Unchained - Coinbase CPO Surojit Chatterjee Explains Why He Believes the Exchange Will Win- Ep. 385

Episode Date: August 16, 2022

Surojit Chatterjee, chief product officer at Coinbase, comes to talk about what products Coinbase is building, how it can thrive in such a competitive landscape, how to onboard billions of users into crypto, and much more.    Show highlights: how Surojit got into crypto and ended up at Coinbase what sets Coinbase apart from the competition how to bring billions of customers to crypto  Surojit’s mental model of a bridge between the fiat world and the crypto world how Coinbase is integrating its main app with Web3 whether crypto can become a utility rather than an investment asset how Coinbase is building a product in such a way that it attracts even “crypto-native” people what happened with Coinbase NFT Marketplace’s failure and whether the company will keep investing in NFTs whether Coinbase has lost crypto-embedded people among its employees how the partnership with BlackRock indicates how far crypto has come the amount of money that institutions could potentially pour into crypto how Coinbase will prevent itself from having the largest percentage of staked ETH how the company is monetizing the Coinbase wallet and what would happen to revenue if the trading volume were to move from the exchange to Coinbase wallet swaps why Coinbase is suffering a decline in trading volume whether Coinbase can compete with newer exchanges like FTX and Binance and why Surojit still thinks Coinbase will win why it is important to keep investing and building through this crypto winter Surojit’s take on the frontrunning of coins about to be listed on the platform why the Howey test (which determines whether something is a security) is outdated how Coinbase understands securities, and whether the firm thinks the tokens listed on the platform are securities how can Coinbase compete with decentralized exchanges like Uniswap why Surojit is worried about regulatory clarity and stablecoins how hacks and security give the crypto industry a bad reputation what Surojit’s dreams are for the industry Thank you to our sponsors!   Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021 Ava Labs: https://www.avax.network/ Show Links   Surojit:  Twitter: https://twitter.com/surojit   Coinbase Q2 2022 Earnings: Shareholder letter: https://s27.q4cdn.com/397450999/files/doc_financials/2022/q2/v2/Q2-2022-Shareholder-Letter.pdf Summary: https://twitter.com/fintechintern/status/1557130836574539776?s=20&t=R-oDUTEaev-F8bPonC2q5Q Earnings call: https://s27.q4cdn.com/397450999/files/doc_financials/2022/q2/Coinbase-Q2%2722-Earnings-Call-Transcript.pdf   NFT Marketplace: Coinbase NFT launch: https://decrypt.co/99561/coinbase-nft-marketplace-150-users-first-day-public NFT Market data: https://dune.com/Marcov/0x-NFT-Market Gamestop NFT stats: https://dune.com/dataisking420/gamestopnft-stats Gamestop’s performance against Coinbase: https://decrypt.co/105069/gamestop-ethereum-nft-sales-dwarf-coinbase-nft   Partnerships BlackRock:  https://www.coindesk.com/business/2022/03/24/blackrocks-fink-says-ukraine-war-could-accelerate-crypto-adoption-report/ https://blog.coinbase.com/coinbase-selected-by-blackrock-provide-aladdin-clients-access-to-crypto-trading-and-custody-via-b9e7144f313d https://www.coindesk.com/markets/2021/07/14/blackrock-ceo-larry-fink-seeing-very-little-demand-for-crypto-lately/ Integration with META: https://www.coindesk.com/business/2022/08/04/meta-confirms-nft-rollout-across-100-countries-amid-coinbase-integration/   ** For more episode links and details visit the Unchained website ** Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained. You're no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as the senior editor at Forbes was the first Main Tree Meter porter to cover cryptocurrency full-time. This is the August 16th, 2022 episode of Unchained. With the Crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25.00. with the code Laura, link in the description. Harness the full power of the Avalanche network with Core, your new Web3 command center. Built by Aval Labs, Core is more than just a wallet. It's a non-custodial browser extension, engineered for users to seamlessly and securely experience Web3 like never before. Explore Avalanche DAPs, NFTs, bridges, subnets, and more today. Today's guest is Surojet Chatterjee, Chief Product Officer at CoinBes.

Welcome, Sirajid. Thank you for having me here, Laura. Tell us the story of how it is that you got into crypto and came to work at Coinbase. It's a how to go back a few years. Actually, my first introduction with crypto, of course, I read the paper, Bitcoin White Paper and so on. But I was not really into crypto until 2016. And the story is I was working in a company in India. So I walked at Google and moved to India for a couple of years, and I was head of product that had a company called Flipcard.

The e-commerce company, what was unique about the company and unique about e-commerce at that time in India was most of the payments were on delivery. So you go delivery of products and people give you cash. So most of Indian economy was cash in a boat and steel A's. What happened in 2016 was one fine day, government just surprised. to everyone and announced this thing called demonetization, which meant all the existing currencies were kind of useless. And basically, you had a little bit of time within a couple of weeks. You had to go and deposit your currencies in a bank. And then you had to wait for government to print new currencies and get those currencies. And of course, as you can imagine, that immediately

tanked our business because our business was about. collecting cash and people were just, you know, depositing their cash to banks. And it's not just our business. Like I saw, you know, most of India is unbanked, was unbanked, is still unbanked. Government, of course, is doing a lot of work. So there's a lot of, it was a huge pain for ordinary citizens to, you know, go open a bank account, deposit their currencies and then wait for many days sometimes to get money in small amounts. And that's when, like, you know, I bought my first cryptocurrency, my first Bitcoin, my Ethereum, and I thought, okay, there must be a better way than public government-issued currencies. There must be a better way to run this whole

monetary system. And that got me into crypto. But I was not really playing with crypto in a big way until I joined Coinbase. And that was late 2019, early 2020. Yeah, I love this story because so often I'm asked by particularly like U.S. reporters, things like what's the use for cryptocurrencies when we have credit cards and whatever? And I always say to them, oh, you should talk to people in other countries because people in countries that don't have as good functioning financial services, they grab onto the use case for this much more quickly. So you're the chief product officer at Coinbase. And that is a company that actually, really started more like a fintech company. One of its greatest early achievements was creating a

