On The Brink with Castle Island - Brian Foster on Coinbase's wholesale business (EP.605)

Episode Date: March 24, 2025

Brian Foster, the Global Head of Wholesale at Coinbase joins the show for his second appearance. In this episode we discuss: A catch-up on the Wholesale business at Coinbase and the types of customers that are active in this market How banks and broker-dealers are accelerating their efforts post-election Perspectives on build vs. buy vs. partner decisions that are happening at banks after the repeal of SEC Staff Accounting Bulletin 121 Views on how banks will approach M&A Coinbase's role in the digital asset ETF market How Coinbase engages with government customers Views on the Bitcoin strategic reserve To learn more about Coinbase visit coinbase.com. Also follow Brian on X.

Today on the podcast, I sat down with Brian Foster, the global head of wholesale at Coinbase. In this conversation, we discuss the shifting environment for banks, broker dealers, and governments in the digital asset market and how Coinbase has evolved their business to work with many of these new entrants to the ecosystem. I think you'll enjoy this one. So without further ado, here's my conversation with Brian Foster. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by

anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing. And print a couple trillion dollars and all of a sudden

people start to worry. So out of this worry, we have something called a Bitcoin. Bitcoin. Well, Brian, welcome back to the podcast. It's exciting to have you. Thanks a lot, Matt, for having me on. So we're going to talk a lot about the institutional client segment today. But maybe for those who haven't heard your prior appearance on the podcast, do you want to just tee us up with who you are and what you do at Coinbase? Sir.

So I joined Coinbase back in 2019 to help get our institutional practice off the ground alongside a few amazing colleagues. And we've really been in all-out sprint since then and have built what's now a big business where we have what we think is the leading institutional product suite and a dream roster of clients

who we feel super fortunate to get to work with. And within that, today I look after a few of these client businesses. The first is our wholesale business. where we tower about 200 leading banks, brokers, Pentex, exchanges, payment firms who use our institutional infrastructure to build and run their own crypto products. The second is our ETF business, where we help trade and safeguard just under about $100 billion of crypto on behalf of ETF issuers and their clients. And the third is our government practice, where we work with U.S. federal and state agencies

and also other governments around the world to really help them navigate an increasingly wide range of crypto activity. And before all this at Coinbase, I worked in a product and strategy role at a crypto startup called Curve, which was acquired by PayPal. And before that, worked in venture, investing in crypto, cybersecurity, and really started out my career doing a few different startups, including one of my own and another in the FX trading space, which is how I originally bumped into the crypto world. Yeah, that was a great story. I think you told that on the first time around. I think you were getting paid in Bitcoin by Ty Danko back in the day. That's right. We did finagle that.

It's a good way to get introduced to the sector. And a ton has changed. I mean, since the last time you're on this podcast, you think about the businesses that you work in over at Coinbase, there were no ETFs the last time you were on the podcast. Banks were completely shut out from this industry. Sab 121 was in effect. How is the world changed for you, just given everything that's happened over the past few months? Well, it's changed a ton. You're definitely right. So I think maybe in terms of the banks, brokers, and exchanges, this category that we call wholesale. they're definitely on the move in a big way. And we think this is exciting for the industry.

For us, what it really means is it's go time for the wholesale business. And this is a business we don't really make a ton of noise about publicly, but we think it's going to be an area of accelerating growth for us. I think people sometimes understandably look at these firms and what they're doing and think maybe they compete with Coinbase. And that's partially true. But in fact, behind the curtain, a lot of them are routing their client trading to us, using us for subcustody, prop trading, getting active on base,

USDC, stable coin payments, and more. And so when we look at these firms, we think that there are a ton of jobs to be done here, and we're fortunate to really have the product breadth and the team to rise to the occasion. So I think what this all really means is that we view these firms as our partners, and we're excited to hold out our infrastructure to power them, really similarly to kind of how we did it with the ETS. And generally, we find that when large incredible firms come into the market, they grow the pie.

