The Breakdown - Coinbase Considers Token Launch

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, September 16th, and today we are talking about Coinbase thinking about dropping a token. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, welcome back to another breakdown. Today, like I said, we are going to be talking about Coinbase's new explorations of a potential token. But before we get into that, I wanted to quickly cover what's happening in the lead-up

Starting point is 00:00:48 to Fed Day. TLDR, the Senate has confirmed White House advisor Stephen Moran to a position on the Fed Board of Governors. In a Monday night session, the Senate voted along party lines to approve Moran, allowing him to take his seat on the FOMC the following morning. Moran had been the administration's pick to replace Adriana Coogler, who resigned last month. In that seat, Moran will only serve the remainder of Cougler's term, which expires in January. Moran was one of the major architects of Trump's tariff policy and has put forward some pretty

Starting point is 00:01:13 unconventional economic views over the past year. Before being appointed to the administration, he sketched out a playbook for rebalancing the global economy, which included the notion that other countries should be paying to maintain the U.S. dollar as a public good. We've done shows on Moran's economic theories before, but his essay from last November called A User's Guide to Restructuring the Global Trading System gives a pretty good account of his views. Moran is a Bitcoiner and has advocated for both using stablecoins to increase demand for treasuries and a Bitcoin strategic reserve to minimize the harm of a dollar devaluation. However, Moran's credentials as a pro-crypto figure seem like a pretty small part of the story

Starting point is 00:01:45 at the moment. Controversially, Moran won't resign from his position as a White House advisor while he takes his seat on the Fed board. Instead, he will take leave from that role while he serves out the term. That choice and the implications it has for Fed independence led Republican Senator Lisa Murakowski to withhold her vote. Murkowski said, It's all about appearances. On the Democrat side, the appearances that Trump has installed a loyal foot soldier in the halls of the Fed. Senator Elizabeth Warren said, Every claim he makes and every vote he takes will be tainted with suspicion that he isn't an honest broker,

Starting point is 00:02:15 but instead is Donald Trump's puppet. In another key exchange, Moran stood up to Senator Chris Van Hollen stating, What I can tell you is that if I am confirmed to the Federal Reserve, I will act independently based on my own independent analysis of the economy and economic policy. Meanwhile, the administration has been stymied in their attempt to remove Governor Lisa Cook. Last month, the president accused her of listing two different houses as her primary residence on mortgage documents and purported to fire her for cause. The district court put an injunction in place last week that would allow Cook to attend this week's FOMC meeting while the firing was litigated. The administration has claimed the decision to fire Cook is not subject to judicial review and have filed an appeal.

Starting point is 00:02:50 But it seems like the decision will stand at least for this month's meeting. Now, when it comes to the rate decision, this probably doesn't really have any effect. A single rate cut is fully priced in and expected to be delivered on Wednesday. bucking the market by refusing to cut would be a historic, arguably extremely dangerous to market stability, so seems highly unlikely. That doesn't mean the Fed will be able to escape the appearance of bias, with President Trump really rubbing it in during comments to the press on Sunday, stating, I think you have a big cut. It's perfect for cutting. Fed independence is very much open for discussion due to the administration's actions, and some are taking it extremely

Starting point is 00:03:22 seriously. Economist and former Treasury Secretary Larry Summers called this appointment a, quote, dangerous assault on Fed independence, while Justin Wolfers, a professor at the University of Michigan and senior fellow at the Brookings Institute said, Telling the Fed it's independent as long as it does what the White House wants is like telling my kids they can make any choice they want and grounding them if they don't like it. That's not independence, that's control by another name. However, some are saying it's time to wake up from the fantasy that the Fed is anything other than the monetary wing of the government. Vincent Dilar, the director of global macro at

Starting point is 00:03:50 at Stone X tweeted, Central Bank independence and the separation of fiscal and monetary policies was always a myth. Trump's bullying of the Fed just exposes this fundamental lie. Whatever the case, we are about to see a very interesting experiment in Central Bank Independence play out on Wednesday, when Powell delivers the FMC's rate decision. Now to our main story, Coinbase is apparently thinking about dropping a token. At the base camp event on Monday, base creator Jesse Pollock announced that Coinbase was considering launching a native token for their layer two network. He was careful to note that they are still very early in the exploratory phase and don't

Starting point is 00:04:21 have any specifics to share on timing, design, tokenomics, or governance. However, a blog post released alongside the talk explained that the token was, quote, quote, one path towards making our vision of a global on-chain economy real, and a base network token has the potential to accelerate bases decentralization and expand opportunities for builders and creators across the ecosystem. CEO Brian Armstrong later confirmed the decision tweeting, we're exploring a base network token. To be clear, there are no definitive plans.

Starting point is 00:04:46 We're just updating our philosophy. As of now, we're exploring it. At the moment, the base network uses Ethereum as its gas token. So far, most Ethereum layer 2 still use ETH as the gas token, with the native token purely serving as a governance token and a vehicle for speculation on the ecosystem. Pollock said that base is still committed to Ethereum alignment, and it seems kind of unlikely then that Coinbase would choose to switch out the gas token. The philosophical change appeared to be the most significant part of the announcement.

