The Ultimate Coinbase Debate: Can It Survive? | Jeff Dorman

Transcript

If you just go through each one of their business lines, it's really hard to see any of them growing at a meaningful pace with C, you know, ex with with the exception of Bass, right? Bass is the one thing they've done that I think actually can grow um if they do it correctly. Hey everyone, Jason here. I'm excited to announce that today's sponsor, Petra, a top non-custodial wallet developed by Aptos Labs, just launched Earn, a new feature to access DeFi with just one click. Earn lets non US users deposit USDT directly into Aries Markets lending pools and manage it all directly from the Petra wallet.

This is not financial advice. Participating in DeFi does carry risks. To learn more, visit petra.app/earn. I wanted to take a moment to tell you about Focal by Falcon X, the AI powered insights engine built for institutional crypto. By leveraging AI, Focal empowers institutional investors to streamline research, anticipate market shifts, and make sharper investment decisions. You'll hear more about Focal later in the show. Hey guys, Jason here. Just to let you know, we have Permissionless 4 coming up in June from the 24th to the 26th at Industry City in Brooklyn. This is a conference for the developers and builders where we'll be focusing on the DeFi Renaissance, applications, token

design, and much more. Click the link in the show notes to grab your ticket today and use code Empire 10 for 10% off. Welcome back everyone. We have a very special guest, Jeff uh Dorman, the CIO of Arca. Uh Jeff, welcome to the show. Thanks for having me. Yeah. So I when I think of Jeff, Jeff is one of the very few vocal truly vocal people in crypto. You know, he at one point I guess if there's activism in the good sense of the word in crypto, Jeff, you're one of them. I don't know if you'd agree that. I try to use the word constructivism more than activism, but yes.

Um that's great. And and tell us a little bit about ARCA. You know, you've been investing in crypto for a while. Just to level set the discussion so people know who you are, what you've been doing in the space. Sure. Yeah. Uh I'm the CIO and one of the co-founders of Arca. Uh we're a crypto uh asset management firm. Uh we basically have two sides of our business. We have the asset management side where we have multiple different fund strategies dedicated to just crypto investing. Uh and then we have our lab side which is innovating and developing and uh trying to find ways to bridge the trady world into uh the crypto rails. Uh but before that you know 15-year career on Wall Street. I was an investment banker. I was a high yield distress trader. I was a portfolio manager for debt and

equities. So, pretty much everything I bring to the table in crypto is shaped from uh that Wall Street experience which sometimes makes me feel like I'm on an island a little bit. Uh given that I do care about fundamentals and I do care about revenues and cash flows. Um but uh you know I think ultimately maybe later than I would have expected, I feel like uh a lot of the crypto world is starting to realize that ultimately that's what matters as well. really the the purpose of this discussion we reached out to you because we saw one of your tweets talk about Coinbase and really just at a point where look it's getting it's only becoming more competitive and I think you had a really good post which we'll link in in a minute before we go to Coinbase which I do want to cover. Um I think like when

when prices go down and we are in sort of a weird bare market um people tend to focus more on fundamentals and it comes back into the discussion. Um, what do you think about just in your evolution in crypto like how real they are? How do you think about like fundamentally looking at crypto assets? And I and I appreciate there's many different flavors of crypto assets, but for you, what do fundamentals actually mean in crypto? Yeah. I mean, it starts with everything has to have value for it to be valuable. I mean, it sounds simple, but that is the way I think about it, right? So, how do you define value?

There's only three forms of value. One is financial value, meaning actual cash flows and revenues. And you know, it's no secret that if you gave 10 equity analysts the exact same inputs, they'd basically give you the exact same output because everybody is now in the equity and debt world uses the exact same uh valuation techniques. But that wasn't always the case. You know, 150 years ago, people still traded stocks without really understanding fundamentals. It didn't mean they didn't exist. It just meant people didn't understand them. Um and obviously post Graham and Dodd, post Warren Buffett, that's become a lot more uh homogeneous in terms of how people value financial revenues and cash flows.

But financial value is is is you know the first form of value. The second is utility value, right? Meaning like is it useful? Can it be used for something? And that can have a lot of different meaning, right? Utility like aluminum for example is very useful. It's not very financially valuable, but it's very useful. Um, you know, most layer 1 protocol tokens are not valuable from a financial standpoint, but they're useful. Uh, you use them for, uh, you know, gas or collateral, um, or or or staking or other services. Um, you know, in the same way that loyalty rewards cards are are a form of utility, right?

The ability to spend your miles or spend your Starbucks points. So, you've got financial value, which is cash flows. You've got utility value, which is, you know, some form of usefulness. And then you have social value. And social value is real. Um, it's much harder to define, but you can't dismiss it. And I'm not talking about like the full end of the spectrum social value where you're talking about just pure meme stocks and memecoins, but you know, there's a cool factor when it comes to investing in certain things, right? Tesla has a social component to investing in it. Nvidia has a social component. Clearly, Salana and Ethereum have a cult-like social component to it. So, you know, ideally when you're looking at value, you're you're trying to find things that have one or more if not all three of

those value drivers. Um, you know, layer one layer 1 smart contracts are a good example or or a Binance, you know, Binancecoin is a good example of something that has all three, right? You know, Binance Binance takes profits of its business and pours it into, you know, buybacks and burns. That's your financial value. Um, clearly the BNB token has usefulness because of the Binance Smart Chain as well as being able to use BNB for, you know, reduced trading fees and collateral when you're trading futures and options. Uh, and then obviously there's a big social component. People like Binance. People like feeling like they're a part of that, you know, community. So, um, they're harder to find the ones that have all three, but they exist.

You could argue in the classical like intelligent investor framework um that if you don't have fin like if you do have social value, it should eventually translate into financial value. Like you should be if if you're a good manager, you should be able to capture like Binance is the dominant exchange. It has a lot of social cache. It's made money for people that have hold the B&B token. They've made the B&B token valuable in many ways because you could use that to participate in their own launchpads and what have you. But I I guess it's a it's a good I I sort of like would question like the the durability of an asset or a company can only last so long if if there's real social value, it should translate into eventually financial value. And that's sort of a some of these L1 tokens might be stuck in a

between, you know, in in a weird in between because yeah, they produce a lot of social value, but financially it's hard to justify some of these valuations, I would say. Well, well, exactly. And I don't think, you know, when I said you have to have at least one of those three, I would say if you just have financial value or you just have utility value, you probably still have some value. If you only have social value, as you said, that's not enough unless it ultimately leads to financial value. But like, you know, Ripple's a good example, right? XRP is obviously an insanely overvalued asset atund some billion market cap or whatever it is now, right? Um 131 billion as of right now. But that doesn't, you know, because there is no financial value. There is no

utility value. It's 100% just social value. But you can't dismiss what you just said, which is that social value of being one of the oldest cryptocurrencies and having this massive following could one day lead to something that does have financial value. And you know, I I always said when people say like, you know, is Ripple worthless? I say it's not worthless. I can't define what it's worth, but it's not worthless because it is it's basically just an really really really expensive call option on what it could be in the future based on the fact that it has cornered that social value, right? And I think that's where I mean even even GameStop is a good example of that, right? I mean GameStop has been purely social value the stock for three or four years, but ultimately because they have created such high social value

now they can in theory do other things. Right? now they're issuing debt, you know, now they're issuing debt because of that social value to go buy Bitcoin, which might create some real financial value and things like that. So, um, you know, ultimately I don't invest in things that only have social value because I can't figure out what that's worth, but you can't dismiss it and say that it doesn't have value, right? Yeah, absolutely. We we're just uh in one of last segments, I was just thinking a lot about the social value. You just mentioned Ripple has value because you know it's been around for a while and and they've just it is synonymous with how institutions like institutions are coming and DeFi becoming the rails of finance. I would argue Ripple is just Brad and team have just done a phenomenal job of like making Ripple

