what can we accomplish together and like what does the future look like, right? Like what can we create together?

And uh in a lot of cases, you know, we're mostly buying technology and teams because we feel like we can take that technology in a team and then like really commercialize it, right? and we can drive acceleration in the business. Um, and that creates like that creates a win-win, right? And so, uh, you really have to take a forward-looking lens to these things and forecast out like what does this look like in 12 months or 24 months? What does the revenue ultimately end up looking like? Um, and then we underwrite to basically that forward view in most cases. >> Yeah. Yeah. One one of the things I've been most impressed by by Coinbase's M&A, which is Yeah. really your team is actually uh the integration and the ability to like retain the founders even after like their two-year earnouts end or their three-year earnouts end. And if

you look at a lot of the businesses, it's like, you know, your guys' custo I'm sure I'm going to get some of these wrong, so correct me, but like I think your custody business was Zappo. Your the prime brokerage business was was to go, derivatives was FEX, Coinbase cloud or staking or whatever it ended up turning into was Bison Trails. Uh asset management was run one river and I'm sure I'm sure the list goes on and on. So how do you think about like integrating these businesses, keeping the founders, keeping the teams? Like tell me about the integration process. >> Yeah, you've done your homework. That was a that was a good recap. I'm impressed. Um, this is something that I'm super proud about actually. Um, three of our exact team members are folks who came through acquisitions. So, Greg Tusar, who was the founder of Togi, leads our

institutional business, Rob Widoff, who was an early Coinbase uh engineering leader and then started unit 410. Um, and then Jesse Pollock actually leads uh base actually came through an acquired 2. And uh so I think that the takeaway there is we think a lot about the integration both with the like nuts and bolts of how do we pull the products and the technology together. But uh the most important thing is the cultural integration and the people. It's like are the people the right fit with our culture? Do they share our mission? Um and we really want missionaries not mercenaries, right? And I think like in M&A, especially traditional M&A, a lot of a lot of it is mostly mercenary, right? It's like how much are you going

to pay me and like how long do I have to stay and what's my earnout and like that's it, right? And there's nothing wrong with that fundamentally, but like if that's the case, then whatever your incentive structure will usually dictate like how long the team stays around and like how long you have to um accomplish whatever the goals are you that you have for that acquisition. But when we do our filtering, we're really focused on like is there long-term alignment here? And if if you do have confidence in that then that's where I think you get that situation you're saying where it's like people stay for three four five six seven years right and there's a lot of uh continuity that comes with it um so we put a lot of energy into into thinking about the cultural integration

uh and uh generally how the teams come together and I think that's uh in most cases the the crux of the problem and um where a lot of things can either go very right or very wrong. >> Yeah. So, is Kobe gonna work at Is Kobe a Coinbase employee now? >> Yeah, he's a Coinbase employee. He's a Coinbase. >> Yeah, there you go. Uh, that's what you call him, Coinbase. >> Yeah, they're Coinbase. Yeah. >> Um, that's cool. That's great. Um, that's a good hire to get across 30 plus networks and 180 endpoints. Block Damon Earnstack unites staking and DeFi into a single institutional toolkit for crypto rewards with multi-layered security, full asset

control and 247 support. Block Damon Earnstack is built for scale and regulatory clarity. Non-custodial staking and seamless DeFi access allin one stack. Direct access to DeFi with no intermediate smart contract or vaults. To book a demo, make sure to click the link in the show notes or head over to BlockDamon Earnstack to find out more. Thanks to BlockDamon for making today's episode possible. The machine economy is here. Devices are monetizing data for their users all over the world. Tokenized robots are generating revenue for token holders. The first machine economy free zone is live in the Emirates and it's all happening on Peak, the machine economy computer. Head to peak.xyz.

That's paq.xyz. XYZ to find out how you can benefit from the age of automation or click the link in the show notes to find out more. As always, investments in blockchain technology involve risk terms and conditions apply. One thing I was thinking about going into this conversation is like so you guys acquired another company that's maybe a little less known, which is liquify. Um, and now that you do this acquisition, I can kind of see you guys pushing into becoming like the capital stack for companies, right? Before like the last 10 years of Coinbased business was obviously for the for the trader and for the investor and now it seems like you're pushing into the financial stack for the companies. Tell me about Yeah.

liquify combined with Echo. Like what's what's the end goal here? What are you really doing? Yeah, I think the end goal really is to bring capital markets onchain and uh you know today Coinbase primarily serves as a secondary trading marketplace for crypto tokens and with liquify and uh echo it allows us to uh provide uh issuers of tokens uh an endtoend stack that helps them start a company, manage their tokens uh fund raise and then ultimately launch and grow. And the initial focus is really on crypto tokens and crypto projects. But I think the bigger picture is we see this convergence between traditional finance and crypto where tokenization is the

bridge where you can have traditional assets that are tokenized and brought on chain. And that same infrastructure uh with liquify and echo that is purpose-built to support those capabilities for crypto tokens is applicable to other assets as well. And so these give us the components now where we can really rebuild the capital market stack from end to end uh and provide uh all of those different pieces just within the Coinbase product suite. >> Yeah. What's the north star for Echko? Is it capital deployed? Is it like number of issuers onboarded? Is it secondary liquidity? Community participation? Like how do you think about the north star?