Starting point is 00:05:11 The team wrote in their announcement blog, when Base launched, our priority was clear to build a secure, low-cost developer-friendly chain and ecosystem. Launching a token wasn't necessary to reach those goals, and we wanted to focus on the core product. Now, Base was introduced in February of 2023 and launched on Mainnet that August. At the time, we were still in the depths of crypto winter. That June, the SEC had filed their lawsuit against Coinbase for operating an unregistered exchange and offering unregistered securities. Launching their own blockchain felt like a risk and dropping a token seemed like it would invite Gary Gensler to go scorched earth on the company. Obviously, a lot has changed in the two long

Starting point is 00:05:42 years since base went live. We haven't seen a single new lawsuit against a crypto company, and token drops for U.S. companies are no longer an unfeasible idea. The base team did note that they are, quote, committed to working with regulators and legislators and doing this right, still the announcement by itself suggests they believe there is a way to release a token under the current law and regulatory environment. John Charbonnea, the co-founder of DBA Crypto, noted that regulators aren't the only ones Coinbase needs to worry about. He asked, can someone explain to me why shareholders wouldn't sue Coinbase if they don't

Starting point is 00:06:09 get 100% of a base token? That might be the case, but as a business, base is still a tiny portion of the overall exchange, so maybe it wouldn't be that big of a deal. A.J. Warner from OffChane Labs suggested that the Coinbase could air drop tokens under their own balance sheet or structure the deal as a sale to a foundation in order to keep shareholders happy. And if Coinbase does decide to airdrop tokens to shareholders, perhaps as part of a tokenization push, we could see a huge catalyst hit the market. Wyatt Lonergan and GP at Vanek Ventures wrote, tokens as a kicker could drive huge demand for crypto equity businesses that run their own chains.

Starting point is 00:06:40 Companies like Coinbase, Circle, Robin Hood, and eventually Stripe. We'll be fun to watch. While a base token is clearly a big deal, it's still a little further down the road. Meanwhile, the second big announcement from the event was base launching a native bridge to Solana. The bridge will allow users to bridge any Salana asset across to base, setting up another market for popular tokens on Salana. Base assets will also be able to be bridged onto Salana in the same way. There has been a lot of experimentation in cross-chain assets so far. A few niche tokens such as Memcoin SPX 6900 have made their own infrastructure to make

Starting point is 00:07:10 their tokens available across multiple blockchains, but native cross-compatibility hasn't been attempted at this scale before. It should be an interesting experiment, especially as it would pit base and Salana against each other directly in a contest for liquidity. meme coin developer Alex Mousmadge tweeted, I was not crazy for moving. This makes so much sense from base. Solana Ux and liquidity are just way too good to ignore. Clear vampire attack, but also net positive for users if this plan works.

Starting point is 00:07:34 Both of these moves have big implications for the looming fight over tokenization. A canonical bridge would mean tokens are interchangeable across both ecosystems, so it wouldn't matter as much if a tokenized stock was minted on base or Solana. At the same time, decentralization of base changes the nature of the network as it prepares to host tokenized real-world assets. decentralization hasn't been a big selling point either way for the early firms looking to tokenize their stock, but feasibly a centralized chain could have been a selling point. Coinbase is now positioned to lose that point of differentiation in favor of being a more

Starting point is 00:08:02 credibly neutral venue. All a very interesting shift in market structure that could change the way the next few years play out. Another big shift in market structure comes from Robin Hood, who have filed to launch a venture fund accessible to retail traders. In a statement, CEO Vlad Ten have said, for decades, wealthy people and institutions have invested in private companies while retail investors have been unfairly locked out. With Robin Hood Ventures, everyday people will be able to invest in opportunities once reserved for the elite. The fund will hold stock in various startups, although Robin Hood didn't disclose particular companies or sectors. You would guess that the list would include the usual large caps like OpenAI and SpaceX. Access to those companies was a huge

Starting point is 00:08:35 selling point when Robin Hood launched their tokenized stock platform in Europe over the summer. Notably, the fund will be a U.S. vehicle registered with the SEC and aiming to list on the New York Stock Exchange. Retail investors have historically had near zero access to private companies. In fact, most private company investments are illegal to offer to smaller retail investors due to accredited investor rules. U.S. investors need to have a million dollars net worth excluding their home in order to qualify or be making over $250,000 a year. The idea of opening up private market investment to more people has been a core idea for Robin Hood over the past few years. Vlad Ten of wrote a Wall Street Journal op-ed on the topic in January and argued that

Starting point is 00:09:10 tokenization would enable private markets to function well enough for retail investors to get involved. In their press release on Monday, Robin Hood noted that access to private markets is arguably necessary because the opportunity set in public markets has been shrinking in recent years. While there were 7,000 public companies in the year 2000, there are now around 4,000. At the same time, the value of private companies has skyrocketed and now surpasses 10 trillion. The current dynamic is especially tricky with firms like Stripes, SpaceX, and Open AI, electing to stay private for much, much longer than they would have a decade or two ago. The situation locks retail investors out of opportunities to invest in companies that have long since graduated from being a risky startup. OpenAI, for example,

Starting point is 00:09:47 is expected to raise funds at a half a trillion dollar valuation in the coming months, which would make them the 17th largest company in the public markets around the same size as Netflix or ExxonMobil. SEC Chair Paul Atkins has also suggested that he's open to the idea of loosening the restrictions on private company investment. In a May speech, Atkins said he would direct the SEC to reconsider a 23-year-old rule that prohibits funds of the type that Robin Hood are proposing. He said, this common sense approach will give all investors the ability to seek exposure to a growing and important asset class while still providing the investor protections afforded to registered funds. Honestly, I would be hugely in favor of this. I tend to think that our approach to consumer

Starting point is 00:10:22 protection is archaic and draconian, big surprise coming from a crypto podcast. But Robin Hood definitely feels to me to have an opportunity to do this in a way that doesn't completely throw those concerns out the window while still creating interesting new opportunities for people to diversify their portfolios. In any case, we will see what happens for now. That is going to do it for today's breakdown. Appreciate you guys listening as always, and until next time, be safe and take care of each other. Peace.

The Breakdown - Coinbase Considers Token Launch

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