synonymous with the crypto the prom the promise that crypto is going to transform finance. It's not your local DeFi maker project that has got catch the bid. It's Ripple. Yeah. I mean I mean in simpler terms it's just fake it till you make it. I mean that's effectively what it is, right? I mean you fake it until you make it and eventually if you fake it long enough and people believe you then you have a war chest of cash and resources to actually build something real and and you know this is not unique to investing. I mean you know a lot of companies are like that. A lot of companies can raise a ton of money early on. They have no revenues and no cash flows for a long time but they do a really good job of building customers or building network effect and then

eventually build something real. I think the the the the disconnect between crypto investors and a lot of other people is that anybody who looks at something in the traditional world that only has social value, they know the endgame still has to eventually be revenues and cash flows. Whereas I think that was lost on a lot of crypto people over the last few years. They're like, "No, no, no, you don't need revenues and cash flows or, you know, the SEC is telling you not to have revenues and cash flows because it makes you a security." And it's like all this nonsense that people started to buy into. It's like you can make up whatever things you want, but at the end of the day, you're just wrong. like it eventually has to have financial value or it has no value. Like you have to be gunning. Unis swap's a good example of

that as well. Like just because unis swap today doesn't give you any of those revenues and cash flows doesn't mean that you can't look to a future where those revenues and cash flows will one day be given back to token. Now now we don't own the unit we don't own the unis swap token. We think it's kind of criminal what they've been doing with regard to hoarding cash for the foundation and not using any of it for token holders. But the point is like if you were analyzing unis swap token it's no different than if you were analyzing you know Facebook pre-revenue right you know just because they don't do it yet doesn't mean they can't do it in the future or said differently I mean in this case unis swap does produce cash flow just sitting in a contract that hasn't turned on the fees it would be

sometimes companies hoard cash like Berkshire Hathaway would be an example just because they're not issuing a dividend to shareholders you're just ultimately believing that Buffett and team are going to be really good stewards of that capital. A and um of course you can there are some nuances because unis swap has like two different entities right there's a there's an equity entity and then there's a token entity which I think you've talked about. Hey everyone earlier in today's episode I mentioned Petra a top non-custodial wallet developed by Aptos Labs. They just launched earn a new feature to access DeFi with just one click. Earn lets non- US users deposit USDT directly into Aries Markets lending pools to gain interest and rewards and manage it all directly from the Petra

wallet. Petraearn was designed to make DeFi more accessible for everyone. You can manage your balance, claim rewards, and deposit directly from the app. This is of course not financial advice. Participating in DeFi carries risks. To learn more, visit petra.app/earn app/earn or by hitting the link in the description of today's episode. I wanted to take a moment to tell you about today's sponsor, Zenrock, the permissionless decentralized custody network backed by one roundt partners 10T, Maven 11, and Spartan. Now available on Jupiter, Rock is the native token for transactions within the Zenrock ecosystem and secures Zenrock's decentralized custody network. The first application launching on Zenrock is

ZenBTC yieldbearing Bitcoin on Salana. ZenBTC will be live in April 2025. To find out more, you can follow Zenrock on X or click the link in the show notes. I do want to bring us back to what uh you know Coinbase because you mentioned something which is there seem to be a lot there first mover advantages often produce a lot of value. You know, Coinbase for a long time and still is the dominant synonymous when people in the US at least want to buy crypto. Coinbase is top of mind. Has been for a while. Then you can think in second there is is Kraken. But they've had some regulatory modes and they've had some some you know um advantages around that.

Um of course they have great contract on the USDC, right? They they negotiated that one. Well, but you had a really interesting tweet which I'm going to reference now um that I'd like to just make it center. I think it fits so much into the discussion of what are fundamentals and how you think about that. So you tweeted um this uh April 10th you said honestly don't know how coin survives. Hood and bulge brackets will win trading business. Custody has no moat. Stablecoin interest income is going to zero presumably because rates go down.

Um, their customers hate them. Look at the comments. Acquisitions have been flops. Management makes baffling decisions buying back 0% debt. Not to mention they um, you know, constantly support the VC community while putting zero efforts into supporting secondary trading. Um, and um, you know, of course, they they've listed some assets but not others. and uh their Coinbase Ventures uh team like and the assets in that book get listed and they haven't listed Hyperlquid for instance. So these are kind of kind of the things that you tweeted. So I'd like to just go one by one or just overall walk me through your thesis for coin. Talk about what made you think about this and tweet it. Sure.

Um and just be clear, I mean we have no position in coin. We're not we're not shorting it. It's not like I I think it's going to zero tomorrow. Um, you know, we we've been customers of Coinbase for, you know, since inception at Arca. We've we've, you know, been fortunate enough that across multiple different divisions of our business, you know, we've touched almost every business line that Coinbase has. Um, and it's it's not a great experience as a customer. Um, but that's not a reason to think that the stock won't go higher, right? Just because we um, you know, don't particularly like the services doesn't mean others won't like it. But but I think, you know, going down the list of what you just read off, I I think it's a really just hard business to wrap your head around. So So let's let's go back to when Wall Street first

started covering the Coinbase stock, right? When they did the direct listing. You can start right there. The direct listing was just a baffling decision in the first place. Like why not hire an investment bank and actually build a book and actually do a road show and actually do the things that actually make people care about your stock and understand your company? the direct listing was like it almost seemed like it was like a random decision at like 2 am at a bar. They're like, "Hey, let's just, you know, we're Coinbase, we're crypto, we're we're we're anti-Wall Street, therefore, let's do it without Wall Street." It's like that's not how it works. Like, if you're going to issue a stock in a new industry, I mean, look at the coverage you have of Wall Street analysts who cover it. So, sometimes it's their tech coverage, sometimes it's

a brand new digital assets unit, sometimes it's their banking unit. like you have multiple different types of analysts across these Wall Street banks covering the Coinbase stock because nobody even knows what it is. Is it a is it a fintech company? Is it a bank? Is it a, you know, some new entity that they don't have coverage of yet? Um, you have to educate. And first of all, they probably should have just done a fully, you know, underwritten uh offering instead of a direct listing. Or if you want to just buy into the crypto ethos, go completely the other way and tokenize your stock and say if you want to get ex, you know, exposure to the hottest and most diversified company in crypto, come, you know, open up a wallet and buy a tokenized version of the stock uh through our Coinbase wallet or something

like that, right? I mean, there's other avenues they could have done. So, even just even just the beginning of Coinbase's journey as a publicly traded company was a baffling decision in my opinion. But then you just look at some of the things that they've done and the reason Wall Street kind of hated the Coinbase stock at first was because 99% of their revenue was being driven by um you know retail trading at a super high fees, right? I mean if you go on the retail Coinbase app, you're paying like 3% per transaction, which is insane. And everyone everyone in Wall Street knows high margin businesses eventually go to zero, right? Isn't that what Jeff Bezos said? Like your margin is my opportunity because somebody's going to eat into that high margin business. So the the the initial Wall Street analysts and including you know I'm I'm using the

word Wall Street loosely but traditional stock analysts kind of hated the the Coinbase business because it was so one-dimensional and to Coinbase's credit they said okay we have to fix this. So that's why they started looking at other business lines right that's why they started looking at institutional and prime and custody and uh making acquisitions and um ultimately base and and the circle stablecoin stuff. To their credit, they recognize that and they tried to diversify. But when you actually look at what they have, it's just sort of a series of businesses that don't work together in any way, shape, or form. And they all have massive competition and no moat in my opinion.