>> Right now we think about it as uh capital raised like on behalf of projects, right? because that's both providing access to capital for uh the companies that are looking for uh uh to raise money and it's also meaning that individual investors and and real people are actually getting access to these opportunities that they might not otherwise had. So is the vision I, you know, I've got my Coinbase account. I've got, you know, Bitcoin, ETH, and Soul and whatever and stuff like that. But then there'll be a tab where I can be like, "Oh, uh, you know, series A investment into this company. Oh, public token sale on Sonar.

Boom. Opt in. Move some of my USD USDC into one of these." >> Yeah, exactly. You got it. And then in the future then once those tokens launch, they can trade on the Coinbase exchange. Um, they can be issued on base and they can trade on uh uh open onchain infrastructure. Um, and so it really gives us that uh uh pre-listing component that historically we've uh been missing from our products. >> Nice. What else is needed in this stack? So you've got the cap table stuff with liquify, you've got the fundraising with Echo. What else do you guys need?

>> I mean, I think a big piece is going to be the regulatory components because like the uh the infrastructure with liquify and echo is it's onchain infrastructure so it's applicable to any token, right? Um and then I think the next question is like well which tokens can you actually support? Is it crypto tokens that are commodities? Is it securities? Um how do those things differ? So um there will be a lot of work that we need to do over time uh to get clarity on the regulatory front so we can actually actualize um that vision. And then I think downstream of that uh you know there's uh things that we're thinking about around like where did these tokens trade? Obviously they can trade on the uh centralized coinbased exchange but uh we also believe that they over time should trade

on chain on uh dexes right and which dexes what are the permissions or compliance uh components that you need to actually trade various assets on those dexes. I think a lot of those pieces are things that um we're starting to uh think more about. We've already laid the groundwork for a lot of that. So you might have heard of a uh we have a a thing called the Coinbase verifications where you could basically tokenize your KYC on Coinbase and then uh once that's uh held in your wallet now we can actually say like that's Sean who's transacting on a DEX. So you can have securities or capital markets that effectively are operating on chain uh by taking a lot of these primit primitives

and um and leveraging them that way. What do you guys what do you think is the um what's like the end state of these listings, right? Because so there's a bunch of talk on Twitter right now about like listings and other exchanges, you know, charging for listings and I think uh there's a guy CJ who's building limitless on base and he was sharing like some some we talked about this on the recent Empire Roundup which is uh so we don't need to get into it. People can listen to that if they want to hear uh Santi and Rob and my take on it. But what do you think is the end the end state for these listings? And also you guys I haven't actually read it. I saw you guys did the blue carpet, like operation blue carpet or something like that. So maybe tell me

how you think about the end state for listings. >> Yeah, look, I mean, I think there's going to be a lot of tokens that get created and uh historically listings have been sort of this really big marketing event, but we we feel that we should list and support as many crypto tokens as possible, right? And I think there's a real question of uh how do you like filter or curate quality? And um you know we rather than trying to like impose and say like hey we know what's good and what what's bad cuz you know that's kind of big brother right for like Coinbase to be determining here's like a good asset or a bad asset >> rather than going in that approach. It's like really leaning into providing robust disclosures and robust research so people can actually find accurate

information that they trust and can count on to actually make their own decisions. There's so much misinformation in this space. So I think that's like why one place that block works plays that's super compelling is like actually like bringing truth and bringing transparency to the space. Who knows maybe there's like some element of play with prediction markets there to bring truth uh to the space as well. But um I think that you'll see a lot more tokens available. Um we're already moving in that direction. We already have moved in that direction. Um and we're thinking more about how do we uh inform and educate users uh so that they can make the right decisions for themselves.

>> Yeah. Um getting into like Launchpads as a sector. So you so you guys acquired Echo. Um the other main player I feel like is Legion and Legion. Legion had the partnership with Kraken. I would guess they go partner with a bunch of other exchanges. How do you think this plays out? Will each exchange basically get their own everyone will have their own launchpad? Everyone will have their own like ICO product. Like is this is this just going to be a standard product that the exchanges own? >> Yeah. I mean I can't speak for the other exchanges. I think it makes a lot of logical sense for us and for our business. So I think it uh you could probably extend that to others just by analogy. Um you know we're really excited about Ekko because we view them as the leader in onchain capital

formation. They've raised now uh over $200 million has been raised through Echko across 300 investments. And you know, there's been some really high-profile and successful investments like Plasma and Mega ETH and others. And uh you know, we think that's really differentiated in terms of being able to have like the best quality issuers and protocols that are uh trusting and relying on this infrastructure and uh a really broad uh base of investors as well. >> Yeah. Uh Sean, what is the what is the acquisition that you passed on that you that you regret the most?