credible and solid connection to the existing banking system and also making the user experience of buying crypto simple and user friendly. But at this point, the company has over 100 million users and the crypto space has grown exponentially in a number of directions. On top of that, a whole host of other companies also offer that great user experience. So at this point, what do you think sets Coinbase apart? What products would prompt customers to stay on Coinbase after they've purchased their coins? Yeah, absolutely. Look, I think of Coinbase as a gateway to Web 3, right? We started, as you said, we started as a financial company. We allowed people to buy, sell crypto. And that was really the first step. If you want to do anything in crypto, you need tokens. But you know how

the industry is emerging. We're seeing real utility, real applications being built on top of this blockchain. So my vision on product side is how do you bring a billion plus users, you know, billion first and then multiple billions, to crypto and Web3. And how do we enable them to use all the applications, all the three services with ease and peace of mind? I mean, I think if we do that, not just as CoinBus industry, we're going to bring a major portion of the GDP to come on chain. And I think that just helps create more economic freedom

for everyone. And that kind of tries with, that really ties with our company's mission to create more economic freedom. So how do we do that? How do you realize that vision? And my mental image is of a bridge, if you allow me. So it's a bridge between the Fiat world and the crypto world and increasingly the Web 3 world with two foundational pillars under that bridge. One is trust and other is ease of use. And how do we build this bridge? So I think of two ways. First, we build an integrated product suite to give our users access,

both in retail and institutional users, access to what I call all the assets, all the verbs, all the apps, and all the chains. By all the assets, I mean, you know, both assets on centralized exchanges like ourselves, but also indexes things like NFTs, things like ENS, you know, diverbs. I mean, things like, you know, you can stake your asset, you can pay and receive, and you can borrow and lend and so on.

All the apps means all the gaps in the three services and so on. And then the second part of this is how do we help accelerate the ecosystem by giving developers the tools they need. And that's what we are doing with on this cloud, for example, we are building tools. The developers can build quickly, easily, and securely, amazing way three services. So that's kind of the overarching vision we have today.

So for that first pillar of the bridge where you talked about giving access to these different services, that to me sounds like a custodial model, like a centralized model. Would you say that that is the vision going forward for Coinbase? No, I didn't use the word custodial. actually giving access both in a custodial fashion and self-custodial fashion. And let me give a couple of examples in a Coinbase wallet is our flagship self-custodial product.

It's getting a lot of love on Twitter these days because we have invested in that product. We have made it really the best multi-chain. I believe the best multi-chain wallet out there. And of course, we have a lot of work to do still, continue to improve. The other part of this is how we are integrating DFI and. and way three, into our Coinbase main application as well, main app. And we are doing this through a unique innovation. We worked on MPC-based, MPC technology for a long time.

I'm sorry, MPC. What's that? Multi-party competition. So let me explain. So basically, we integrated this wallet called DAP wallet into our main app. The way it works is we keep a shot of your key. You keep a shot of the key on your device. So you still, you can actually use that wallet to access any DFI app, any Web3 app,

right from within Coinbase main application. If you lose your device, we can actually restore your key because we have a shot with us. We can call our customer service and we can help you. So it basically allows mainstream users. We have 100 million users to the verified users to access Web3 and DFI. without worrying about managing their keys or losing devices, as often happens, like losing their device, losing their seed phrase, and so on.

So that's how we are building the bridge to wave three through all our applications. So it's not just the self-custodied app, Coinbus wallet, but through this what is called semi-custodial wallet in our main app as well. And even on the institutional side, actually we are working on ways to give institutions access to DFI. Because I think that's going to be the future, the innovation that will be unleashed. We already seen it during the DFI summer and NFT summer and so on.

We are already seeing all the innovation and we want to make sure our users can access that innovation through every product we have. So it's not just custodial. In fact, one of the mantras we have internally is build DFI first. So we are always thinking, okay, how? can we give users access to not just first-party services that we are building, but also third-party services. So today in Coinbase main app, you can buy tokens through our exchange directly. You can also buy tokens on a decks because we have done a native decks integration. We have worked

with decks aggregators. So you can buy very large number of tokens directly through Dex's, again, powered by this DAP wallet that I just described. And so since crypto is constantly evolving, and as you just described, you're building out this whole suite of products that, you know, service different communities within crypto, you know, those who would prefer a custodial experience, those who would prefer self-custodial and yet not be fully dependent on themselves for their own security. You know, in like maybe two or three years, what products do you think will become a bigger part of the Coinbase experience compared to? right now? You always need your tokens to participate in the crypto economy. So our brokerage,

our custody and exchange, I think they will continue to be important because that's the gateway. Every time we have some section of users who are doing more advanced stuff, there is the next 10 million, 100 million users who are just getting introduced. So it's like a spectrum, right? There are more users coming in who are doing basic, kind of just getting introduced to crypto, buying their first Bitcoin, and maybe they will do that on a centralized exchange. They don't know what is a decks and so on. But a segment of users will start using defy apps. A segment of users will be even more advanced. We'll use, you know, things like decentralized social applications. We'll use O3 Gaming. We'll use NFTs and so on. So if you ask me, we'll see increasingly,

And that's the hope for the whole, I would say, the industry, increasingly crypto become a utility beyond just a speculative asset or just an investment asset. So, you know, you buy sell crypto, but when it becomes a utility, it means can you use crypto every day? And one of the things I talk about sometimes is a toothbrush test, which is like, you know, you use a toothbrush in the morning and in the evening. So twice a day. So can you find those toothbrush use cases for crypto, right? And our crypto enabled applications, right? That will be bigger and bigger for the whole industry. And I think that's good for the industry,

because for this industry to really succeed, really go mainstream, we have to figure out those use cases. I think NFT is a good example. We have seen it brought in a new set of users to crypto, who are not really in like traders, in a traditional sense, they are collectors, right? We'll see other different types of communities, different types of users come to crypto

as the whole industry and the community invents new types of applications and services. Yeah, I don't know if I would 100% agree with that because I think a lot of them are speculators too, flipping their J-Tex. It always starts with that. I don't think there is anything bad with that. it starts with that. But I think, you know, over time we'll find, we are already seeing, you know, there are real

applications. There are communities, for example, getting created who are in a token-gated community. So you get special access, brands are doing that, social actions to events or special social kind of gatherings and so on based on the tokens you hold. Now, that's not really speculation. That's like a human behavior of foreign. kind of tribes and communities and social interaction. So at this point, you are trying to service kind of a range of clients.