So, for instance, like, you know, if you use Coinbase custody and you also use the Coinbase exchange or Coinbase Prime to trade, they don't talk to each other. It's not like it's not like a true prime brokerage experience where you know if I have a prime broker and I'm like hey I want to go buy this stock I just go ahead and buy it and then my prime broker later finds the cash and settles the trade. If you have assets at Coinbase custody and you want to go sell it on the exchange you can't even do it. You have to wait like 48 hours for them to locate it at Coinbase custody, move it over to the exchange. The exchange and the custody don't even talk to each other and it's like it's just a horrible nonseamless uh process. So, and and that's that's just one example of a lot

of different business units that they have that just don't work together. They don't talk to each other. So, like their effort to diversify the company made logical sense, but the way they went about doing it just really didn't work. Um, and then, you know, you go further into what their business lines and the stuff you read, it's like, okay, well, on the retail trading side, Robin Hood does everything Coinbase does and probably does it better because it's a better app and it's a, you know, you could trade stocks, but they have way more distribution. So they have the funnel for stocks that they can then eventually port over to crypto. Yeah. Exactly. I mean, people want a seamless experience. Like I don't want to be like, "All right, let me go to Meil Lynch and trade my Tesla stock and then let me go log into Coinbase and trade my

Bitcoin." It's like, "No, I'm going to do it in one place. I'm going to go on to Robin Hood. I'm going to trade my Bitcoin. I'm going to trade my Tesla all in the same place." So, I don't understand how they're going to compete with with retail when Robin Hood is basically going after their business. We already know that the big custodians, State Street and BNY are going to start getting into custody, not to mention banks, you know, after some of these uh uh rules that are coming out of Washington. So, I don't know how they compete on custody alone. Like, that seems like a, you know, basically a zero zero margin business over time because there's going to be such high competition and such low rates. Um, the stable coin stuff is just baffling as well. For those who don't know, like Circle's about to go public. So, if you

read the S1 on Circle, um they basically have a relationship where uh uh you know, Circle, who runs the USDC stable coin, they're paying BlackRock to effectively manage the treasuries that they own and then they're paying Coinbase for the distribution of it. Um but basically, all of Wall Street is built on float. You know, who can actually earn the interest? There's no way that stable coins are going to exist forever where Coinbase and Circle take all the money and the actual owner of the stable coin gets nothing. So either rates are going to come down and that interest income goes away because rates are coming down or there's going to be competition out there where they actually pay out the yield to the person who owns the stable coin, not just the um the issuer of it, right? I mean,

Tether makes $13 billion a year, Circle makes a couple billion dollars a year, and Coinbase gets half of that. like that's just I don't think that's going to survive. I think eventually that interest is going to have to be passed through to customers. Um and then again you go back to like their acquisitions and some of their management on that point. Do you think so? I used to think that but like if you look at the amount of cash that was sitting in JP Morgan checking accounts that was not clipping interest JP Morgan like you know the if I've appreciate anything in finance is that users are not very well educated and they don't sweep to go to a money market account and clip treasuries I mean staggering you would think so and and I I I agree very much what you're saying perhaps where I might disagree a

bit is the the moat and the stickiness of the users that they already have on the institutional side. I do think it's like going to be very very competitive like as you're basically getting chewed up by a bunch of like the large guys, Black Rocks of the world, Rob and and and that's a tough place to be in retail maybe on the existing base. I would say that it probably is stickier. The net new probably comes and goes to Robin Hood and some of the other places that are going to support crypto in short order, maybe even international exchanges that are now entering the US, which is like, but I do think that they're they're ability to hold on to the user base that they have today is probably, you know, decently strong.

Yeah, potentially. But I mean, but again, you're not valuing the it's the asset is not valued on the current customers. It's expected growth. Well, so think about but but let's think about that, right? like I'm I'm I think Coinbase last reported something like 60 million customers. Um presumably most of them are US. Um most of them probably have an overlap in terms of also having a brokerage account somewhere, right? So either that's a Robin Hood account or a Merryill or Schwab or E Trade, whatever, right? So ultimately people who trade crypto don't just trade crypto. They're traders. They want to trade other things. So, whoever wins that one-stop shop and allows you to do everything in one place is

ultimately going to win that user flow, right? Like if if right now you're forced to like let's say you have a uh let's say let's say you have a Schwab account, you have no choice right now. You have to trade your stocks through Schwab and you have to trade your crypto through Coinbase. But ultimately Schwab's going to have both and Coinbase is trying to have both, right? Coinbase is already applying for like a bank charter in order to do tokenized assets. Um, so if whoever wins that race of offering both is ultimately going to win that one customer's business. There's no reason to have both a Coinbase and a Schwab account if you can do everything in both places, right? So I'm not suggesting that Coinbase loses all of those customers, nor am I suggesting that Schwab wins them all, but ultimately it's going to become more

competitive. So the question is, do you think it's more likely that a cryptonative broker, and let's be honest, like Coinbase, just because they call themselves an exchange, they're not an exchange, they're a broker, is a is a uh, you know, an exchange would mean, you know, everything is listed. There's no listing process like the way Coinbase arbitrarily just lists a bunch of garbage that their VC friends own. Like, you know, they're they're a broker. They're not a, you know, the fact that they don't list BNB or other competitors. I mean, that's that's what a broker does. That's not what an exchange does. Um, so they're a broker just like Robin Hood, just like Schwab, just like everyone else. So, are you more likely to trust a 10-year-old cryptonative broker that is trying to trade stocks and bonds for the first

time, or are you going to trust the hundred-year relationship you already have with some brokerage account that's all of a sudden adding crypto? So, I don't know the answer, but I just think logically it's hard to believe that Coinbase is all of a sudden going to win the equity race rather than some of the equity guys winning the the crypto race. Um, which which then which then leads to, well, what other things is Coinbase doing that will create a stickier customer base. And I think again to their credit, they're trying that's why they're trying to do things like, you know, create this this onchain world through base uh and trying to um, you know, figure out custody and other things. But I think it's just again if you just go through each one of their business lines, it's really hard to see

any of them growing at a meaningful pace with C, you know, ex with with the exception of Bass, right? Bass is the one thing they've done that I think actually can grow. Um, if they do it correctly. So if they do it correctly. Yeah. And again, I'm not I'm not I'm not rooting against Coinbase. Like I have a lot of friends there. I like them. I want I just it's a very hard business to look at and and objectively when you do a sum of the parts just say that this is going to succeed in the long run. And by the way, I don't I don't think they're going away. I just don't think the stock is that interesting. Right. And and to put finer figures because of course you referenced Robin Hood and I think it's always an interesting comparison for what it's worth. I own both and I think

they're uh the exercise that you just ran through. Let's let's overlay that with a couple stats. So coin is roughly a 50 billion EV enterprise value business. They're trading at 15 times EV to Ebida. The P ratio is 20 times which has come down dramatically as they've achieved more you know profitability. It's all very cyclical of course like you know it's it's all very tied to like um you know when crypto prices go up there's trading fees. When they don't they dry up and it really is very reflexive asset. It cranked out 7.2 2 billion in revenue last 12 months.

Ebida's 3 billion. So again, 15 times EB to Ebida, 20 times P ratio, $50 billion asset. Robin Hood, 44 billion of EV. Um it is trading at 35 times EV to Ebida. P ratios at 27 times. Cranks out three billion in revenue, 1.5 1.1 billion in IBIDA. Um a lot of the discussion when you know investing is not so much can you objectively look at an asset and you can go through all of the fundamental analysis at some point price really dictates the return and so the question is how much of it's already been priced in right and what are you what are you seeing that other people are not and I guess that's something that I just want

to touch on for a minute here which is I hear you um on a lot of these components um you know a price reflects what people believe is happening now and in future. So the question is is is coin properly valued at 50 billion um 15 times EVDA 20 times P ratio. Well, so one of the things you didn't mention there well actually there's two things I would add to what you just said there. So the first is that revenues for Coinbase and IBIDA for Coinbase in 2021 it was basically like wasn't it like 10 or 11 billion of revenue and close to eight and a half billion of IBIDA in 21. So all of what you just said, right, volume's coming back, adding all these different businesses and services, the