>> Um completely passed on. That's a good one. I don't know. Uh there's Well, you know, Phantom at this point has gotten ve very successful and that team is amazing. And uh I wouldn't say we passed. We actually were very interested in acquiring Phantom at one point in time and uh you know the company was just hot and they hit lightning in a bottle and uh you know they stayed standalone and it's amazing to see what they've built since then. >> Yeah. Yeah. Um yeah that's interesting. Yeah. Phantom would have been a good one. That's a good great Yeah. Great company. Um how much let's talk about the venture side

of things. So Julie and the Coinbase ventures team they they've obviously done an amazing job. I think you guys are one of the most active maybe the most active uh VC in the industry actually right now from a total number of deals done. It's it's either number one or top top three at least I think right now. Um I'm sure you guys have those metrics but tell me how ventures the venture strategy and then how it ties into M&A. >> Yeah. Um it's a good question. We are the most active. We've done now over 500 investments in the crypto space um since 2018 and uh yeah the the portfolio continues to grow especially with the base ecosystem fund and um we're we're pretty committed to continuing to invest across market cycles. I think what we

see is you know now when cryptos uh sort of like in a summer or is hot like there's a lot of people who will come in and are active but um during the bare markets capital's a little bit harder to find. So, uh, the strategy with ventures when we started it, it was really that we saw a lot of really good builders that wanted to, uh, build protocols and apps outside of Coinbase, but there weren't that many crypto investors. And so, we said, what's what's a great way for Coinbase to actually like support the growth of the ecosystem. Uh, and that just started by being what we called an ecosystem fund, like writing very small checks, mostly founderbased, just based on like we thought this person was amazing and is working in an area that we think is um, exciting. uh and now it's scaled up quite a bit and

is really focused on investing in the best companies and driving great financial returns with those investments. Um it obviously gives us an avenue to learn quite a bit about uh how the uh ecosystem around us is developing and you know it's already very hard to predict the trends that are going to take off in crypto. But what I always think about is a you usually a good leading indicator of what's going to come next is just following the smartest people and like what they're working on. So you'll see these it there's this natural tendency of uh cohorts of companies that tend to start around the same time whether that's in like social or stable coin issuance or orchestration or whatever it is. There's usually two or three companies right and there's

like one leader and then one fast follower and they're kind of going together. But that's usually an indication of kind of where the world is going. Um, and so we take it from that lens where it helps us inform that perspective on the multi-year strategy for Coinbase because we see what's happening outside of uh Coinbase and use that in some ways to in uh to define the direction that we need to uh take the company. Um, and then once we have that direction set, then it's a question of like, okay, great. What's the best way for us to actually achieve that? Do we want to build something? Do we want to buy something?

um or is there a partnership that makes a lot of sense? Uh and we've we've done all of those uh uh in the past. So >> is the um what's the mandate of ventures? Is it uh just absolute returns or is it uh you know returns plus things that are strategic for Coinbase? >> Uh really financial returns focused at this point. Um and then honestly we just want to have great relationships with the best founders in the space. So >> yeah, nice. Um, anything else on ventures that you think is unique? Does does ventures like will will Julie call you and be like, "Hey, Sean, like you know, this company's super hot like you guys should look at them on the acquisition side."

>> Yeah, I mean there's usually uh like I sit across both so I have visibility into the ventures portfolio obviously and um we can kind of see what's working, what's not working. Uh but it's actually usually uh kind of the opposite direction where it's more so we're kind of thinking about like what's the strategy of the company and then as part of that like hey who are the best companies in the space like who's doing interesting things. Uh it's usually like comforting to me because I'm like okay great we I feel like we have a good hit rate and like we're on the right track with the ventures investments that we're making if uh a lot of the companies that end up on that list are actually like investments that we've made. They don't have to be by any means, right? like we've acquired companies that we've

invested in, we've also acquired companies that we have not invested in. Um so we don't take it as like a hard and fast rule. It's just uh it kind of gives us a sense of direction. Um and uh it's always helpful when we already have that relationship and some embedded trust with a founder. Um that helps like streamline the process across 30 plus networks and 180 endpoints. Block Damon Earnstack unites staking and DeFi into a single institutional toolkit for crypto rewards with multi-layered security, full asset control and 247 support. Block Damon Earnstack is built for scale and regulatory clarity. Non-custodial staking and seamless DeFi access allin

one stack. Direct access to DeFi with no intermediate smart contract or vaults. To book a demo, make sure to click the link in the show notes or head over to BlockDamon Earnstack to find out more. Thanks to BlockDamon for making today's episode possible. The machine economy is here. Devices are monetizing data for their users all over the world. Tokenized robots are generating revenue for token holders. The first machine economy free zone is live in the Emirates and it's all happening on Peak, the machine economy computer. Head to peak.xyz.