Where do you prioritize, you know, when it comes to institutional versus retail? How do you kind of think about these different segments? See, we started with a retail focused offering, right? And it's still the strongest part or biggest part of our business at this point, because we started early. We are, of course, seeing a huge momentum in our institutional business. We just announced the BlackRock deal. It's a landmark deal, not just for Coinbase, but for the whole industry. And I would say it's not just the retail users and institutions.

It's also the developers. That's the third segment that we cater to. I talked a little bit about Coinbase Cloud. We want to help grow this ecosystem. That's the other part. Again, when you grow the ecosystem, we also grow the ecosystem. we also grow. So we're building tools to help developers build their applications faster,

more secure way, in a scalable way. We are building, allowing them to access like blockchain nodes, run their own nodes, run their own validators, earn rewards, you know, do staking, plug in a fiatrail with Coinbase Pay and so on. So it's the three customer segments that we think about. And I would say it's a flywheel. It's not one versus others. For example, with our institutional customers and retail customers, we are creating more

liquidity when both of this flows come together in our exchange. Institutions would love to trade against retail flow sometimes. And more liquidity means it's better for everyone, better pricing, better execution for everyone. So that's one example. When you work with developers and help make the dots better, for example, we can, we actually help the users who are coming through Coinbase wallet or our main app, we're accessing these apps, have better experience. So it's a flywheel, and that's

how I think about it. It's not like one versus other. We have to kind of do all of these three things to make sure the flywheel keeps spinning. And one other group is sort of the more crypto-native people who are kind of their own special segment within retail. I would bet many of them are are pretty unlikely or unwilling to use a centralized exchange. So how do you think about attracting them as a customer, or do you feel that's just a different segment? Yeah. So what is interesting about that segment is, by the way, we love that segment.

We listen to them all the time. They're vocal on Twitter. I get a lot of product feedback from them. And I think it's super helpful. I always think when you are building a product, you've got to think about the power user. because eventually what will happen is your regular users will kind of, it's a graduation. They'll graduate to become more and more sophisticated. You don't want to lose that user.

You want to make your product in such a way that the power users can also use it. It's not exactly this segment, but one example here is how we are combining retail advanced trading within our main app. You know, in the previously or even now, we have a separate app called Coinbase Pro. where advanced traders go. And we thought, okay, a lot of our regular users actually become advanced traders and how do we bring that functionality in the manner? Now for the crypto-native, crypto-forward folks,

some of the things that they will tell us is, hey, can you make it easy for me to on-ramp, create a fiat on-ramp from your bank or whatever to directly to an L2, directly to another chain, like Solana and so on. And because they, you know, how do they get their crypto and play into these new blockchins? They have to come to some centralized exchange and first move their, move their Fiat money into crypto. So we did that. We actually integrated an L2 direct on-ram to L2 into our main app, also into Coinbase wallet. For this segment in particular, you know,

Coinbase wallet, they are already using Coinbase wallet. They're loving Coinbase wallet. They're loving Coinbase wallet. It's the most sophisticated wallet out there. A multi-chain wallet, we actually support more than seven L2s and blockchains today. It's also a wallet that allows you, if you use Coinbase wallet, you can get visibility into all your tokens across all chains. You can get visibility into all your investments in any Defi app out there right on the homepage of our Coinbase wallet. And you know, you don't need to switch wallets to play into another chain. We are making it super easy for you to move assets between chains without needing a third-prety bridge. So they're loving it. We are getting a lot of good feedback. So the idea is, yes, we want to build products

for the crypto-forward, crypto-native folks. And I think we have made a lot of progress in last year and half in that direction. And it shows in our products. I'm sure you have seen the press coverage of this. And there, you know, unfortunately is one area that I think Coinbase is seen to have failed when it comes to products for Cryptonatives. After initially getting 8.4 million emails waiting for the NFT product, the day of Coinbase's launch had only 150 transactions. And since then, trading volume has stayed relatively low. This week, the marketplace has been doing below $10,000 in volume per day. versus millions of dollars worth of transactions on open sea and looks rare. So what went wrong there? Let me first take a step back and kind of say what happened and describe kind of our perspective a little bit. So first, there was probably a very high expectation set on a product that is very early.

You know, NFT is still in beta. It's been just a few weeks. And, you know, we are seeing engagement, customer engagement in the service. I think it's been like five months, right? It just came out of beta very recently, Laura. It's still very early. It's not out of beta, actually. It's still beta.

I think for five months, we have made a lot of noise early on, but actually it was in front of the user a couple of months back. You know, I always think about technology products, you know, it often take a longer time and iterations. We don't expect, we try a lot of new products. We don't expect them to succeed. on day one. I'll tell you one example. I was at Google and Google came up with Android and the flip phone when iPhone was already there and very popular. And it was like a throwback from the 80s

or 90s. Nobody wanted to use it. Everybody said it was terrible. And we all know what happened, like where Android is today because Google kept investing in it and was committed in. in it for the long term. That's what we are going to do. We think of NFT actually is an area that we want to commit to for the longer term and not just by Coinbase through Coinbase marketplace. So let me kind of give a little bit more perspective on our overall NFT strategy, and that might be helpful.