It's great for users and investors to see that. and of course it's great for Coinbase as well. I think it's worth noting that this has been a little bit of a change for Coinbase as a firm and one we've been pretty deliberate about. We're a much broader company than we used to be. We still have a large branded first-party business for retail and institutional clients that people know well, but we're now far down the path of transforming ourselves into also being an infrastructure company. And our CEO, Brian, talked about this the other week on our earnings call with Coinbase Prime, CDP, and Base. These are just a of our big infrastructure bets that are just really starting to take off.

So maybe I'll just briefly get a little more concrete on what we're doing with the banks, brokers specifically. As you know, well, Matt, most of the large ones are doing something at this point, which is exciting. And we're working with the majority of them. I think that the record-breaking growth of the ETFs in crypto really made this sort of impossible for them to ignore. It's kind of in their backyard now.

The clients are trading, and it's a big thing. So we've seen a little bit of variation by geography. The ex-US market went first. Brazil, parts of Asia, parts of Europe have been fast-moving where regulation has been clearest. Now we're getting this moment where the U.S. is getting to play catch up. And so the current state of play as we talk to these firms is that they're in the process of really reasoning through how to partner, how to build, what products to prioritize first. So we're seeing some are trying to build some of the stack and partner on the rest.

others are partnering with us on most of it, but we don't see a ton of firms trying to do everything themselves. And I'd say this is a thing we kind of anticipated because we know from first-hand experience how hard it is to do crypto well. So one thing we've been really deliberate about as we built out the wholesale and the other infrastructure businesses is that we've really designed our products to be consumed modularly. So we want to be able to approach these partners and plug into them no matter what their strategy is. So hopefully this gives people a little bit have a better sense of what's going on behind the scenes. And by the way, I'll just add, this is the Coinbase partnership story around product on our side, but it's worth mentioning that it parallel to all

this. We work really closely with a lot of the large financial institutions in the other direction as well, where they power the on-ramps for our first-party businesses. They provide services to our corporate treasury, et cetera. So these are often large and multi-dimensional relationships. That's an awesome overview. And obviously, all banks are different to some degree. And Their revenue levers vary, depending on which bank you're looking at. The private wealth channel, obviously, was an early adopter to ETFs. I guess you'd say early, but maybe not as early as compared to retail and some of the independent RIAs.

But curious how you guys think about it in terms of the banks that might be interested in a spot relationship with Coinbase versus a bank that might be more interested in just an ETF relationship versus maybe even something totally different around stable coins. How do you guys segment the go-to-market for the wholesale business, depending on, the underlying bank? The reality is a bank is really an amalgamation of a lot of different businesses, and we can think of each one of those businesses like a client. So in some cases, we find that the soft spot is doing something quickly in the wealth practice that might be kind of cohabitating client accounts with advisors or supporting the educational effort around

ETFs and related due diligence. In other cases, they really want to lean into payments and stable coins or something else. And so I think we try to kind of resource these in the right way, put the right coverage teams in place, and think of them like kind of 10 businesses and one, if that makes sense. Yeah, that makes a ton of sense. So when you look at some of these banks and these brokers, I guess the question is what's going to make them succeed or fail? And I suspect that getting an early start is probably part of that. But curious how you guys look at that in terms of who the right partners ought to be and who's best positioned here. We definitely have some opinions about this, having led more of these types of partnerships and integrations than probably anyone

across multiple market cycles, I'll add, as things have changed a lot and there's been volatility and people have come and gone for some of these places. I think there's great lessons in the ETF issuers as well who just went through a similar journey, and for the most part, hit a lot of home runs. So I think the way that I think about this, if I zoom way out, if I'm on the board of one of these banks or brokers evaluating the crypto strategy, there's a few really important questions I'm asking. And I think the most important one of all where I'd start is how do I minimize risk to my firm and to my clients, right? No matter how excited I am about digital assets, and it's great, by the way, that a lot of firms are there at this point. I'm still not putting

my net interest margin machine at risk for this. And I'm not going to cut corners and risk getting stuck with big fine from one of my regulators. So I think that starts with security and asset protection above all else. You have to nail that and really approach it with a lot of rigor. Next, the thing I'm thinking about from a product perspective is, can I build things that are actually going to work for my clients in today's market? I can't be building for five years ago. This market moves too fast. So, for instance, standalone custody is kind of dead in the water from our point of view. Clients are demanding far more than that. It needs support for the entire transaction lifecycle, financing, multi-asset support, staking, spot end derivatives, stable coins, and payments.