best street estimate right now for IBIDA, for Coinbase is like three billion. So in the best case scenario, and I'm talking 2026, not even 2025. So the best case scenario for Coinbase is IBIDA. That's a basically a third of what they did in 2021. So that's a problem right there, right? if you're just looking at pure growth that the best case scenario after adding all of these different businesses and building a war chest of cash is IBIDA that's a third of what it was during the peak and that just shows you the competition right they had no competition in 2021 none and now they have all of this competition not just from Robin Hood um and Kraken in the US but obviously you know look at look at DeFi so that'll be point number two um Hyperlid for example

is now doing almost 20% of the volume that like the Asian exchanges are doing on the pers. Um you have unis swap and others on the spot side that are cutting into um the revenues of your Robin Hoods and your coinbased like you know if you shout out to the block if you go to the if you go to the blocks dashboard they do a great job with their uh with their data and just look at um the defi section you can see just a graph that's just up and to the right of the share of DEX to sex volume meaning the share of decentralized exchange volume relative to centralized exchange volume. If you look at it from the spot trading side, this was less than 1% in 2020. Now it's 15 to 20% on a given day. So you have a 15x move into centralized volumes

relative to centralized. Same thing is true if you go to the um derivative side. You know what was two years ago less than 1% of overall centralized volume is now 10% mostly because of the success of hyperlquid. So, and then if you look at the valuations there, you know, you mentioned you mentioned EV to Evita of 15 times for Coinbase and like 25 times for Robin Hood. If you do that same analysis on some of the dexes, Radium is trading at like three times earnings. Hyperl is trading at like eight times earning and both of those have way more growth than Coinbase or Robin Hood. And I'm not suggesting that you should have the same sort of a multiple on a token that you do on um a stock because there is no terminal value. there's no M&A and things like that, but I would much rather own the

growth of Hyperlid or Radium or, you know, even a even like a Jupiter or an Aerodrome that trades at, you know, somewhere between three and 10 times versus the slow kind of, you know, not to mention the amount of flows that you need to believe for this asset to go up is is far less. I mean, one is, you know, hyperl what uh 8 billionish FTV more. Yeah. Yeah. even uh it's it's well much higher but I think the FTV that's that's a whole another argument that I think coin gecko and coin market cap are just reporting FTVs and market caps wrong like 18 billion FTV 6 million you know like current market cap yeah but you know again hyperlid most of that when you talk about the FTV most of that will never

come out I mean that's supply that Hyperlid may or may not ever issue the actual market cap that we look at is closer to 11 billion but either way the point is like that's a billion dollar run rate revenue business that is using 90% of the revenues to buy back tokens. Um, you know, and it's growing at a,000% year-over-year. Like, that's to me that's just a more attractive asset, the hype token, than either Robin Hood or Coinbase. And I would again I would and I think Robin Hood is growing faster than Coinbase. Yeah. So, you know, again, when I think about this stuff, it's just it's not that it's not just on a standalone basis that it's not a cheap stock. It's just again when I look at their businesses, I just don't see anything growing except for Bass. And base could be really interesting, right?

Like if I were Coinbase, what I would do is I would say, "We're going to issue a base token, and we're going to airdrop that to all of our coin shareholders um as a dividend, like a special one-time dividend, but you're going to have to set up a Coinbase wallet in order to claim that dividend." Um, you know, I would imagine if the base token was launched, it probably would be in the 5 to10 billion range. So, you said the Coinbase stock is what, 50 billion market cap right now. So, you're talking about a 15 to 20% special onetime dividend if they launch a base token. So, I think that's an interesting thing to do, but again, that's like a one-time thing. It doesn't really solve the long-term growth.

Hey everyone. Earlier in today's episode, I mentioned Petra, a top non-custodial wallet developed by Aptos Labs. They just launched earn, a new feature to access DeFi with just one click. Earn lets non- US users deposit USDT directly into Aries Markets lending pools to gain interest and rewards and manage it all directly from the Petra wallet. Petraearn was designed to make DeFi more accessible for everyone. You can manage your balance, claim rewards, and deposit directly from the app. This is of course not financial advice.

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ZenBTC will be live in April 2025. To find out more, you can follow Zenrock on X or click the link in the show notes. Is there anything that would make you change flip bull on Coinbase? I mean, other than this, like it doesn't seem like base on its own. Maybe in the near term, like if I'm investing like, you know, willing to hold this thing for like a couple years. So, so they have 10 billion of cash, right? I mean, that's a that's a war chest of cash that they can do with, you know, in theory they can be really acquisitive and do some great things here. Like, I think there's rumors that they're going to buy Darabit. I think that would be really interesting if they could pull that off. Um, you know, you look at their you look at their

acquisition history and it's been really bad, right? Right. I mean, almost every acquisition they've made has been not only a total flop from a financial standpoint, but they basically have taken good businesses that people used and then they bury them inside of Coinbase Prime and then nobody uses them ever again. Like Skew is a good example. Skew is a great product. Um it was a great product for understanding uh options and and futures volatility as well as you know onchain data and Coinbase bought them. Never heard from them again. It's buried inside their Coinbase Prime offering. Bison Trail is another one, right? an acquisition that they made. I don't think it's produced any real revenue for them. Um, you know, not to mention One River Asset Management. I don't even know if they still exist. You know, this is like the third or fourth attempt that Coinbase

has had on the asset management side that hasn't done much. Um, you know, and then you look at again some of the other decisions they've made with the cash, like buying back zero coupon debt, which made no sense to me. I mean, it's a creative it's a it's a creative to the EPS, I guess, but it's not a, you know, it's not a great use of your cash. I'd rather them go out there and, you know, buy a bunch of liquid assets and buy some market makers and support the prices because all their customers hate them because they keep listing these garbage assets that go straight down because they have no infrastructure for secondary trading. So again, like I think what they could do is you're asking me like where can they grow? I think if they make some good acquisitions with that cash, it could be

really interesting. I think if they um you know potentially they could win this RWA race, you know, maybe Coinbase is a place that you go in the future where you know you own all of your assets through a Coinbase wallet, you own your tokenized Tesla and Nvidia stock. You own your tokenized gold, you own your, you know, your Bitcoin, your ETH, your soul, whatever. You know, one day I think there'll be better assets out there as well. I think there'll be like Harvard and NYU coin. I think you'll see Disney and Netflix coin. And I think you'll see Harvard definitely needs a coin to get out of but that's I mean that's the logical evolution like I so it's funny what when Trump when Trump issued the token back in January and it was obviously very extractive and people were kind of upset about you know another kind of meme coin

that does nothing. I I always I looked on the optimistic side and it's funny like I'm I'm being very pessimistic at Coinbase when I'm actually a naturally optimistic person like I actually you know I really believe in crypto. I really believe in things that can happen. I remember going back and forth with like Mark Cuban on Twitter saying like the Trump token is not the end all. That's just an example of what can happen now that people aren't scared of regulators anymore. Like you will see a Harvard coin one day and that Harvard coin will be you know I have a baby and I buy Harvard coin and in 18 years I can redeem it for tuition or I can trade it for Yale token or or you know Colombia token. Um, and if I'm a booster or a donor, instead of just blindly throwing

money at Harvard, now I'm going to get this token in return. And that token can, you know, be utilized for things like, you know, I don't know, discounts at at at sporting events or or, you know, discounted seats at fundraising, whatever, right? I mean, there's all kinds of things you can do. I think New York City will issue a token. Um, not the way they did it in the past, like with Miami coin and NYC coin that was totally worthless, but they could do a new version where, you know, for anyone who's familiar with revenue bonds or general obligation bonds, right? the way municipalities fund their operations. You can get rid of those bonds altogether and issue New York City coin. And that New York City coin can be not only sold to residents, but it can be sold to speculators. Like if you wanted