That's paq.xyz. XYZ to find out how you can benefit from the age of automation or click the link in the show notes to find out more. As always, investments in blockchain technology involve risk terms and conditions apply. Um, okay, getting back to maybe some advice for founders who are listening to this. So, you know, it's funny because you and I both know so many founders in crypto and I feel like half the founders in crypto are like, "Oh, one day I'll just sell sell my business to Coinbase." That's like the exit plan of I feel like a lot of founders. How would you if you're maybe talking directly to those folks like how would you re what would you recommend to them?

Well, a get to know Coinbase uh and know the right people obviously and so like you know whether it's a through a venture investment or on the BD side like having those relationships really matters. >> Um and then you know what I've been said is like figuring out like what is the strategic match on like the go forward. I think a lot of founders pitch like hey here's what we have built or like here's what we have done and that is really important but what's more important to us is like what can we create together like what are the new opportunities that get unlocked if we actually do an acquisition right and so like the historical pieces and like what's been done in the past what's been built in the past that kind of like all builds up to it but the best acquisitions that

we've had have been actually situations where we've taken something that someone has built and we've combined it with things that Coinbase has and made it into something new. Like I you know the example a couple examples that I give would be uh you mentioned toi earlier where to had really built uh best-in-class institutional trading infrastructure and was building a crypto prime brokerage as an independent company and Coinbase had sort of started to scale out this custody platform. We had a uh a really sizable asset base at that point. We had a balance sheet at that point and it became very clear that to scale that prime brokerage business, you would need both of those pieces.

You'd need the best-in-class trading infrastructure, but you'd also need a balance sheet to scale at lending desk. You would need um uh secure custody so that uh balances are actually stored where they want to trade and you can sit um completely in the flow of funds. And so it made really good sense for us to combine those two businesses because and when we did that what we found was a lot in 2021 a lot of those uh companies that were coming to say hey we want to buy a billion dollars of Bitcoin. At that time you couldn't really there was no other alternative for how you would actually execute a billion dollar purchase of Bitcoin. You needed a solution like a toi and you needed a brand and a custody platform like Coinbase and that created uh Coinbase Prime which um is the

leading uh prime brokerage platform today. So that's one one example of that. >> Yeah. What Okay, so you guys have done 40 deals. Of those deals, what percentage have have been inbound and what have been outbound or or said differently, what percent have come to you and said and tried to pitch you guys and what have where have you guys gone to them? >> I've never really tracked that. So it's a good question. It's kind sometimes it's a little bit hard, right? Because like these relationships happen over time and it's kind of like it's kind of difficult to say like who reached out to who first, you know, it's a little bit like dating.

>> Yeah. Like you guys might Coinbase Ventures leads a group on Echko and so you've already got that relationship but at some point someone does say hey would you be interested or hey would you ever buying us you know? Yeah, I would say the majority are actually us prompting um and saying, "Hey, actually, >> I would assume." Yeah. >> Right. Because a lot of it comes back to we have more visibility into the direction that we want to take Coinbase, right? And then when we go through that exercise and we say we actually want to look externally or make sure that we're covering our bases externally. Uh then we start talking to the leading like the top companies within that category. Um, obviously it happens the other way too sometimes where it's just opportunistic and there's something that we had been thinking about, but you know, maybe it

wasn't top of mind at that point and we realize actually it is super important. Um, but yeah, I'd say probably like 7525, 75 outbound, 25 inbound. >> Yeah. Yeah. There's what's the saying? It's companies are bought not sold. >> Yeah. Yeah. Yeah. Exactly. >> Um, what about investment bankers? um to me, Zapo, uh liqufy, echo. Did all these people use bankers? Did they tra traditional bankers, cryptonative bankers? You're or you're like definitely don't use bankers. Tell me how you feel about this as coming on the other side, you know, in the other seat.