And that threshold of requirements for clients just keeps rising. So next, is in terms of execution, can I do something here quickly? I don't want to take four or five years to get to market. This is a high growth race. So I have to figure out how to break some glass and make my organization move faster than it might normally. Of course, there's another commercial question, which is how will the business model work? How am I rationalizing my costs to rent or install this infrastructure to do this? And how do I de-risk those economics to kind of make sure this is a winner? And maybe the last thing I'll add is that whatever platform I set up, I really want to make sure that it gives me a high ceiling for growth and upside in the future.

And you have to consider, like, are the decisions that I'm going to make today end up limiting my options in a year or two where I have to rip things out and start over? And I say this just because we've seen a little bit of this one, including recently, where certain crypto partners maybe have failed or not had the resources to kind of keep their foot on the gas throughout the cycle or otherwise been off sides from a regulatory perspective. And so we want to make sure that these partners of ours who are banks and brokers aren't getting stuck. And to kind of bring this all home, I'd say what we found is that when firms ask these questions and then do the calculus correctly, a lot of roads lead to partnership with Coinbase.

So just going quickly, today you can rent out our market leading product suite for a handful of basis points to be profitable from day one. The market's really matured commercially. And there's ways to do this where you don't have to shell out tens of billions in CAPX or try to go buy a bunch of expensive and specialized crypto talent. You can go fast. We're ready. Do it at your own speed. You're sort of in control of your own destiny there if you want to move quickly. In terms of upside, what we're really focused on is continuing to really build at the frontier from a product perspective to make sure that our partners and clients are unconstrained with how they develop product as the market unfolds. And of course, most importantly, on this question of risk, we really think of ourselves as being a

sort of risk transfer mechanism here, right? We want to enable partners to be able to transfer their to a firm who knows how to handle it. And for example, you can draft off of what's almost certainly the largest security budget in crypto at Coinbase instead of having to learn how to do this from scratch. So this is how we think about checking these really big boxes that are being presented by decision makers. I'll say that we really commend all the firms who have made moves and tried something, whether that's build or a partnership.

It's super challenging, as you know, Matt, to try to get a large organization to move and address a fast-moving new market like this. So my view is like there's a special place in heaven for people inside of large organizations who are leading the charge on crypto. But if I have to take out my crystal ball, I think what we see over the next few years is that these firms who intelligently partner are going to be in the best position to win. They're going to, I think, be able to leapfrog maybe some of the ones who have overbuilt or picked the wrong partner and might be getting stuck.

So that's all shaking out in real time right now. From our perspective, we're super excited for this. and are hard at work arming the firms who want to partner, whether that's partially or fully, we want to really help bring the whole weight of our firm and help those partners build a really durable business for their clients. It's really interesting because if you look at the past couple of years, there's been these kind of de-risking milestones that allow more entrance to this market. So you have the ETFs getting approved as a big one.

Sab 121 going away is a big one. I would have to think a stable coin bill and eventually a market structure bill would be really big for your business. So how do you think about those unlocks? And I guess how did the customers, how do the partners think about just regulatory clarity on those two issues in terms of entering this market? Yeah, it's a great point. I think that the pace that Congress moves is something that is sometimes a little bit unpredictable and it can take a while. But you're certainly right that these two efforts, if they were to come to fruition, would make a huge impact on the market. I think that stable coins have suddenly really grown up and become a thing that people are starting to,