to speculate on New York City, but you live in Madrid, what are you going to do? You're going to buy real estate. That's the only way to speculate on the growth of New York right now. Parcel. Uh, right. Yeah. Now, maybe you can buy New York City coin. And that coin, if New York City has a surplus, maybe they dividend revenues back to you. Or you can use that coin for discounts on the subway and the buses. Or you can use it for fastpass at LaGuardia or JFK. Or you can use it to, you know, be in a lottery to throw a wedding or a birthday party at Central Park, whatever. I mean, there's all kinds of things municipalities could do with a token. I also think like companies are going to issue tokens. think Disney's going to have a token that, you know, it'll be

like 10% of topline revenues go to Disney token holders because it's a way of kind of bootstrapping customer growth, but you can also use that to pay your Disney Plus subscription and use it to get Fastpass at the parks and, you know, maybe you get exclusive content or something like there's all kinds, you know, ESPN insider, whatever. Like there's all kinds of different things you could do. So, if these types of tokens get issued one day, which I think they will, maybe Coinbase is the leader for that, right? Maybe maybe you do go to Coinbase one day and it's like I'm trading my I'm trading Tesla stock. I'm trading New York City token. Let's get into that. Right. I I think I want to get your overall take on tokenization of stocks is something that I think is inevitable. It probably happens sooner rather than later. U based on what I've

heard. You know, folks like Robin Hood, Black Rockck, they're all chomping at the bit. I mean I I think that there is a they will likely come this year, maybe next year, but it's it's a who wins in that game and who stands to lose the most because I I've always felt that distribution is what matters the most. if you're doing an IPO, if you're in the world of finance, like it is like the entrenched players and and robo advisors kind of learned this the hard way, which is like it is really hard to acquire customers because the stickiness of a user is is there. You mentioned it with Coinbase, right? If tokenized stocks are going to come, I guess the the concrete question is for every incremental dollar that gets invested in a tokenized stock,

is it going to go come from Coinbase or Robin Hood, Black Rockck, you know, uh, you know, Interactive Brokers or whatever? Well, I think I think the the real answer to that is DeFi holds the cards because there's no real reason to tokenize a stock unless you can then make that tokenized stock um, productive, right? It's not like people don't have access to stocks right now. Like, you know, maybe there's the emerging market cases where, you know, you get rid of ADRs and things like that and people want to invest in US stocks more easily and it's easier to do it through a token than than through some, you know, brokerage type relationship with a with a with a non- US brokerage.

But ultimately, if you really think tokenized stocks are going to take off, it's for two reasons. It's one because you're going to start turning investment vehicles into payment vehicles. Meaning the workflow right now of saying, "Hey, I'm going to go make a $25,000 payment to buy a car, but to do that, I have to go sell my Tesla stock, wait T+1 from my brokerage account to clear the cash, send the cash from my brokerage to my bank, and then wire money from my bank." That's a much worse workflow than saying, "Hey, I'm going to go buy a $25,000 car, and I'm just going to send you Tesla stock in kind, right? And you can prorate my Tesla stock." So, the one reason tokenized stocks become interesting is because of that, right?

you're turning an investment what was once only an investment vehicle into a hybrid investment and payment vehicle. So if that actually happens and you start seeing a world where you can spend your stocks and you can spend your bonds then tokenization makes all the sense in the world. The other one is that again most of the time you can't really use your stocks very productively right now. So for example I have a life insurance policy um a whole life insurance policy where I can basically loop it and leverage it. meaning I can take my whole life insurance and instead of making my whatever $10,000 annual premiums to the whole life because whole life is a terrible product by itself. It's only interesting if you can actually do some interesting things with it. But if you take a whole life policy and let's say normally you have a $10,000 a year

premium that you put into it. Well, what if I say, "Okay, well, instead I'm going to go five or 10x lever on this whole life policy and, you know, 10x the size of it and I'm going to take out a loan from a bank and I'm going to have the bank pay my premium and I'm just going to pay interest to the on to the bank for the loan, but that interest rate is super low because I'm pledging all kinds of collateral, including my life insurance, to the bank in order to get that loan, right? So, you're basically just, you know, looping it." Well, that process takes a year between all the paperwork and all the things you have to do to do this. Whereas like if you have tokenized stocks, you can just be like here you can see my wallet right here. I

can pledge that directly to you and all of a sudden you have the collateral you need in order to do this. So yeah, to me that's when it gets interesting is that you know and by the way the rate that you probably get is probably more attractive and it's real time. It's you know the you know the real timeness of that collateral is powerful um and very composable right? So, think about how many, you know, and this is where I think Coinbase and others have really screwed up is that, you know, we continue to pitch crypto as if it's some sort of like commodity or currency product because everyone fell in love with Bitcoin. But like people forget that 99% of the world's assets are stocks, bonds, and real estate, right?

You know, traditional kind of cash flow assets that are more fundamental properties. That's what people understand and know. And yet, here's this crypto world trying to pretend that everything's a currency or something else that, you know, only a bunch of CTAs and macro funds care about and most people don't care about. Ultimately, if we can get those assets that people do care about, your stocks and your bonds and your real estate onchain, it's not just to say that they're onchain. It's because you want to use those, right? I want to use my stock as collateral to pull out cash or I want to use my stock to make a payment or I want to, you know, ultimately I see a world one day where people don't even own cash, right?

Like why do we own cash? As you said, you don't earn any interest on your cash. There's no reason to own it other than the fact that you have to make payments with it. So, if we get to a world one day where I go to Coinbase and I have, you know, let's say I have my net worth is, you know, $10,000 and that's $2,000 worth of Bitcoin and $2,000 worth of Tesla stock and $1,000 worth of a money market and, you know, $5,000 of, you know, an auto deed or deed to my car or something. Like if all of that exists on chain and it's tokenized then you can start doing really creative things of that like you know like I said like using DeFi uh applications for collateral or you know making payments directly from from this entity where just prata takes it from

all your assets. So there is a world where Coinbase could win that where they say like from a technical standpoint what they're doing is better than anyone else and they can do custody and onchain better and if you actually believe that the world is heading onchain that they're going to win that race. The flip side of that is by the time we actually get there, you know, Schwab and BNY and Stage Street and JP Morgan and Goldman and and Black Rockck are all going to offer the exact same thing and they have much bigger distribution. I wanted to take a moment to tell you about Focal by Falcon X, the AI powered insights engine built for institutional crypto. With Focal, you can create charts and generate answers to questions in seconds. Used by over 80 funds with more than $10 billion in assets under

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intuitive scroll-based video experience. Trade the latest and trending tokens at your fingertips, all while discovering captivating web 3 stories from the top industry leaders and influencers. With token.com, you can earn points for tasks on the app, including on every trade you make. Just scroll to watch and tap to invest. Thanks to token.com for making today's episode possible. What about the reverse? like someone like um a DeFi protocol verticalizing up. I mean because like from a you're talking about like this use case of like the composability, the tokenization and the what a allows you to do with flash

loans like hyper like pers are really powerful instruments. They're printing cash you know you're sitting there with treasury value of couple billion and then you're spitting out cash. Why not go buy a business that allows you to enter the real world? Like from a technical because because what you just said is like I just heard you say Coinbase has not been a very good acquirer. They're all the different products and don't really stitch well together and so the tracker was kind of poor. So like would you I guess I would probably bet more on a DeFi pro protocol verticalizing up. Yeah. I mean liquid or

if if they really wanted to, right? Like in this tokenized stocks idea or partner like you know like some of these Athenas of the world andos of the world and partnered with a a player in the traditional world that has a lot of distribution and you just strike an agreement in there that you know yeah I mean I think I think that's the most logical answer that's how that's how our portfolio is positioned. We we actually believe exactly what you just said that it's more likely that these DeFi applications that have already figured out self-custody and already figured out smart contracts and the ability to use collateral are going to just vertically integrate into all these other areas.