>> Yeah, look, I love investment bankers, but at the same time, we I we think it is much smoother and is preferred if there's not a banker involved. It's uh most of the deals that we have done have just been directly negotiated with the founders. Um I think I can count on one hand the deals that we did uh where there was an investment banker on the sell side. We've never used a buy side advisor um because we you know have built up this team and this expertise internally uh that we haven't needed to. Um, and I think ultimately like there's starting to be more quality investment banking services that uh are catered to the crypto space, but usually we have like a really good understanding for what we're looking for um and already have a relationship with the company. So

it's more so brainstorming between uh the founder and Coinbase on like what can this become and like what is the future. Um and then the other thing is you know I mentioned a lot like the emphasis on that cultural integration. And so like we want to have a lot of touch points with the founders directly because we think that those people are going to come into Coinbase and they're going to be leaders of something for five or 10 years. Uh and we want to feel really good that there is that cultural synergy and match. >> Yeah. Do you have a um do you have a formula at this book uh at this point or like a playbook in terms of um like retention uh not retention but how you structure these deals? Okay. So on one on one hand it would be all all stock on

one hand the other hand it's all cash. Some people do earnout. Some people are really strict on like, you know, you have to hit these performance-based metrics. How do you think about that combination of a deal coming together? >> Yeah. There's no formula. There's no strict playbook. And I actually love it because to me that's like the art of the deal. >> Yeah. in a way is uh you really like there's the tools and the things that you mentioned and I I think about those as all like ways that you can achieve a goal but the art of it is really thinking about what are we trying to achieve what are the things that we have confidence in and then what are the risks that are associated with that and you know in most instances I found that um we really would prefer to avoid

having a lot of structure around a deal um like we don't want to have like a super complicated earnout and like milestones that uh cut in like four different ways. And the reason for that is uh it creates a misalignment of incentives between Coinbase and the company that we acquired in a lot of instances where the company that we acquired is squarely focused on whatever the metric is that drives the earnout. Whereas Coinbase is uh focused on that metric but we're also focused on other things, right? Like there's also a bigger picture.

>> It's kind of like just do And >> yeah, exactly. And so like you actually just want to get people so that they're working on the same team and they're going towards the same goal versus having like subsets of the company that are myopically focused on like one thing versus the other thing. That's like the ideal state, right? Um and sometimes it doesn't work out and it makes sense to have an earnout and there's good cases for for why that uh should be. Usually like in earnout for me, I want the company to be pretty standalone and like have autonomy over driving whatever the thing is that they're gold on, right?

Because like otherwise, you know, there's always a question of like, hey, I thought I could hit this, but you told me to do this or like vice versa, right? And it ends up becoming like this argument. So, um, that's like one of my criteria that I really want like who if there's going to be an earnout or a performance structure is like have that team just really have like agency and autonomy to drive that thing. Um, and allow them the space to actually like focus on it. Um, >> yeah. >> So, yeah. >> How quickly into talking to a founder do you know if you're going to acquire them? And the and the and the context there is like when we're selling something at Block Works or we're buying something um like buying a product or buying a software, selling selling our

software, selling our data, whatever, I know pretty quickly if someone's going to buy. I know pretty quickly if we're buy as well. Um but then you kind of got to go through the song and dance a little bit too. How what about what about for you? Like do you talk to someone you're like, "Oh yeah, we're doing this deal. We're going to figure out a way to buy them." Uh, I know pretty quickly that we could uh I know pretty quickly if there's a really strong case uh or if um there's a really good reason for us to do it. Now, there's a lot of things that have to go right to get a deal together. You know, like the founder has to be in like the mental state and situation where they want to sell.

>> Um, and we have to be in uh motivated and urgent to actually like buy the company to your point, right? Like companies get bought, right? And uh a lot of those pieces have to line up and it's ultimately like a timing question. There's a lot of times where, you know, there's a company that I think this could make a great acquisition for Coinbase, but like the timing doesn't line up necessarily, right? Maybe they raise around uh very recently and it's at like a price that we think is just too far extended from from where we can get to, right? And it's just like timing didn't work out. Um and then you kind of regret those and say, "Dang, I wish I was like six months earlier." and like the thinking, but um you just kind of got to move on. So >> yeah. Have you ever gotten a deal all

the way through due diligence, your team loves it, you've run up the flag pole, people like it, and then you bring it to Brian and he vetos it? >> No. Uh that has not happened. We've definitely had situations where, you know, fundamental assumptions that we made uh have changed, right, or just proven to be incorrect. And I think that's the point of why you do due diligence. Uh obviously like you hope that everything kind of checks out but especially once you sign a term sheet like you get really we get really deep into the uh kind of core operations of the business. It's not just like hey what are the financials? How's the team?