accept is not going away. We'll see, I think, tons more growth from the corporate segment, and a lot of these clients who the banks and brokers are working with are going to start demanding those types of solutions. So legislation that ultimately opens this market up and allows people to participate in it is going to be a boon for that category of stable coins and payments. And on the market structure side, I think just having a confidence to know how these assets are going to be classified and then also specifically opening up this world of tokenization, it just grows the market massively. We're talking about much more than just native crypto assets now in a scenario where that

type of rulemaking plays out. And we think that's super exciting. It's great for us and it's great for these other institutions as well. It's been interesting to look at the inside of some of these banks over the past few years and kind of who gets it and who doesn't get it. Some of these banks have had crypto teams very quietly operating for years and years and actually building things in some cases partnering. others, I get the sense that they don't have anyone. They're sort of starting from scratch.

So you'd think that M&A would be part of the solution here at some point. How do you think about what that would look like for banks to get into this sector via MNA? It's a great question. I said it right back and asked you the same one. I think from my perspective, M&A looks great on paper. And there are probably a lot of financial institutions who are thinking about this is one option and maybe want to scoop up crypto specialists at the right moment. I think it could work in a few cases, but you have some challenges here to navigate, right? One is that a lot of the players in the crypto service provider world are pretty narrowly focused specialists. And so you can't solve maybe all of the problems you have by acquiring. Maybe some tuck-ins here can work,

but I don't think there's a single silver bullet. The other problem I see broadly is that you sort of have a super wide bid-esque spread on valuation between some of these companies and there would be acquirers. So in the private markets, you have founders in VC. he's marking these companies series A's and B's with the expectation that Bitcoin's going to a million. And that might be right. I personally agree with it, but it's, I think sometimes a tough sell to a banker or a broker, which is trading at maybe three to five times revenue and maybe doesn't want about the farm on that kind of optimistic outcome. So you and I have talked a lot, Matt, over the years about tokenization. Maybe that's the thing, sort of the market growing event

that changes the math for some of these players to justify these types of acquisitions. And if we see this really explode in the next year or two with policy change, maybe they'll want to start paying up. This goes from being really an upside question of having a crypto-native business that can generate a lot of new growth to being more of an existential one, right, where we're talking about taking a firm's entire asset base and needing to sort of re-engineer it to live on chain. And that's like an existential meteor. So maybe as that meteor gets a bit closer, it changes the math. What do you think? I'm curious for your perspective, given your vantage point as a venture investor. Well, I guess custody is really the tricky one to think about because on one hand, you could see the logic of M&A if you're a bank just to get to the market.

You want to go fast and you want to just have a team out of the gate and maybe want to lock that team up for a while. This question with some of these centralized custodians is, are they serving customers that you even want to serve as the bank? And is the asset mix the right asset mix? And so you wouldn't want to buy something and then shut down 80% of the assets because you only want to focus on, I don't know, the top. 10 cryptocurrencies, for instance. So I think it's a little challenging. The other issue, of course, is just you brought up the valuation point, but are these actually accretive acquisitions to the banks or not? And how you think about that? So that's probably the trickiest area from where I sit. And not to mention the fact that there aren't that many to buy. So some of these banks might just be

forced to partner or try to build their own, which I think building your own would take quite a while. Yeah, I think that's right. Makes good sense. So dovetailing a little bit, maybe let's talk about the ETS. I mean, these have been wildly successful. I thought they would be. I don't know if I thought they would be as successful as they have been. Did you anticipate this? Was this sort of a foreseeable thing from where you sit?

Well, I'd be lying if I said yes to this decree. I think it's exceeded probably all of our expectations just in terms of how fast the asset gathering happened here. And it's been such a boon for the industry. I'll also say from our point of view, thank God it worked out. We'd sort of bet big on it in terms of our product prioritization last year. It's funny, we're often proud of the things we've built in crypto land and we should be companies like CoinDase have built their own distribution from scratch, brick by brick. And that's working well. But it's really awe-inspiring to see the distribution firepower that many of these partners of ours in Tradfai have. And it makes me glad that we're on the same team. And I think also really reinforces for us the importance of this infrastructure strategy we have. So I think this is just the start, despite the kind of staggering numbers. and having basically in excess of $100 billion here,