Look, you know, as I said before, we think NFT will be a huge driver for the industry as a whole, right? It represents not just art, video, music, but it's also, you know, objects in gaming or metaverse, membership access to token-enable social networks and many other use cases. So it's going to be huge and it's going to bring in a lot of users. To that effect, what we are focused on is helping creators and bringing more users to creators, whether that creator or that creation is on CoinBiss NFT or on OpenC or Rarable or anywhere else. And that's what we are doing. So, you know, if you look at Coinbase

wallet today, I will claim it's prop. It's the best NFT wallet out there. Users can now view NFT bids on multiple marketplaces, including, you know, OpenC and everywhere else, directly from within wallet. They can access both first party and third party marketplaces. through the browser that we have Web3 browser, that we have embedded within wallet. They can store their NFTs. Again, we have done, we have written our own indexers. It's very simple.

When you go and buy an FD through Coinbase wallet, you're going to see it within seconds, then half an hour or longer for other wallets. And we have done the same for our main Coinbase apps. We have integrated a Web3 browser and an MPC-based DAP wallet. So you can access all the NFT marketplaces in a unique way through our main app as well. So the idea is how do you bring all our users, 100 million plus users, into NFT, not just into our NFT marketplace, but into any marketplace up there.

Then on the creator side, by the way, one more thing I want to mention, it's also not just on Coinbase, also on third parties. So we just announced this partnership with meta. So we are enabling all Instagram customers to store their NFTs using Coinbase wallet. I mean, this is a huge deal because, you know, hundreds of millions of WIF2 users will get the taste of NFT for the first time. And we're happy with that. Now, that's on the user side. On the creator side, we only help the creators to bring their collection to markets easily

and enable them to interact with the community. And that's a feature. Actually, we added from day one on an NFT marketplace. They can. And we are seeing that creators are interacting directly with the users on our interface rather than on Discord or somewhere else. And recently we did this experiment. I would not say experiment, a new feature actually,

introduced this concept of called drops on an empty marketplace. So drops are like primary sales of exclusive NFT collection. And we have partnered with like top media houses, brands, prominent creators, you know, names like Bill Murray, Chive Media Group, Project Pinkman, People Pleaser. And this is what happened, Laura. So this was a new thing. We said, okay, let's try it. Let's see what happens.

Every drop so far has sold out within minutes. And that just shows the latent demand that is there on our platform. And we are working on how to unleash that demand, how to bring the best collection, how to enable the creators to bring their best collection to our platform. So that's kind of our overarching strategy. We're going to continue to invest in NFT as a category and continue to grow the ecosystem through our tools. And it's not just an NFT marketplace through all our tools.

And that's kind of important to realize it's not a single bit in an NFT for us. So essentially it sounds like the marketplace is not really the main, focus in your NFT strategy. But I'm sure you probably saw that Nick Tomeino, an early Coinbase employee, tweeted that he felt this kind of social strategy for your NFT marketplace was not the right one, and that really it should just be a simple fiat to NFT on ramp. So why is it that you're not focused on something as simple as that, especially since it would play to Coinbase's strength? These two are not mutually exclusive to each other, right? We have added since we launched, for example, we integrated Coinbase pay with Coinbase NFT.

Now, Coinbase pay actually externalizes all our fiat to crypto on RAMs. So if you're a Coinbase user, Coinbase customer, you can just log in and you can pull your crypto very easily or you can directly pull from Fiat to crypto on a thought-body app or including in Coinbase NFT. So we have done that. We are making it easier, easier, easier to bring Coinbase users to Coinbase NFT. But as I explained, that's not the only thing. We're going to bring users to an FD period. And, you know, CoinBus NFT is one of the marketplaces.

On the issue of social, I think it's still very early days. We are seeing very interesting in getting, we are learning a lot. For example, we are learning that, you know, sometimes the comments on individual NFTs is probably not the most useful thing, but comments on like a collection is very useful. So users are commenting on overall collection. We are seeing there is interaction between the creator and the users. So users are giving feedback to the creator or having a conversation with the creator. We're also seeing interaction between multiple creators,

themselves are commenting on each other's collections. But these are all new kind of behavior that is forming. It's a brand new concept, right? So it will, like anything else in technology, you know, People will always say, oh, that didn't work. You know, after a few years, it becomes the biggest thing. I'll say even to look at something like podcasts, that 10, 12 years back, people were confused.

Is this going to be a really kind of a media or is it just one-off thing that will die down? And today you can see, you know, we are talking in this podcast where it's a real force in the composition of our media today. In fact, I consume almost all my news from podcast rather than from mainstream channels or mainstream media. So we'll see behaviors emerge. We are not afraid to experiment. That's another thing I'll say. Look, NFTs came out of a concept called Project 10% where we actually fund bottom-up ideas, innovation from our employees.

And we fund them very small funding. It's like seat funding, two or three engineers, maybe one designer, one product manager, and we see if there are green shoots. And then after a while, we either pause the project or a fund again. It's a very kind of venture kind of model internally. And that's how NFTs came up. And they had a unique concept, a new concept, the team. And we said, great, let's take some risk.

Let's try a few things out. So we're not afraid of trying things out. And that's how innovation happens. I always think if I try out like 10 things and all 10 are successful, maybe I'm not taking enough risk. That's almost impossible. Yeah, although I do think it was surprising to find out that only 30 people were working on the NFT project considering what a large staff you had at that time.

It was not even 30 people until December. we had like six or seven people. Right, which given your headcount was a little surprising because NFTs obviously had been huge for quite a while. One other area that I wanted to ask about, which was also perceived as a miss by Coinbase was the DGen trilogy. When you release part one of it, people were responding things like the SEC should be investigating this for illegally inducing cringe. And, you know, Nick Tomeino also mentioned this in his tweet. there's a perception that Coinbase has lost its touch with the crypto-native part of the community or frankly doesn't even really have people like that on its staff anymore, whereas,

obviously in its earlier years, it was more kind of on the cutting edge. So how do you get that back? Or even if you're going to say to me you haven't lost it, then how do you change that perception? Again, I'll say we try lots of different things. So this is something our marketing team tried. Some things are more successful than others. You know, when we tried our Super Bowl ad, for example, I think DGNs loved it. Crypto-forward folks really loved it, and it was a unique concept. This was probably didn't hit the mark quite for some people.