And that the difficulty there is that we're still in sort of this fragmentation world where it's like well which chain you know is it going to be on Salana or is it going to be on ETH or is it going to be on you know Hyperliquid. So I think that's the challenge. Um, you know, we have a very simple thesis right now. Um, in terms of like how we are positioned and and the thesis is, you know, very similar to what you just said is that ultimately we are moving towards an onchain world and we already know that the technology works really, really well, but the technology only works with assets nobody cares about right now, right? Nobody cares about, you know, a bunch of meme coins and all these random, you know, L2s and VC coins that nobody cares about. Once the world's assets that

people care about, meaning stocks, bonds, and real estate are actually on blockchain, there's naturally going to be a few winners, right? As these barriers break down between cryptonative and non-crypto native. So, as these barriers between Tradfy and crypto break down, ultimately you're going to have the beneficiaries are going to be whichever layer one blockchain wins that business. And like even though Ethereum and Salana have a big lead right now, the reality is there's almost nothing of relevance on either of those chains, right? Like it's all a bunch of non speculative activity. Um, I mean Salana is a good example, right? Salana is like the the emperor that has no clothes. It was all, you know, the technology works and could be applied to a lot of different things, but it's currently almost exclusively being applied to meme coins. I don't think, and by the way, I

don't think that's a problem of Salana. I think this is a problem that we have as an industry. Like, we just can we can't we can't we we're not going to onboard users that are going to get, you know, buy a life insurance policy through an exchange. Like the the user that comes to an exchange is going to Vegas, digital Vegas. It doesn't close. And so we we we can't pretend that we're gonna catch a bid for more fundamental val core non-speculative stuff through an exchange. So like that that's why I think the can you leapfrog historically like the industry's been kind of constrained by that that funnel which is you need to go and kneel down to exchanges because they're the ones that have the they're the user aggregators, right? the 60 million Coinbase users that you mentioned, the users in in

Binance and Kraken, OKX, Vbit, but you know, I've been thinking more and more about, okay, well, if you're if you're a pro protocol like Athena or Hyper Liquid, like just why not circumvent that? Like go directly to a Black Rockck, go directly to your the person that is going to really facilitate that that bid for you. Um the the question I think you're right but again exchanges always want to probably be too value extractive. Yeah. But I think I think that's why it's difficult to like again even though our thesis is really simple that like again all these assets are going to come on chain and ultimately you're just going the winners are going to be whichever layer one protocol wins and whichever DeFi applications are built on that

layer one. The hard one is you just don't know who that winner is going to be, right? And do you end up just do you know like to me like what's the difference right now between Salana and you know Cardano and you know Sonic and Avalanche like they all technically do the same thing. They none of them have achieved any scale of any meaningful applications. So like if you tell me tomorrow that we wake up and the US government and Walmart and JP Morgan say from now on we're doing all of our transactions on Sonic, like you tell me Sonic doesn't immediately beat Ethereum and and and Salon. And by the way, we're not betting on this happening. I'm just saying like if you were going to make a bet on which layer 1 protocol is going to win, it's not because of anything that's currently happening on the chain.

It's because the biggest users and customers of the world ultimately choose your blockchain, right? Let's be honest. I mean you you cannot justify any valuation for the base layers on any discounted cash flow 10-year discounted cash flow. Everything is like 99.9% terminal value predicated on this idea that we're going to grow users and all this other stuff's going to come online. Mhm. Which you know you can believe certainly. I I am curious where you think value occurs. Like there's all these hypotheticals like uh you know fat protocol thesis and then user aggregation theory. Um how do you when you position your portfolio like you say okay the these are the protocols that we like uh you know reasonably valued like

I think you guys have a position in hyperlquid okay well like you know you just mentioned it's trading at eight times earnings and you know per so so the thesis for hyperlquid but like how do you think about like the durability of that type of company the um or asset and the value acral in the next like couple years because I think you guys are long-term investors, so to speak. You're not like day trading stuff. Uh somewhere in between. I mean, we're not day trading, but you know, long-term is a subjective word. When when when information changes or thesis change, we change with it. But, you know, I think the answer is, you know, let's dumb down what a layer one blockchain really is, right? Like if you think of it as imagine if you could just you find some random island in the

middle of nowhere that no one's ever found before, right? On day one, that land has some value, right? you found something that nobody else has. There's all this possibility and opportunity of what that land could do one day. There's no actual economic activity on it today, but there's some value to the fact that this is, you know, new raw land that can be developed into something, right? That's your kind of speculative value. That's your, you know, social value, whatever. Um, but then as you start to develop on this land, you start to have the applications come in, right? Your schools, your houses, your businesses, your tax revenue, etc., right? That's effectively what a blockchain is, right?

Like a layer 1 blockchain the day it's announced is just a a blank island with possibilities and then as apps are built on it, you ultimately build a real economy and that real economy builds transaction revenue which is effectively, you know, tax revenue to the government. So there can be more than one winner is what I'm getting at, right? Like I'm not suggesting we're going to have like a one winner take all blockchain. I think there probably will be multiple blockchains for different services like you know Bit Tensor may be the blockchain for AI and Salana might be the blockchain for DPIN and Ethereum might be the blockchain for DeFi or whatever and you know there might be interoperability and things like that as well but the um ultimately the value of these smart contract platforms these

layer 1 blockchains is just the value of the applications built on top of it and the revenues that they create right no different than the Apple app store right the Apple app store by itself self is worth very little, but it's worth a lot when all these apps are built inside of it. You have all this um uh uh movement back and forth and you have these transactions and and things like that. So, on that point, Jeff, um how do you think about the actual like Apple has a monopoly and and because they have the user they they sell the device, the user uses, and therefore they're able to extract really interesting terms on the app store, monopoly like terms. That's not the case in crypto, right?

It can be, but you think you can't. Yeah. Well, I think that's what I'm getting at is like, okay, let's use another. Sorry, I'm big on analogies, but like the internet didn't become the most important tool of the last 25 years because of the handful of internet native companies that were built on it, right? It wasn't because of like pets.com and Amazon and and and Priceeline. The internet became a reality because every company in the world started using the internet, right? Domino's Pizza became an internet company. JP Morgan became an internet company, Walmart became an internet company, you know, Harvard became an internet, like everybody started using the internet, right? So that's what I'm getting at is like each of the layer 1 blockchains that exist today while they have a couple of cute fancy interesting

things on them like, you know, maybe some of them have stable coins like Tron and maybe some of them have DIN like Salana and some of them have, you know, a few random gaming assets here and there like IMX. Like the world's assets that people care about are not on chain yet. And once that happens and the entire world starts going on chain, ultimately the layer 1 blockchains that are going to win are the ones that these big institutions use, right? So my point is like we just don't know who the winner is yet because 90 99% of the world's assets are not on chain yet. So once they are, again, if the US government and JP Morgan and Walmart came out tomorrow and said this is the chain we're using, that's the chain that's going to win because they have all the users.

So I I think I I I don't think we head to some monolithic world, but I do think it's going to be like a duopoly or a very small number of blockchains that ultimately succeed based on which blockchains ultimately get the most assets and the most users. beyond tokenized stocks um onchain activity like you know per um you know trading of assets cryptonative assets is there a particular use case that you really are excited about whether it be deep in gaming um NFTTS again uh again I think DeFi is the is just the no-brainer it's the natural backbone that puts all that together so whichever DeFi protocols can really become vertically integrated like

you said and can offer spot trading perp trading lend, borrow, maybe insurance, all kinds of banking type services. DeFi is an absolute natural beneficiary because the entire onchain economy is going to run through these DeFi rails. And then the other ones that are a little more ancillary that I think are really interesting like I think the intersection of AI and crypto makes all the sense in the world because there's no doubt at this point after the success of chat GBT and Grock and and DeepSeek and others that you're going to move beyond just the LLMs that answer questions and pretty soon you're going to have autonomous agents and those autonomous agents have to have some sort of spendable currency in order to be autonomous. Like you're not going to have an AI agent walk into a bank and get a bank account. They're not going to