we really only have simple products so far, right? Bitcoin and ETH have been great. I think single asset beta exposure is just the beginning. So I won't speak to things that aren't public, but you can see what's in some of these recent filings and make some inferences. Staking support for more assets beyond Bitcoin and ETH, multi-asset ETFs,

and more distribution and inclusion in model portfolios as well are all huge focus areas for us right now. So maybe I'll hit on staking, for a minute, just because this is one that's top of mind and super technically interesting. We're spending a lot of time on it. And Coinbase is live with staking an ETFs, with partners of ours in Canada and Europe. So we have a great playbook here that's proven and works well. But the challenge with this, for those who don't know, is that when you're staking in an ETF, you sort of have to reconcile the world of on-chain cryptophysics with that of

C-plus-1 settlement and ETF ops. And shockingly, neither one of these camps consider the other at the outset. And so we're now in the business of super-gluing them together after the fact. So specifically, the problem here is that you have to account for crypto-volatility shocks and make sure that there's enough liquidity when we have downside events, and everyone kind of runs for the fences at the same time, right? The unbonding cues can get jammed in those scenarios, but the ETF still has an obligation for delivery. So right now, in terms of things we're focused on ETF land, we're doing a lot of scenario modeling around that and trying to help arm. or partners who are issuers to really be able to work with us

an all-weathered platform that's going to work rain or shine and also think more about what the future is going to look like as we navigate the Pectra upgrade on Eath and also look at Sala and other chains as well. So I'm excited to see how this plays out. It's going to be the issuer's prerogative to decide how they want to do this and how much risk they want to take. But we want to show up as a thoughtful partner supporting behind the scenes

as we engage them, their clients and regulators. And then just coming back to this idea of the model portfolio theme for a minute, I think that what BlackRock announced recently this past week is a huge deal and maybe bigger than people realize. So for those who might have missed it, you had inclusion here of Ibit in some of the alternative asset model portfolios at BlackRock. And I wouldn't be surprised if we see more of that this year across the industry. As you know, Matt, this is a business that has, you know, trillions in assets.

And really, I think it kind of provides a sort of constant asset bid. And so I think in a long term, this trend is going to have the effect of absorbing more long-term capital and maybe dampening some volatility. So this is great for asset prices and overall market health in the long term. The model portfolios thing is fascinating. It also makes me wonder if some of these efforts to explore tokenization through the lens of bringing alternative investments into model portfolios could be something that actually gets a lot of interest if this effort is successful. Yeah, it's a great point. I think people are going to get really creative. The aperture has obviously opened up from a regulatory perspective on what people think is going

to be permissible. So I expect to continue to see sort of a tidal wave of new filings throughout the year and for people to keep really pushing the envelope on product. The staking one is another one that I want to double click into. And we've been talking about this a little bit on the podcast in terms of just how do you operationalize this around some of the things you talked about, modeling worst case events on withdrawals and what if you're tied up on chain? As you point out, there is just a physics element to this. And so the question is kind of who injects credit into that system and who bears the risk.

Do you think we have answers to how that's going to work in the U.S.? Do we just look at other jurisdictions and expect it to evolve in the same way? How do you think about that? I think we do. Ultimately, the SEC is going to decide here of what's permissible. And I think we have to wait and see, just like we did in the first round of the ETF filings, there was sort of some back and forth and then ultimately, basically guardrails that were put in place. Here's the state of play. Everybody stay within these boundaries. But from a sort of feasibility perspective, the playbook is there, right? At scale in other markets, we have staking inside of ETFs working. The sort of order of operations here has been, I think, native custodial staking and partial staking rather than staking

the whole ETF seems to be the right place to start that's proven and works well. I think over time, we could see sort of more creativity and augmentation of that model as the issuers want to generate the highest returns possible for their clients. And we're hard at work trying to help them build some of those solutions. I recently saw that there was a private credit ETF that was approved. And I mean, that just seems a lot more complicated than basic ether salana staking. I think we should be able to figure out a good model here. I think you're right. I think we have this extreme sense of duty to be good stewards collectively, you know, us and the ETF issuers, we want to get this right and make sure that these ETFs run smoothly and don't have any blowups.