We understand that. We take the feedback and we'll go and try other things. But I think it's not true that we don't have crypto-forward folks in Coinbase. today. I think if you look at the innovation we are churning out, it would not be possible without crypto forward folks. You know, we are the first company I just talked about building this very unique, MPC based wallet, right? A semi-custodial wallet. You probably, I don't know if you follow Pete Kim or others. He has talked about it. He's one of the engineers I respect a lot. There are many other people like that. We are building this, you know,

you know, interoperability bridges between multiple blockchains. That would not be possible without people on encrypto very deeply and being embedded into the ecosystem. So I don't think that is right. Of course, many people will have many opinions. We respect that. We take that feedback. When everything will not hit 100%, because we try a lot of different things. We are a more diversified company now, not just building one product.

It's a very deliberate choice. In a multi-product company, I talked about how we are creating this flywheel between multiple customer segments, how we are building products for each one of them. But overall, I think we are doing pretty well. We are seeing our customers love us and even a lot of DGents love us. Today, I mean, Coinbase Wall, some of the feedback on Coinbase wallet is great. Feedback on Coinbase Pay has been great. a lot of some of the top wallets like Metamask and Phantom actually has integrated CoinBispay and people who have used it have said it's great.

A feedback on our L2 on-ramps has been great. So I can keep doing more examples, but it's it will always be true that when you are a slightly larger company and you have a diversified portfolio, there are things that we will try that may not succeed. But overall, you know, we'll try many things and many will succeed as well. All right. So in a moment, we're going to talk about some products that people are eagerly anticipating. But first, a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com. The easiest place to buy, earn, and spend over 150 cryptocurrencies. Spend your crypto anywhere using the crypto.com visa card. Get up to 8%

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The deal that Coinbase recently signed with BlackRock is something that had a lot of people discussing. BlackRock is the largest asset manager in the world with $10 trillion in assets under management. It's also the parent company for iShares, which is the largest ETF provider globally. What is the vision for the types of products and services that you think will result from this partnership? Absolutely. Let me probably first give a little bit of context on the partnership itself. First, I think for this partnership to come together during the darkest kind of time of crypto winter is a testament of how far we have come as an industry and as a company.

So, you know, institutions are really thinking of crypto as an asset class. And they are looking at Coinbase as the gold standard in the industry. So, you know, what does this entail? As you know, BlackRock is world's largest asset manager. They have over $8.5 trillion under management. And they have this platform called Alladin, which is their portfolio management software. It provides their investment professionals a way to view and manage their investments on a daily basis. Now, Allervin also has over 300 other large asset managers that use Allerlin.

So they are bringing in another $22 trillion in management. So that's the axis we create. Now, what's going to happen is Coinbase Prime is going to be integrated directly within Aladin. So this asset managers now will have access to crypto trading, custody, prime brokerage, all the reporting that Prime provides right inside their regular workflow that they use day-to-day to manage all their other assets. So this is an incredible opportunity, I think, for the industry. as a whole, because this unlocks and enables this trillions of dollars of assets to eventually

enter crypto and Web 3. That's what is exciting about this partnership. And, you know, we have, we started working with BlackRock by first half of 2023. We are going to start to roll out the first phase of this partnership. So we'll start giving access to a lot of this functionality within Aradin. And then, you know, we've kept adding more and more functional. We are going to start with Bitcoin first, but then also move to make all this functionality available for other assets.

And what's your sense of how much demand is fueling this? Because last year, BlackRock CEO, Larry Fink, said he didn't see much institutional demand for crypto. And we've seen in the past there have been times when there were these seemingly big partnerships that were announced with, for instance, retailers accepting crypto as payment, and eventually they didn't amount to anything meaningful. So, you know, what's your sense of just how much actual demand for institutions is driving this and will actually result in real money coming in?

Absolutely. I mean, BlackRock will tell us and a lot of other institutional customers will tell us that their customers are asking them about crypto. That's why they're interested in talking to us. So we are seeing this demand, right, as a crypto as an asset class, keep growing in amongst institutional investors. And this deal has filled even more, I would say, interest. So we are getting a lot of calls from other institutions

who are interested, who are curious, and they want to understand more. So I think it's a great time for crypto to invite and welcome more institutional investors. So I'm very bullish on our institutional business, the revolution of what we can do to help this institutions get into crypto and not just buying, you know, I talked about this a little bit earlier, not just buying Bitcoin and a lot, that's how many of them will start. But then, you know, get into lots of different types of coins, old coins and so on, but also get into Defi and Web 3 and participate.

We'll see that also happen in the future. I'll mention one more thing here. A few months back, we announced this with some of our, actually, industry partners, you know, other staking providers, a new protocol called alluvial finance. So this basically, alluvial finance provides liquid staking for enterprise-grade liquid staking as meant for institutions. So I think we'll see more and more of those infrastructure will get built by us, by other players in the industry as well. Like a version of staked eth but for institutional clients? Right, exactly. Okay.

So speaking of staking, you recently announced that Coinbase would be adding Ethereum to its list of staking options for U.S. clients, U.S. institutional clients. And obviously at the moment, the market is expressing a lot of interest in trading ether due to the upcoming merge. However, after the merge, if the majority of institutions decide to stake with Coinbase Prime, how do you prevent Coinbase from having the keys to the largest percentage of staked ETH and sort of centralizing it that way. Yeah, we are careful about that. We, you know, we, we work with, of course, we have with our Bison Trails acquisition with Coinbase Cloud. We have our interest on validation, validated infrastructure with Coinbase Cloud maintains. But we always make sure we are diversifying with other partners as well. And that's been, we have been very, very,

thoughtful about the risks customers have in staking the risks that we carry for them. And that's kind of what has been a principle in how we offered this product. You know, you will see some of our competitors offer very high, for example, very high API in staking and so on. We deliberately don't do that because we want to make sure we can stick to our commitments when the asset prices swing like widely, right? Same thing. So we are going to just be very diligent and make sure it's sufficiently decentralized. And, you know, it's always thinking about with the customer lens, how much risk we are taking.