It's really about how do they do compliance uh like what's the legal background of the company? Uh how have they managed employee uh uh matters over the uh course of the company's life cycle. Um all of those questions kind of come into play. And then also like you know we live in a volatile market right so uh you know it's difficult to get pricing always right and especially if you like look at it on a short time scale. So we generally try to think about things on three to five year time horizons or even longer in a lot of instances and not focus too much on a 12-month time scale. But um you know in 2022 as an example like the world shifted pretty drastically and uh very suddenly and everybody had to adapt to

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All economic activity within UR will be captured by Mantle Network to further drive value to Mnt token holders. Follow Mantle on X atmantle_official for more. As always, investments in blockchain technology involve risk terms and conditions apply. >> Yeah. Uh let's talk prediction markets. So you guys just made an investment in Koshi. Um we did I I don't think you're you're not an investor in Poly Market, are you? >> We actually are also investors in Pol Market um from earlier rounds. Yeah.

>> Um uh what do you Yeah. Talk to me just about prediction markets and like where it fits into Coinbase's strategy. How you think about poly market, how you think about Koshi. >> Yeah, we're really excited. I mean, I think the uh old adage is markets for everything and uh we've always felt that crypto kind of enabled uh you to bring liquidity to illquid asset classes and have markets for everything and I think prediction markets are a really interesting uh example and uh uh personification of that. um where you know you see people that are kind of betting on things that matter in their life and I think the broader trend that we see right now is there's this uh kind of move towards like over finan

financialization of everyday things where people want to have skin in the game um whether it's uh you know if they're attending a game on the weekends or if it's for an election uh or whatever it is. And so we're really excited about that. We think it's very synergistic with Coinbase's business. So, you know, we're planning to integrate prediction markets and offer those to our end users. Um, and uh, yeah, we're invested in both Poly Market and Koshi. We think both are great companies obviously and taking very different approaches um at least historically where Poly Market has really been uh focused outside of the US and uh been on chain since the very early days and Koshi has taken more of the approach of pioneering the

regulatory uh uh clarity that uh has been needed to actually uh drive momentum in prediction markets in the US. Um so yeah, we're really excited about the category. Uh and uh a lot will be determined in the courts over the next year, especially as it relates to uh sports betting, but um we think there's very very good arguments there and uh we think the uh market can expand pretty significantly. >> Yeah. In like a year from now, are we going to be placing sports bets on Coinbase through like a Cali or a Poly Market integration? I think you could be placing sports bets on Coinbase before 12 months. Yeah, >> let's go. Very cool. Um, that's great.

Yeah, I was looking at uh I've uh been very addicted to prediction market stuff recently and spending too much time on there. And uh the the top 20 the top 20 trades on Poly Market this week were were all sports bets actually. >> Yeah. So, >> yeah. I mean, football season, you know, it's insane. It's crazy to look at the numbers, right? It's uh people love football. Yeah. Um, do you think Poly Market or Kalshi wins or do you think they both win and they end up looking very different? Do you think they look the same and there's just the market's big enough for both? Like what do you think you guys come in and like maybe buy one of them eventually? Like what what does this end up looking like?

>> Yeah, I think they both can win. I think the market can be big enough for both of them to win. And uh you know it's like when you think about uh futures and options like in the traditional derivative sense there's a lot of different exchanges but there ends up being some consolidation but uh exchanges have different specialties on contracts that they end up supporting and I think you could see an interesting dynamic uh with prediction markets too where rather than having generalist prediction market exchanges or protocols that support every single contract across sports culture media uh local uh you know maybe permissionless user generated uh markets. You see more specialization where uh maybe one is more better tuned

for live streams or uh and things that are happening like in real time and another is better tuned for sports and goes deep into all of the complexity with like parlays and uh different components of sports across the NFL, NBA, uh soccer, etc. So I think there can be multiple winners for sure and the market's still very early just given uh how the regulatory landscape has shifted within the last year. So um we think there could be a lot of growth there. >> Yeah. So I saw on Twitter you guys just had your exec leadership offsite. H how much of that um how much of that did you guys talk about prediction markets?

>> I mean it was definitely a good topic of conversation. Um it's something that we're prioritizing heading into the end of this year and through next year. Uh and we think that it um prediction markets really cater to a much more mass market audience than traditional crypto trading. And uh that's interesting for our business. Uh it's also interesting I think for crypto as an asset class because it has the uh potential to introduce a lot of new users to crypto that you know might have thought of crypto as something out on the fringe but they're feel more comfortable or familiar uh betting on an NFL game.