walk into a brokerage to get a brokerage account. They don't Yeah. They don't have a tax ID. They don't have a social security number. So, the idea of using wallets and spending like you will see a world where every single person on Earth has an has either an a AI agent or multiple AI agents that are transacting for them and doing things for them and that's naturally going to be onchain. So, I think like you know I think stable coin growth is real. I think DeFi growth is real. I think AI agent growth is real and then you know there could be a couple other things here and there that that that um you know maybe we don't really have our sinking our hands into all that well like like I think you know gaming potentially could still be interesting even though it hasn't done

much in the last five years but um you know that that's that's where we're focused from an investment standpoint. Yeah. As we look to wrap the episode, Jeff, I mean, we I think we used coin as a good um case study to discuss fundamentals and how you think about overall where the industry is is headed. Anything else that we should touch on? Things that are you think about um you know, things that are exciting to you, which I think we covered to some extent, but yeah, anything else we should cover in the pod? Um yeah, I mean that's a that's a loaded question because we could probably talk for days. Um, you know, I actually, for anybody who cares, and this is not to promote myself, but I actually, um, recently pinned a tweet at

the top of my profile just talking about like, you know, these are the crypto hills that I'll die on. Uh, because there's just a lot of things. One sec. You can keep going. I'll pull it out. But yeah, I mean, over over, you know, almost 10 years doing this now, as well as, you know, 15 years in on Wall Street beforehand. Like, there's just certain kind of crypto hills that I'll die on now that I just think are are little changes that really make a big difference. Um, you know, things like I just think lockups on these VC deals are pointless. Like there's just no reason to have lockups when you have instant liquidity. Um, I do think this move towards value as you said, like to me it's not just because you had a bare market that makes people care about value. I think it's more that you know

value has always mattered and I think people are just now starting to realize it a little bit. So I think as more and more traders and investors start to pay attention to tokconomics, meaning like it's not enough to be a good company or project, it's you have to be a good company or project that actually knows how to feed value back into um you know, into your token price. Um you know, I think little things like that are really interesting. Uh like I said, I'm I'm a huge believer um in sort of this intersection between stable coins, AI, and DeFi. I mean, I think that's the holy grail. But I also think, you know, the most exciting thing for me is what we already touched on is like I just want to see better assets. I don't want to see nothing but meme coins and Trump

coins and uh you know uh uh uh random uh governance and utility coins. Like I want to see real companies and entities issuing tokens. Like I want to I want to walk around the corner in my neighborhood and see the local restaurant owner issue a token to their customers. um you know as a way of kind of quasi equity and you know I think that's kind of where it gets really interesting is that again so much of the world's assets are either not able to be owned by the majority of people for regulatory or workflow issues or they just like haven't even been thought about how to monetize them and you start monetizing stuff like that like I I the very first thing I ever wrote about crypto was in 2017 or 18 in fact I don't even think it's on the Arco website

because I think we I think I wrote it before the blog was before the website was even Um, but I just talked about how, you know, I've been a Starbucks shareholder for 20 years. I don't drink coffee. I don't have any relationship with Starbucks. The only time I ever use Starbucks is to steal their Wi-Fi or to go to the bathroom. So, I get I get nothing out of Starbucks. They get nothing out of me. It's a purely financial arms length transaction. Meanwhile, all the things that I do on a daily basis, like I spend 12 hours at some local baseball field because my kid has a triple header and I'm paying for money at their snack stand and I have no financial ownership or any direct uh uh benefit from what I'm spending all my time doing or my, you know, we go to a

local theater or we go to a local restaurant. So, it's like bridging this gap between what people actually do and what they own is a big part of why I think crypto is so interesting. Like I hate the fact that McDonald's shareholders and McDonald's customers are basically like a ven diagram that doesn't touch, right? The people who own McDonald's stock don't shop there. The people who shop there don't have any financial like we could certainly change this. Like you know the Uber drivers should be the ones who own Uber stock. The Door Dash, you know, bike riders should be the ones like it makes so much it makes so much sense when you say it.

And I had the same thesis too which is wow like I was investing in open source software before VCs believe that you can acrue any value because the code is free. So how do you capture value? Uh [ __ ] and Red Hat just kind of proved that and everyone's like oh okay and then crypto comes along something like Ethereum and says we'll map contributions to a token and then it's a bit it sort of solves a lot of the issues that open source software development has had which is the continuity of it. How do you map contributions to to attach a real value in a in a broad open- source system and it requires a lot of coordination?

Crypto is really good at coordination. Exactly. And so like I I kind of came at it from that angle and said sure like why is it and there have been attempts to that is has it been the regulatory constraints and issues? has it been that just from a you haven't had to do it and therefore companies just don't think that they need to do it in order to be successful or like how do you explain that uh you know if you're YouTube right you're extracting 8020 split creators like you go through the list we're in a cont like creator generated content economy across media social networks they get the the the ratio of what the creator takes and the and the owner of the network takes is totally off base.

That will be transformed at some point. But why is it that that hasn't been the case? Yeah. And you're absolutely right. I mean, like, and this is not a hard concept. Like my uh my my now 12-year-old when he was 10, I opened up a Robin Hood account for him just to teach him about stocks and things like this. And, you know, we were flying one day and he said, "Dad, when you uh I think he owned he owned the Jets ETF, so we knew about air airlines and stuff." And um he said, "Dad, when you fly on uh Delta, do you get any of their stock?" And I'm like, "No, but you should, right? If you're a customer or a user of Delta, you should financially benefit from their success." You get their miles, their airline miles, which are not really funible and are not really

useful. It's tied to their own local economy. Well, and more importantly, and more importantly, they don't at all map to the success of Delta. If you own a bunch of Delta miles, you don't care if Delta succeeds or not. You just want to be able to use the miles, right? So, it's like again to your point about coordination and incentives, you're not coordinating and incentivizing the right things. There's no global um you don't have stakeholders aligned in the same way. And that's a big part of what crypto was trying to do at first when I got into it. And I think the you know the ICO boom was a big part of that as well like trying to you know make your developers, your founders, your users, your customers all sort of align for the same goal. So to answer your question, why hasn't it happened? I think it's

twofold. I think one is just in general the status quo is really hard to break. Um, you know, and I think workflows matter. So like people's workflows right now are buying stocks and buying bonds and separating that from the things they do. So I think it just takes time. Um, you know, as Bill Gates always said, people overestimate what can be done in a year and underestimate what can be done in 10. Um, so I think part of it is time. You know, it's no different than I remember in the early 2000s when uh, you know, airports started putting up kiosks to get your, you know, to get your tickets and you could fly paperless and stuff like that. like there was maybe 20 people who would be standing at the kiosk and you know hundreds of people still standing in line at the at the

desk because they that they were used to the ticket counter and then over time you hit this Malcolm Gladwell tipping point where now everybody used the kiosk and if you happen to walk up to the ticket counter somebody just walks you over to the kiosk and shows you how to use it right like it's you know it just takes time for some of these workflows to happen but the other one I think and I think this is the real lasting legacy of how bad the Gensler US SEC was um and shout out to one of my colleagues, Toeer McFersonson, who wrote a great article on this on our website the other day, talking about the lasting legacy of Gensler was not the lawsuits and not the courts and not all this nonsense that they were doing. The lasting legacy was that they scared innovation away from

doing what we were doing um because they in fear of getting sued or worse getting put in jail for creating these projects that actually do align the value of the project with the value of the token. Right? If you go talk to any lawyer in crypto over the last two, three years, they were actively advising their founders to not tie any value to their token because of fear of it being a security and getting, you know, thrown in jail. And as a result, like that's what led to the nonsense of these meme coins and these valueless governance. I mean, look at the Zoro launch. It's just had a perverse side effect which has created this uncertainty area where it's like, let's no value. It's purely meme.