But I'll say personally, I prefer that we do this in a kind of safe and controlled way and continue this great track record of these things working well day in and day out. I think that's going to be the best outcome for the industry long term. And just to get that balance right and not jump the gun on anything. Yeah. And so you guys have a very clear lead here. if you just look at market share for ETF custody, how do you see that playing out over time? I guess the obvious question is, okay, the banks can come in, do they get competitive with you

over what time horizon, and how does Coinbase react to that? Yeah, it's a great question. So as a firm broadly, we safeguard something around 12% of the entire crypto market cap. But as you point out, within the ETF market, that number is much, much higher. So we had a really unique situation when the ETFs launched where we sort of ran the table. And that might seem unusual, but we think as high market share we have in this category appropriately reflects the huge investment we made in our security, custody, platform, ops around the ETS. And the market really voted with their dollars. So it's also worth pointing out, this is a client segment with a small handful of players who are highly regulated and discerning about risk. And I think that's a reality that benefited us as well. In terms of backup custodians and what the mix might look like here, We think it makes total sense for issuers to have operationally ready backups. We encourage that.

It's good practice. We're not, however, fans of spraying assets around within a singular ETF product. I think this tends to compound operational risk because you're now multiplying settlements. And crypto history has taught us that that's usually a risky thing to move stuff around more than you need to. And by the way, a client's wondering, are they in the big custodian or the one that offered the issuer of fee rebate? And so one challenge you have in crypto, which I don't think is widely understood by outsiders, is that the dispersion of counterparty strength and quality across custodians is super wide, unlike in traditional finance where you have a few leaders who are really large and battle-tested.

And so by virtually any measure, pick the dimension, assets under custody, market cap, track records, security budget, client quality, you have coin-based and then really, in our opinion, a huge drop-off. So I think we're aware that there are some custodians who are probably selling quote-unquote diversification and waiving discounts at issuers to maybe generate a bit of growth. And I think it's possible you'll see a small number of issuers take the bait there. But ultimately, that's okay with us. I think we want to double down on the issuers who really view this fiduciary position as

sacred in the same way that we do and value what we're bringing to the table as a partner. And by the way, competitively, I think that as these issuers compete with each other, The ones who sort of don't compromise and really say, I want to have the biggest security budget and all of this rigor going into my custodial setup are going to have a really easy time selling against ones who maybe take a diversion path. So the market's going to ultimately sniff that out. So this is all to say, I think we feel really confident about our position and strategy, and we're going to keep pouring our resources in any way we can into these partnerships

where we feel like we have really a shared sense of priorities. That makes a lot of sense. It kind of begs the obvious question around some of the potential new entrance in TradFi. So if you just look at the global custody landscape and who's actually in this, not a lot of them yet, right? And it's getting too hard to ignore, I would say, for all sorts of reasons. tokenization, kind of the least of them, just these digital bear assets. So I guess the question is, do these Tradify players have a better shot if they were to come into the market? Yeah, let's see.

It's a really exciting development. I think just from the signals I'm getting from the market, the jury feels like it's still out. So first, we're partnering with some of them on subcustody. So there may be ways for this to make sense. But I think some of the more homegrown solutions inside of some of the banks who are pursuing that path are going to need to prove that they can win. And they're brand new to this and not quite there yet. So if I just think as a fiduciary, I probably want to see resolution to some of the tough questions before risking my $5 billion in assets, right? Clients, I think, are going to ask these banks, the exact same questions they ask us. And I'll rattle off a few that

are top of mind in every conversation that we have. So battle tested is this platform, right, has it supported billions at scale. On liability, this is super important. What's the framework there? And in this specific area, are you really treating crypto as a first-class citizen alongside any other asset classes you're serving? How large is your crypto insurance program? And what are the inclusions and exclusions on that policy. From a resourcing perspective, are you putting the full weight of your firm behind a crypto business substantively in terms of dollars and liability and engineering? Or is this more of really a marketing type of thing under a brand, but substantively kind

of hived off. We've seen a little bit of that over the years. Commercially, right? This is a huge question. What are you charging me for this platform? It does this sort of risk or work here make sense. There's a business continuity question as well, I think. Is your crypto business going to be around in five?