>> Yeah. So it's funny. I was thinking about I was thinking about just Coinbase and prediction markets um in light of the Kali acquisition or excuse me Kali um investment in this podcast and I was actually think there's a I think it's a Ben Horowitz quote I forget or maybe it's someone else but it's a the battle between every startup and every incumbent comes down to whether the startup gets distribution before the incumbent gets innovation and funny enough in this case in my head you guys are actually the incumbent um and someone like a poly market or Khi is the startup and uh obviously you guys are you're investing them and you guys are partnering and integrating and stuff like that, I'm sure. But um why don't you just build it yourself and beat them, right? Because you're the incumbent and you could get innovation

and you could launch your own prediction markets uh faster than maybe a Calier Poly Market can go get the 100 million plus users that you guys have. >> Yeah. Well, I mean we could, right? I think like you can and it just comes down to like I think a lot of the things that they have built are actually really hard things to build, right? Like uh some of the licenses that um they have you know you know you can't really snap your fingers and have those licenses overnight or uh the operations for how do you resolve markets that don't have real-time data feeds so that you can do it in a quantifiable way there's some discretion involved with that and so I think it's a option um and it's something that we could consider we do already have uh a designated contract

market which is a derivatives exchange uh under CFTC purview which we acquired um that was fair in in 2022 and so I think that is an option and you know we'll think about again the build by partner uh around how do we offer the best product to our end customers as a starting point and then how do we kind of optimize that business over time? >> Yeah. Um can we get back to tokenized tokenized stocks and tokenizing your guys' equity? Um I I'd love to hear like where you think this market goes. Um both both for like Yeah. tokenizing your own equity, tokenizing stocks, putting it on chain, even like Oh, we'll get to I won't ramble on. I've got more questions, but I'd love to just hear how you think about it.

>> Yeah, I think we're um we're obviously like very early innings right now, and I think the biggest questions are mostly on the regulatory front. Like the technology and the pieces are there where you can have tokenized equities. And I think that you will see most of equity capital markets or a lot of equity capital markets move on chain over time. Um but it needs to be done in uh the right regulated and compliant manner because traditional equity markets do work pretty well overall. Not for everyone in the world. you know, there are people in different pockets of the market that don't have equal access to uh uh capital markets, but you still have things like T plus2 settlement and all of these items in the traditional uh

capital markets that can largely be resolved um if uh that transaction activity happens on chain. But I do think that there's a lot of work that needs to be done uh uh uh to give confidence around uh market integrity and uh having confidence in who the participants in a market are uh on chain and uh you know some of the mo most interesting companies that I see right now are those that are sort of like bridging the gap between uh uh traditional financial markets and onchain capital markets. So um I think about like a superstate is really interesting in that dimension um where you can have fungeability between a exchangeraded security and an onchain

security. Um and there will be I'm I'm very confident that there will be a market for that. It's just right now once you have the onchain security there's not really a lot that you can do with it because there's it's unclear like who can you transfer it to, where can you trade it, can you have lending markets on top of it with it, >> right? Galaxy tokenizes their stock. It doesn't it's not I mean I hope that it opens up but it's it's not really doing anything right now. >> Yeah, it's not. But like I think it's a huge step and so like I give them a lot of kudos and a lot of props. It's similar to what we were trying to do in 2021 and um I think they're setting a good example for many other issuers over time where you can actually have uh both

markets that exist at the same time. So um I I think we're we're going to start to see these markets move on chain. Um and some of the more interesting things that uh I think will end up happening are some of the things that you see around like per on equities and uh it's difficult to have 247 markets on equities because the spot collateral doesn't trade 24/7 right and I think once you have that on chain and you maybe have 247 365 markets natively then you can have per equities you could see that extending to private securities potentially over time time maybe they're they aren't freely traded Um, and I think you see a lot of interesting experimentation that's happening on hyperlquid right now with this um,

especially post the launch of HIPP3 and you know that's like a really compelling vision where you could have pers on everything uh, but it all relies on having the underlying asset I think ultimately tokenized and held on chain so that you have less potential for uh, market dislocations based on price discrepancy. Yeah, maybe I'll ask you a hypothetical that something that Mike and I have been talking about a decent bit which is um which is Block Works and um you know we were saying you know because Blockworks is more of a traditional equity business right we've uh you know we don't we don't have a token like we're not we're not like a a protocol or anything like that so the the natural path would be to IPO and you you IPO on like NASDAQ or NY

would be the traditional the traditional startup path last 50 years um >> but all of our all of our uh our audience is all on chain chain, right? And they all have a lot of capital on chain. And so, uh, we look at what like Lesner and Superstate are doing with a kind of like, yeah, do do basically with Blockworks, do you onchain? Do you IPO on NASDAQ or NY? Do you on chain? Is IPOing on chain really just does that just mean you're launching a token? Be curious how you would think about that in our shoes. >> Yeah, I mean, I think you certainly could, right? And it's better uh alignment with your audience. And if you did that, then you could use liquify to manage your tok your token table or your cap table and you could use echo or sonar to do the actual fund raise on

chain. And I think that would be that's something that we should jam on because that uh is is really interesting. But I think the the real trade-off that you have to uh weigh I think in that dimension is like yes your audience is onchain. Um but onchain capital markets today are much smaller than traditional capital markets just in terms of like the total pool size and the total capital that's available there right and so uh it's a smaller pond but it might be a better fit for you. Um, and I think like while we're in this transitionary state, it probably makes more sense to consider doing something like both like Galaxy. Um, and that way you can both you can cater to the crypto audience that obviously is, you know, the core