So for the customer. Okay. Yeah. I mean, it just almost goes against your own self-interest. It's like, like you're, you know, I mean, if you're following what's happening with the other liquid staking derivative providers, then there is sort of tendency towards centralization. I wanted to ask you a little bit more about Coinbase wallet, because you've talked about it a lot. And I was wondering, are you monetizing that already? And whether or not you are, if a lot of trading volume were to move from the exchange to Coinbase wallet, then how would that change your revenue and by how much? Yeah. So let me kind of talk about Coinbase, how we had monetizing Coinbase wallet, since

that's the essence of the question. So, what? We charge a fee for a Dex trading today through Coinbase wallet. We have connected with Dex aggregators similar to actually MetaMask and other wallets as well. They also charge a fee. We charge a fee. That's how we are monetizing Coinbase wallet today. It's basically an access fee. And what would happen to your revenue if all the trading volume were to move from the centralized exchange over to Coinbase wallet?

it. Yeah, I'll not speculate on eventualities and kind of specific numbers. So let me kind of explain the user flow, right, a little bit. So today, if you go to Coinbase main app, for many tokens, if you click on them, you'll already see that we are telling the user, hey, this, this token is not available for trade on our main app because it's not listed in our centralized exchange or we cannot list it for other reasons, but you can trade it in Coinbase wallet. So we already have a connection from the main app to Coinbase wallet.

So we see some users, they will come to the main app, then jump to the Coinbase wallet and do trading. They also like the convenience of trading in the main app. So I don't think it's one or the other. Again, many users find the convenience of a custodial, you know, experience, and also a low fee experience in some way. See, when you go to a Dex scenario, it's not just the access fee, there's gas fees involved, and so on.

On Coinbase, you know, you're not paying those expensive gas fees because it's a centralized exchange, and we are in aggregate, writing the transactions onto on-chain and so on. So there are use cases for both, and I think what we are going to see is some users will choose. So some users like the convenience of a custodial experience, like the usability. Some users prefer the privacy or the freedom to manage their own keys, manage their own assets. The security that it gives in their mind, they are going to go to a self-custodial wallet or Coinbase wallets. We are building choices for our users. That's how I think about it.

and we'll see how the, you know, how user behavior changes over time. The last several months, Coinbase has been losing market share. In May, FTCS surpassed Coinbase to become the second highest volume exchange worldwide. How does Coinbase compete with the likes of FTCS, which is younger, nimbler, and perhaps perceived to be hipper? So first thing on market share, we are still the biggest U.S. exchange right now. We have majority market share in the U.S. There are really three reasons for the market share.

One, a lot of our retail traders in a declining market, they actually are hordlers. They don't trade as much. I think second, we have seen a lot of activity in offshore exchanges, mostly on coins or tokens that we don't support, again, for various reasons. We don't support many tokens because we don't think they are safe or they can pass our kind of scrutiny on which broken we should list.

Number three is we haven't had the exposure to a lot of liquidity agents that has happened in the industry that other exchanges had exposure to. You know, 3C, Celsius, Voyager, Luna, Terra, Luna episode and all that. So in some interesting way, that showed up as more trading volume in other places. Now, to your question on how we think about competition, and how do we think? Why do we think we will still win? First, I think competition is good.

I talked about this. I think the space for more competitor. It just makes the industry better. It's healthy, more innovation, and so on. I think in terms of why we think we are in a good place, we think first our focus on trust. We want to be the most trusted option for customers, period. And that comes from our investment in security, preventing hacks,

you know, compliance. And this is a lot of investment for many years. You know, some of our competitors may not focus on it. It's also robust risk management, good customer support, basically like not being sketchy. That's how I put it. The second point here is, look, we are really obsessed with how to make things simple for the customer.

And we want to eventually have a billion users accessing this new economy through our products. And that means actually investing deep in technology. It's not just about UI flow. I talked a little bit about MPC wallet, how it makes things simple. It's a long, sustained investment in technology, deep technology. You know, when we built the on-ramp, direct-on-ramp to L2, it may seem simple, but it's very complicated, right? And it takes a lot of effort. So to the user, it seems super simple.

Oh, I can just move directly to Polygon, right? I don't need to go through bridges and so on. So that's how we are thinking. How do we invest in technology to make things super simple? And the last thing I'll say, and this, we again, we talked about it a little bit earlier, our integrated products week. So if you're a Coinbase customer, if you have a Coinbase account, we try to make it simple and easy for you to access all our products and services.

So it's not just buying and selling crypto, but, you know, if you want to stake your crypto, if you want to send your crypto, receive crypto, if you want to use a debit card to pay someone, if you want to buy an NFT, if you want to buy an NFT, if you want to participate in an O-3 game or any other interesting application, all of them you can do without leaving a platform with a single account. And we think providing customers this one-stop shop is going to be a powerful differentiator. And do you feel that because we're sort of in this crypto winter, who knows how long it will last, do you feel that you're having to focus on certain areas or do you still feel that you can

kind of pursue all these directions at once? It's very important for us, for the industry as a whole, I think, to keep investing during crypto winter. If we just focus on, let's say, exchange or let's say crypto like buying and selling, I think we'll miss the mark of the next phase of innovation in this market. So we are focused on building the tools, building through this winter, and be ready for the next up cycle, next price cycle in crypto, where new use cases will come, new builders will come, and so on. So I think our strategy is sound. Of course, our core business, you know, trading, we have invested heavily into, you know, making our exchange, the best execution venue,

a prime broker, you know, the best prime brokerage out there, our retail trading, the simplest and most trusted trading venue. And we are adding more. and more features to our cohort. But we also think we need to have one foot forward into the future and build for the future as well. And that's why we're investing in things like Coinbase wallet, self-custodied wallet. That will be the gateway to Web 3 in the future. We are investing in Coinbase Cloud that will help build the Web 3 economy, build the Web 3