years or get cut when there's a rainy day. And I think the most important question of all, what's your security budget for crypto safekeeping? Are you really succeeding in hiring the crypto security talent that you should have to make this work? So looking at all this from 10,000 feet, I think it's really easy for people to underestimate what goes into making the crypto custody sausage. And the discerning clients are going to ask these questions. And I think either want to work with Coinbase directly or maybe supplement that with one of our subcustodial partners, where they can still benefit from these things I've described. So let's see how it all shakes out.

We're super excited about the path we're on right now. I think the other mental model I have for this is how many companies in the history of this industry have been successful without the leader at the very top of that company being fully bought in? And a lot of these banks just don't have that, right? So it's kind of hard to see building a scaled franchise without senior leadership that's fully bought in because you're going to have bumps in the road and you need someone that will stay the path. It's such a good point. And I think we've talked about this some of our prior conversations, Matt. One of the fundamental challenges that you have in navigating this industry is just that for better or for worse, it's been highly cyclical. And so when you're a firm that's doing 40 things and crypto is maybe one of them that you're considering and it's potentially a small part of your business. And then you're also looking at what's been a fairly cyclical growth story in crypto. I think that decision to have resourcing continuity and state a and really bet on this becomes super challenging.

And we've seen some financial institutions struggle with that. Now, there's definitely others who have really started to get this and make it work, but it's a fundamental challenge that they have as they think about how to get this done. Yeah. So I want to talk about the government stuff too here. So a lot of recent announcements around the government's involvement in this industry, some good, some very bad, I would say. And I know Coinbase plays a role in the safeguarding of assets,

but also curious your view on the Strategic Reserve and just overall how you guys think about that government sector. Sir, the announcement of the reserve earlier in March has appropriately received a ton of attention. And it's also sort of a pinch me moment for those of us, I think, who have been in the industry for a while. Like, wow, how do we get here on the timeline? Coinbase works with more than 150 government agencies around the world. And our job is really to try to show up as a tactical partner on trade execution, security and assets. safekeeping, and ops. These are areas where we think we have the track record and the credibility to assist, and we'll try to apply that same approach in dealing with the U.S. Reserve. I think one thing

that really resonates with our government partners has been our approach to regulation. So we've preractively sought out the most stringent regulators time and time again as a strategy, like the New York Department of Financial Services, of course, CFTC for our futures business. for government, I think, seemed a strength of those regulatory relationships, as well as the fact that we're a publicly traded company in the U.S. I have really resonated. Taking my Coinbase hat off maybe for a minute, and I'm going to make our lawyers and comms people sweat. But I'll say that just as an American citizen and a taxpayer, I'm personally most excited about the versions of this reserve in the future that feel durable, strategic, and fiscally responsible. So I know our mutual friend, Nick, is a bit of a skeptic on this whole thing. I'm a little bit more positive. I think if we look at the gold reserve, which has a present market value of something north of $500 or $600 billion, it probably makes sense to have a hard asset reserve in our fiscally ten U.S. situation. That's not crazy to me. So if you think about potentially reallocating a portion of that portfolio for the 21st century to include Bitcoin or digital gold, I think that could be totally reasonable.

and reflects a lot of the sort of thinking we've already seen from many of the large investment firms we deal with in the private markets. So I think if a hard line or libertarian wants to say that reserves altogether are silly, I can understand that. But if we're going to keep the gold in there and think about having a hard asset reserve, then put some Bitcoin in there too. I think that could make sense. Yeah. Well, I guess the key word in what you said, I think, is durable. You don't want something that every four years a politician can just press a button and liquidate or buy it back, right? If we're going to do it, let's be thoughtful about it.