So it's not a security and it's like well no we can do so much more let's compare pound-for-pound a a protocol which is people light it's code that works like smart contract you compare unis swap and coinbase I love that comparison we're at parifi like we use that comparison a lot which is a fraction of the employees the amount of scale 0ero to one and just the velocity by which you can tap into these global capital markets fascinating but of course you have the you had to have structured in a convoluted way which is you have the foundation and the entity and the labs and all these disconnected pieces where you just wait a minute collapse it just one thing let's call it for what they are it is a it is uh the next evolution of an exchange which is

asset like people light and just at a global reach without having to you know apply for think think about if you could do unis swap over again with the current kind of handsoff regulatory regime you would it would be really simple. You would say the founding team is going to keep maybe 20% of the tokens. The LPs and market makers are going to keep maybe, you know, 30 40%. The customers are going to get the other 40 50%. And then there's going to be a revenue split where 80% of the revenues go to LPs and 20% go to the customers. And you're like, okay, great. What happens is everybody's now on the same page. Your customers, your market makers, and your founders are all aligned to the same goal of growing this. You're all financially rewarded if you pull it off.

you become lifetime users and evangelists. You want everything running through unis swap because you know you're getting like it's it's it's no different than what you said about it before. It's like what is crypto good at? It's good at coordination. Well, like the same thing could be true of airlines like yeah if if I actually the more I fly the more financial benefit I get. I'm going to fly on that airline more and I'm also going to tell my friends to fly on that airline. It's such an obvious like you lower like the reason why companies go out of business is because they fail to grow and improve unit economics and like just it all kind of boils down to do you have a product that people use and they use repeatedly meaning the lifetime value of that customer the LTV keeps growing it's robust and then can you acquire that

customer boy I mean we're throwing stupid airdrops to like you know I mean your DJ onchain is not your core user for the most part but you can use that airdrop construct as opposed to just make it a simplistic airdrop. We'll make it a work airdrop which is the more you fly the more you get a tokenized delta stock or United. Uh I do think there is like a regulatory constraint around that which hopefully with regulatory clarity this year you know stable coin legislation more clarity on tokens and and and perhaps an orderly process to register disclose information regarding a token and the token issuer we probably enter into this new frontier. Yeah. And by the way, what

you described, airdrops, airdrops is another perverse sort of uh uh you want let's decentralize quickly as possible. This would give away 50 60% of the supply, which is totally bonkers. If the if if the Gensler SEC didn't do what it did, you probably would never even have air drops, right? I mean, again, like all in my new project, we're actively thinking about like this is I think the the airdrop, the simple airdrop just is not how I think about using that treasury strategically. I mean people value what they pay for. So like Binance worked because people you you pay a nominal amount but you paid for you paid for it like so again I think a lot of the legacy of of you know you asked again like what gets us there. I think one of it is just time and breaking down

workflows and the other is you know basically erasing the memory of the last three years like what we happened what happened over the last three years was so damaging and again it wasn't the courts it wasn't the lawsuits it was it completely changed the ethos and the business model that most crypto companies were striving towards and I think if we can reverse that back to where we were in kind of the ICO and again it's not even just in protocols and software like think about restaurants have like what what 95% failure rate like imagine Imagine a local margin. Yeah. Imagine imagine a local restaurant um opens right by your house and for the first two weeks they give away all the food for free, right?

That's equivalent of an airdrop or something, right? But in doing so, they build some stickiness. They tell they find which customers actually like them. They learn from their customer behavior and then they say, "Hey, we're going to, you know, sell some tokens from our restaurant to any of our customers who want to come back and you guys will get, you know, 20% of the profits or something." You can build other businesses. It doesn't have to be software and decentralized protocols. You can build other businesses the same way where your customers and your employees and your founders are all incentivized to grow the business together. So, right. So, someone from the outside in, and I know we're bumping up time, might say, "Jeff, that sounds great. That's a security, and there's a reason why venture capital exists." Um, and don't try to reinvent the wheel and

how companies have been funded for the last like 100 plus years. There's some truth into that. Don't try to and and and by the way, if the customer wants to buy or invest in that company, he can knock on the door of management or he can go buy the stock. That's it. I I I don't I don't agree with that. But what's the answer to that? My answer would be there's nothing illegal about being a security. What's illegal about a security is if you are the issuer of a security, you have to jump through an amazing amount of hoops and costs in order to issue the security. And if you are a licensed broker or exchange offering the services of that security, you have to jump through all kinds of hoops. Anybody can own a security. Like I own security. There's nothing illegal about me saying I'm going to go buy a

stock. Like there's nothing illegal about being a security. The illegalness comes from the issuance and the distribution. It's the issuance and the distribution. So, it's a lot easier to instead of just be fearing everything being a security, let's write new laws that are not from 1939 that allow you to more easily issue and distribute securities. Like, the reason securities laws existed is because of buyer beware, right? Caveat mour. Guess what? That doesn't exist anymore. If anything, buyers know more than sellers now. Like, there's a great book um I I read a lot of books by behavioral psychologists and like Malcolm Gladwell and things like that.

Like there's a great book called Richard Taylor and Dan Arieli and these guys. There's there's a great book called to sell as human by Daniel Pink and the whole premise of the book is that everything you do is sales, right? If you're a doctor, you're trying to sell your patient that you're giving them the right care. If you're a teacher, you're trying to sell your students to believe in them. Um, and if you're a, you know, a used car salesman, you're no longer the the the the used car salesman of 50 years ago where you're like a snake trying to make a sale. If anything, you're like a friend now because the buyer already comes in with all the information. They know everything about the car. They're on Carfax. They're on Autotrader. They know everything before they get there. Your job as a salesman now is not to sell them a clunker. Your

job is to build trust that they like you and that they want to work with you because they already know the answer. The buyer has all the information now. The same thing is true in the stock market and the security market. Like the whole reason these securities laws existed was to protect the buyers who didn't have information. Guess what? The buyers have all the information now. Information is ubiquitous. the internet changed that. So it is much easier to change accredit investor laws and change security laws than it is to hide from everything being a security. So I think that is the answer is that you know every time someone says it's a security I say great I don't care call everything a security just make it easier for selling and distribution and issuance of securities. I think we got to look at ourselves and be honest that we are

operating under a set of rules and regulations that were written before the internet. you know, accredited investor rules, uh, investment company act like of 1940, then some amendments in the 1980s. But by and large, the regulatory framework in the United States for capital markets and issuing securities relies on certain tests and precedent that precedes the internet. We're going to look at back and say, wow, okay, like a 99 accredited investor world, the origins of that like go study a lot of the this and look, there was always that tension, right?

the music industry, the entertainment industry had to go through this. Like you had Napster which broke all the rules, but like then you had Spotify and music in Apple Music and all these different providers. And I think we're we're hopefully coming now to that closer to that state which is so exciting about this current administration which is you have folks like David Sachs that understand it and are pro you know our business people technologist people that you know appreciate the the the need to not just for crypto just for for the industry at large to just kind of like write rules and regulations that meet the technology that exists today and that's going to have a benefit not just for crypto but really much just capital markets in general. Yeah, 100%. And I I really look forward to seeing it. It's funny, it

comes full circle that, you know, a lot of this podcast we've been talking about Coinbase and why I don't think it's a great stock to own. I will say that what Coinbase has done better than anyone is this legal fight and what they've done in Washington. Like, shout out shout out to everyone on the Coinbase legal team for everything you've done for the industry. Yeah. I mean, again, I I I do not hate on Coinbase, the people, or the company. I just don't think the stock is that interesting. But they've done some amazing things and I hope some of these things they do um will start to uh lead to some of the things you and I just talked about. Well, Jeff, I've I've had the privilege of seeing you from afar. I think you place a a health I think we should always be skeptical in crypto,

not cynical. And you are a true skeptic. And I think that serves you well when you're investing because we should always be asking the hard questions. So, you know, really encourage you to people if you don't follow Jeff, go follow him. You might not agree with everyone he says, but he raises interesting questions and that's always important to push the space forward. So, thanks for coming on, Jeeoff. Really enjoyed the conversation. Yeah, it was great to talk to you and catch up. Thanks for having me. [Music]