audience for for Blockbergs, but also uh to a more mainstream audience that has a lot of demand for cryptoreated assets. >> Yeah. Um, yeah, it's a good call. We should jam on that. It's a good idea. Um, what what would the audience be and listeners be be most surprised about when it comes to like what took up airtime at the Coinbase executive offsite? OB like prediction markets feels a little obvious. I'm sure you guys talked about per like um but what what what maybe took up air time that we would be like, "Oh, that's interesting. You guys talked about that a lot." Yeah, I think we spend a lot of time thinking about the rate of change from off-chain to onchain because it informs a lot of design decisions for where do you focus your time and energy and you

know when Coinbase started uh we had to get regulatory licenses in basically every market that we we have that we operate in bank accounts etc to provide this bridge for people just to hold crypto assets right and that was like that's really heavy really hard like really nitty-gritty work that um does that. But once these assets are on chain, they're portable, they're movable, you have uh new financial markets that can be created much more easily, right? And uh we're obviously investing a lot in that onchain future and making sure that we have the right pieces uh in infrastructure in place for that with base and the base app and even just bringing uh onchain protocols into

Coinbase. But depending on what you believe about the rate of change like if that happens faster we should be investing resources in a different way or if it happens slower we're investing resources you know in another way and so we try to balance that um uh mostly as we think about like which efforts we're prioritizing and uh how we're uh allocating resources. >> Yeah. Um John, anything else that we didn't talk about that you think is important especially tied into this idea of Coinbase becoming the everything exchange? Um, I think we covered a good amount there, but on the everything exchange, I think this is really like a culmination of what we've been talking about with tokenization where, you know, it used to be this thing where it's a crypto asset

and a financial asset. And once you tokenize a financial asset, then the lines sort of start to get blurred between what's a crypto asset and what's not a crypto asset. So, um, you know, we're really focused in Coinbase on making all of those assets available to our customers, whether those are crypto assets, equities, prediction markets, uh, uh, tokenized private securities in the future, uh, pre-sale uh, tokens and and beyond. And so, the echo acquisition really takes us one step in that direction. And, uh, more broadly, I think is a a huge step for us to bring capital markets on chain. Yeah, I would, as we wrap this up, Sean, I would love to get your take on cycles and um just where

where we are in the cycle, if cycles even exist more. Love to get your your updated thesis on this. >> Yeah, this was a topic of discussion also at the site uh that we just had and uh you know, I think there's pretty differing views on it. I tend to believe that uh we still are subject to market cycles although not as uh volatile or extreme as they historically have been. I think a lot of crypto cycles now are equally influenced by uh the macroeconomic environment as well as crypto specific factors. Um so do I think that there's going to be another bare market at some point? I do think that there probably will be another bare market at some point. Um, will it be as

pronounced or as painful as, you know, 2018 or 2022? Um, I think probably not. Uh, because we're starting to see, uh, real use cases that are less correlated with the volatility of crypto assets take hold. Um, and I think, you know, we spent a lot of time talking about tokenization, but stable coins were sort of like the first example of a tokenized asset in 2018. And um we're just amazed to see the growth in stable coins over the course of the last seven years now over $300 billion of market cap. And um I we're just seeing tremendous innovation right now where you know you have stable coin neo banks around the world that are spinning up very quickly and offering very compelling financial

services uh experiences to consumers in every part of the world um in a way that just previously would have taken a ton of capital and a ton of time to even get spun up. So, um I think things like that will help uh balance out some of the volatility from the era where it was mostly um buying and selling Bitcoin, Ethereum, uh and other crypto assets. >> Yeah. Yeah. Will you guys slow down investments and or slow down M&A if you think that we're nearing quote unquote nearing a top of a cycle? I guess I'd say >> I wouldn't say we slow down the pace deliberately. We I we really are looking for the best opportunities that I think align with our strategy. And obviously I

think from like a pricing and evaluation perspective, we have to think about like what does this look like over the next three years and there is an element of the cycle that's involved with that. Um because most businesses in crypto do have some dependency on uh on the rest of the crypto market. But uh I wouldn't say that we uh sort of plan our pacing around market cycles in any uh in any way. Um but we do naturally see a slowdown in net new opportunities uh when there are market pullbacks. >> Yeah. Cool. Sean, anything else, man?

>> No, this is great. >> All good. Well, congrats again on the Echo deal. Congrats on 40 deals over the years. Congrats on the big promotion. Um and yeah, congrats on everything at Coinbase. You guys are crushing it and we love to see it. >> All right. Thanks. [Music]