ecosystem and help power. It's like the traditional, probably picks and shovel strategy, right? We want to build the picks and shovels to help developers build their next billion dollar applications. And I think that is a sound strategy going through the cryptointer because this is the time to build. Okay. So a former Coinbase product manager was recently charged with insider trading of assets on Coinbase before they were listed. And CEO Brian Armstrong took credit for the investigation that led to identifying the suspects. but Jordan Fish, who's most widely known as Kobe on crypto Twitter,

tweeted that actually he had been tweeting about the front running of coins about to be listed on Coinbase for months. And as he put it, I doubt Brian's claim that Coinbase actively monitors with any degree of competence. The front running lasted for over a year. Surely, Coinbase should have found this before Randoms on Twitter did. What's your response to that? We want to, of course, thank our friends on Twitter

who are always monitoring and so on. But I think, you know, we cannot priorly disclose any investigation we have been doing. Like we take this kind of behavior very seriously, any type of illicit activity very seriously. So we have lots of monitoring. And in fact, we investigated this individual and we had, we cooperated with DOJ.

In fact, DOJ actually thanked us. for all the information that we get them. So, you know, this is speculation that I would say at its best. But we are, we have take this seriously. We are focused on, we are monitoring, we have safeguards, we are monitoring our internal, you know, any internal threats always. We are continuously improving our processes. So, but we cannot, for example, disclose our priority, any,

investigation that we may be doing, right? Because, you know, that's damaging for an individual or sometimes it may compromise the investigation itself. That's all I have to say here, but I want to assure everyone, look, your assets are safe. We do not allow front running. And we are going to take serious action if we find any hint of it anywhere. And in the same case, the SEC charged this product manager and his two accomplices with insider trading. But in the charges, the SEC mentioned that nine of the assets on Coinbase were securities,

but it didn't really give the reasoning for that. And since the case is against this former employee and his brother and his friend, is there any way for Coinbase to get involved, or is there some other way that Coinbase can basically get the SEC to provide its reasoning as to why those coins are securities. Yeah, it's a great question, Laura. In fact, we think the current regulation, you know, the highway rule that everybody uses the highway test to understand whether something is the utility or security is outdated. It was not written at a time when there was any semblance of blockchain technology or even computers is almost 100 years old now. So we would

love to get more clarification and we think this is good for the industry as a whole. So we are working with SSC trying to get more clarity on any asset. On our side, every asset we list goes through a very rigorous process, a digital asset listing framework where in our legal team, compliance team, security team, they evaluate the asset, they apply the highway test. And we reject a lot of assets, by the way. It's not like we list every asset that comes our way. We do not publish the assets we rejected because, you know, for other confidentiality reasons, but we reject many, many assets. And we are confident that the assets we have listed passes that test. In fact, the digital asset review framework that we have was actually reviewed by ACC. We reviewed that

SEC as well. So we would love to get this clarification for the whole industry and we'll work with SEC or any other regulator for that matter to get more clarity. So after this incident, Chief Legal Officer Paul Gruel published a blog post titled, Coinbase does not list securities, end of story. I feel like that headline implies that Coinbase has the final say on whether any token as a security, obviously it doesn't. So why was this written in this way? Again, we maintain that to our knowledge, when we apply the laws as we understand them, the regulation, as we understand them, we do not list any securities. All our tokens are utility tokens. And that's the spirit in which this blog was written. But I don't know what

speculate specific wording in a blog and why the wording was there. But this captures our feelings or our message that, look, we follow a process, a process that was reviewed by ACC to determine whether a token is security or utility, and we do not list securities. So if there are clarifications and clearer regulations, we'll, of course, welcome it, we have always welcomed clarity in regulation. So if this kind of helps pave the way to get more clarity, I think that will be great for the whole industry. You'll probably agree. Yeah, well, Coinbase has obviously been doing a lot of work in this direction, hasn't yielded

much result, not to blame you, but after this case, why is it that Coinbase did not de-list the nine coins named in the insider trading case, considering that Coinbase did delist Ripple's token after the SEC sued Ripple for XRP being in unregistered security? Yeah, it's the, you know, we, I kind of stated before, we believe these are not securities, and that's why we did not see any reason to delist them at this time. If there are security tokens, and we don't believe there are any security tokens on our platforms, we delist tokens time to time from on our platform when we see safety issues for our customer, for example, and other challenges. So there are, you know, these decisions are taken very thoughtfully.

We have this digital asset listed group that convenes and looks at all aspects of a token to figure out whether to list or delist. So I can't comment on specific decisions because it's also been a while back. But for the nine tokens, we don't believe they are security. tokens. That's why we have listed them. So to go back to some of the questions I was asking about competition with other exchanges, here we are talking about regulation. One of your other major competitors is Binance, which at least in the short term appears to be playing some kind of regulatory arbitrage game. And Coinbase obviously has a very different image. But

in that situation, how does Coinbase compete with the likes of Binance when it may be playing faster and looser with the roles? Look, everyone has their kind of own principles or one strategy, right? We believe our strategy is sound. We lean into regulation. We want to be the most trusted crypto platform in the world. And we are seeing it spaying off. For example, if you talk to institutional customers, they will tell us, they will not

even talk to many of our competitors. They want to only work with us. And that's because of our commitment to trust compliance, security over the years and how we lean into regulation, right? So I would say there are advantages and disadvantages. We have chosen this path, and we strongly believe that for the longer term, there's the right thing to do for the users. And our users also expect Coinbase to act in a trust.

We have a different user base, as you can imagine, right? And this is why we have been able to attract a lot of mainstream users. We have over 100 million users. In fact, our verified users actually tripled in the last two years. And we think we can onboard even more users to crypto and Web 3 because of our stance on trust and security and compliance. So on another front, Coinbase also faces competition from decentralized exchanges such as Uniswap. I've noticed that since the beginning of the year, trading volume on Uniswap has only been

slightly below the volume on Coinbase. How do you compete against a site where developers can list tokens themselves and there's bound to be this longer tail of assets available? Yeah, we actually, a great question. We love decentralized exchanges. We love the innovation that's happening in the D5 world. I talked about this a little bit. The way we think about it is how we give our users more choice.