I think that's exactly right. So when you think about outside of what we've maybe talked about on this podcast, what are you the most excited about just in this industry over the next year? So many things. It feels like the kind of part of the growth journey where we're all going to bed at every night and you had 40 things you wanted to get done or focus on, and you kind of did five of them. And so I think the focus and prioritization right now is a huge challenge.

I'll say that one area I'm really excited about that we're honing in on is corporate payments and just what we're seeing with these enterprises really starting to embrace stable points. So maybe Stripe's acquisition of bridge was sort of the warning shot here to the industry. You have super smart founders in that case making a really big invisible bet who see the opportunity and have a lot to lose by missing it. So that's a huge signal. And on our side, the last year has been really transformational. A lot of the large corporates last year were looking at this as sort of a due diligence or a proof of concept exercise.

And now they're a lot of paying partners and clients or accounts receivable are coming their way in stable coins. So we focused on a few things, I think, to start to kind of lubricate this new payment network. One is integration with, of course, the major ERP systems that underpin all this. And another is like the unsexy, nitty, gritty work of really supporting more Fiat on ramp. so we can do really the end-to-end transaction lifecycle in as many kind of geographies and currencies as we can, right? You can't just kind of only build things in the on-chain crypto-snow globe, although sometimes it's fun to talk about that.

You really have to marry that world of the on-chain transactions with the less exciting but critically important on and off-ramps to give these clients what they need. And that's all really coming together right now. So I'm super excited. I think you end up here with an entirely new pavement. Rail, which is global 24-7 fast and super cheap and just gives a ton of credence to this notion that crypto has real utility. And we're excited about how this is playing out. What about you, Matt? What are you thinking about? Well, clearly, I mean, stable coins. I'm glad we hit on it,

because if you just look at the blockchains themselves and what they're being used for, I think on some days it's north of 70% of every transaction that happens on a blockchain is a stablecoin money movement. And you just see the proliferation of dollars internationally. and it's clear that this is just a breakout consumer use case, where people have figured out a way to send money to their relatives using dollars, and people in non-U.S. jurisdictions have figured out a way that they can actually have a basically U.S. bank account, just with having an Ethereum or Salana wallet for the first time. And I think the B2B side of that is just going to follow.

It's an interesting thing about what these legacy remittance models even look like in a future where you don't need to tie up capital in different bank accounts all the way around the world to facilitate these payments. And it actually turns out that this is just a great technology for that. It's not like a 2x improvement. It's a 10x improvement in money movement. I think that's totally right. Yeah, we're still early-ish, but there's just more data points, I think, validating what you just said. And for those incumbents in the money movement business, they're going to have a sort of innovator's dilemma question of when to start to disrupt themselves. And so I think that's like coming soon to a feeder near you. And we're really excited to be helping

push the envelope there. I guess the other thing I'm super excited about is just what does the market structure look like in the U.S. around just general trading? Like even outside a spot, do you end up with more venues? Do you end up with different cast of characters? How does the liquidity landscape evolve if you have a market structure bill where you have a security token model plus a commodity token model? Are they together? I think there's just a lot of interesting questions there. And firms that are able to see that early and build for that will be very, very well positioned.

I agree with that. I think we can expect a lot of change. Obviously, if the market structure bill that we've been discussing comes to fruition at some point, that's going to totally change things. And I think accelerate this race. But even until then, we see a ton of movement. And I think by the end of the year, we'll have a lot more exchanges and brokers in the market and increasing overall liquidity for the industry as a whole, but also benefiting Coinbase. And we're super excited about that. This has been great, Brian. Where can we send people to learn more about what you're up to at Coinbase. Sure. You can find us on our website at Coinbase.com slash institutional.

And you can also subscribe to our market commentary through that page where our training and research teams talk about the trends that they're seeing in the market. Awesome. Well, thanks again for coming on, exciting stuff. Thanks a lot, Matt, for having me. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.V.C. To listen to all of our podcast episodes, please go to On the Brink dashpodcast.com or just click on the tab in our website.

Thanks for listening.