And this is manifesting in the product, right? It's not just a lip service. So if you go to our Coinbase main app, you can buy all our listed tokens on our exchange that goes through our process. You can also find tokens that you can buy through Coinbase wallet or you can buy through a Dix directly with the new DAP wallet that we integrated into a MENA. So as you can see, we think of this as a not a zero-sum game. We think this just helps grow the interpy, brings more users, gives them more choice.

So in CoinBus wallet, we have integrated with Dix's. So we have a very good relationship with all the Dixas out there. And we think it's good for our users to have more access and more. choice. So that's how we think about it. Where we play is how we make it simple and easy for our users to access all this innovation that's happening. And that's where the focus has been. So your earnings report just came out and Coinbase's average transaction revenue per user is down. It's projected to be in the low $20 range this year, down from $64 per user last year. What are your plans for boosting this number?

Yeah. So as I said before, look in a crypto winter typically retail users, they reduce their trading activity. They become more hordlers. But they participate in other activities. So they are participating in, for example, staking and a lot of other features. In fact, two-thirds of our users are doing something other than trading today. And staking being the big part of that. One idea or or a strategic direction that we have been following for some time is how do we keep growing our subscription, what do we call subscription and services revenue or non-trading revenue? And if you look at last two years, it has grown from being 4% of our total revenue to 18% almost today, right? And it continues to grow. So that's one, continue to grow, these other sources of revenue beyond trading. We are also experimenting with a new product called CoinBist 1.

We talked about that in our shareholder later, if you have been watching us. So this is a product that says subscription product, monthly flat fee. It allows you to get unlimited trading without a fee. The spread is still charged. We give you 24-7 customer service. So, you know, someone will pick up the phone when you call. If you are a subscriber immediately, it gives you a. many other additional benefits across our platform, right?

And we keep adding more sources of value. We are seeing a lot of traction for CoinBis 1. Again, very early days, we have not made a lot of hype about the product. We have not done any marketing, any PR, but organically, the product has grown and during a lot of strong growth, strong growth. And we are seeing incrementality from the product. So as users come in, as they move into CoinBus 1, we are seeing they're more engaged with our platform, not just with trading, but all the other

features that we have embedded in our platform. We talked about the integrated products with strategy. That's another way we are seeing how we grow our revenue, irrespective, kind of decouple it from the volatility in the market in the longer run. All right. Final question. What do you worry about at night? What do I worry about?

there are a lot of things to worry about. I think high level, look, for the industry, I think regulatory clarity would be great. So that's the first worry, the Uber, like macro worry I have. And I think that, you know, today we don't even know who is the right authority with oversight. Is it SECC? The CFTC, so there's some confusion. Of course, CFTC regulates a lot of what we do.

do, but SEC has questions and so on. So that will be good for the industry. I think it's also, you know, harmonization of regulation internationally would be useful in a lot of countries are thinking about, you know, how to do KIC for send receive, how to do KIC for self-hosted wallets. And so a lot of ideas are coming up from regulators. Some of those ideas are probably not even actions. in some ways. So getting some clarity and some harmony globally will be useful. I think stable

coins is another one. I think not all stable coins are made the same. So regulators need to probably understand how the mechanics of which stable coin is made. How? Actually, I do have a question for you about that. There is this lawsuit against Coinbase for failing to educate customers on the differences of Terra versus other stable coins. In the lawsuit, they alleged that Coinbase did not disclose that it was this algorithmic stable coin, that it was not backed by reserves. So can you talk a little bit about what happened there? I, unfortunately, Laura, I cannot comment on an ongoing lawsuit. Okay. Okay. Yeah, I just wanted to ask because you mentioned this. But I cannot offer a comment. On,

No, those are high level, kind of just the regulatory clarity and would be useful. I think going back to your question, what I worry about. I think the, you know, bankruptcies and security hacks that we have been seeing in the industry, it just does not bode well for the reputation of the industry as a whole, right? We have never been hacked. We really focus on security and we invest in it. But I worry about like overall the industry kind of went a little fast and loose. A lot of people tried a lot of different things and probably not enough time was spent in

thinking about security. And that gives a bad reputation to the whole industry. I'm hopeful that we will get through this and there are no other bad incidents out there. but every morning I'm like, I almost like scared. Okay, I hope there's no bad news about the industry. No new nomad or no new Celsius or, right? Those are a couple of big ones. Yes.

Somebody tweeted that my newsletter had the word hack or something in it like hundreds of times. So, you know, it was definitely something other people have noticed, not just you. Where can people learn more about you and your work? Maybe Twitter. I tweet out a little bit. I tweet out every, like I do a monthly product launch tweet storm. So if you follow me, you'll see every month, like first of every month I should kind of tweet out all the highlights from what we launched. And the handle is. Surchat.com. Or Surajit. Surajit will work. Surajit that we do. What else? Learning about me, I think, you know, if you learn about my products, that's probably good.

People can reach out to me and I talk to a lot of folks in the community. I'm actually learning from others all the time. So, you know, this was a great conversation. I think there's so much more to learn in this in crypto industry. And we're still very, very early. And we have a lot of stuff to build, right? Let us all work together, not kind of sometimes I see a little bit fighting with each other and pulling each other down. Or a lot.

Some, some, right? But, you know, we are still a small community. So I think the community need to come together and need to make crypto a safer place for all users. I think we have a responsibility to innovate the next big use cases. kind of my dream. You didn't ask me that, but I honestly, my dream is how can we create a utility use cases for crypto, like where people will come on a daily basis. I talked about the good press test and use something that is powered by crypto. I think that's when we will basically arrive as an industry. All right. Well, we'll see how that plays out over the next few years. Thanks so much

for coming on Unchained. Thank you so much, Laura. Really enjoyed the conversation. Thanks so much for joining us today. To learn more about Surajit and Coinbase, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Matt Pilchard,

Juan Oranovich, Pamajimdar, Shashonk, and CLK transcription. Thanks for listening.