Unchained - Unconfirmed: What $1.8 Billion in Q1 Revenue Means for Coinbase’s Direct Listing - Ep.227

Episode Date: April 9, 2021

Larry Cermak, director of research at The Block, discusses the upcoming Coinbase direct listing in light of the exchange’s recently released Q1 revenue hitting an impressive $1.8 billion. In this episode, Larry talks about: significant takeaways from Coinbase’s Q1 results (1:04) how Coinbase was able to increase its non-transaction revenue in Q1 and why he thinks the exchange gets away with charging higher fees than its competitors (4:14) why retail consumers are investing in crypto at such a high clip (8:36) how Coinbase compares to its competition -- and why competition will drive transaction fees down (11:23) whether it matters that Coinbase has so little Bitcoin on its balance sheet (14:52) what he still wants to know about Coinbase after its S-1 filing and Q1 results 15:36) products and services that Coinbase should acquire to round out its crypto offering (17:10) his expectations for Coinbase’s stock performance (17:50) why investors may not be interested in NFTs (19:37) how the crypto markets will perform in 2021 and how that might affect the COIN price (20:43) Crypto New Recap (22:40)    Thank you to our sponsors! Download the Crypto.com app and get $25 with the code “Laura”:  https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2021   Check out InterPop, a superteam redefining the future of NFTs and fandom! https://hellointerpop.io/?utm_source=Unchained&utm_medium=episode-sponsorship&utm_campaign=interpop-launch&utm_content=interpop   Episode links:   Larry Cermak https://twitter.com/lawmaster   Coinbase Q1 Results Coinbase Details https://investor.coinbase.com/news/news-details/2021/Coinbase-Announces-First-Quarter-2021-Estimated-Results-and-Full-Year-2021-Outlook/default.aspx  Larry Cermak Analysis https://twitter.com/lawmaster/status/1379527265021743110  The Block https://www.theblockcrypto.com/genesis/100749/final-notes-ahead-of-the-coinbase-direct-listing?utm_source=research&utm_medium=email&utm_campaign=2021-04-08 John Street Capital https://twitter.com/JohnStCapital/status/1379526362692788227   Direct Listing Information https://www.cnbc.com/2021/04/01/coinbase-direct-listing-set-for-april-14-after-sec-approval.html https://www.coindesk.com/coinbase-sec-form-s-1   Related Podcasts Gil Luria https://unchainedpodcast.com/is-coinbase-stock-a-good-buy-this-analyst-says-yes/ Jeff Roberts https://unchainedpodcast.com/coinbases-s-1-the-number-that-may-make-the-exchange-nervous/   Link to the Crypto News Recap: https://unchainedpodcast.com/happy-birthday-satoshi1/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unconfirmed. The show that reveals how the marquee names and crypto are reacting to the least tough headlines and can see insights keep on what they see on the horizon. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. You may have heard about Interpop, a superteam laser focused on the emerging landscape of fandom. They are tapping into the latest innovations in NFTs to revolutionize gaming, collectibles, and comics on Tezos. Learn more at hellointerpop.io. The crypto.com app pays you up to 8.5% interest on your Bitcoin. Get $25 when you download the crypto.com app with code Laura. The link is in the description. Today's guest is Larry Sirmack, director of research at the block. Welcome, Larry. Hey, happy to be here. This week, Coinbase dropped its first quarter earnings ahead of its direct listing next Wednesday, April 14th, what were your big takeaways from the Q1 results? Sure. I mean, there are a few things. I think almost everyone expected that the revenue numbers

would just, you know, be much better than they were in the previous quarter. But still, I think almost everyone was shocked by the $1.8 billion figure. Even I expected slightly less. I think I was projecting something like 1.4 or 5. But I think mainly like just people, I was. outside of crypto that don't really know how the revenues are tied to volumes and how crazy the Q1 has been. I think those have been the ones that have been the most kind of shocked about this. And I think it opened a lot of eyes for a lot of people. And I think that was the intention from Coinbase to publish this right before they actually

list because, you know, they had the best score ever by far. And they outperformed the entire last year by like 0.5 billion. So, you know, that was really the biggest takeaway. But, you know, there were a few other ones. Another crazy one is the amount of money that they actually custody on Coinbase. I mean, just, you know, it's, I think it's like $230 billion. And if you look at the total market cap of everything in crypto, it's about $2 trillion right now. And so you have like 10% of all the assets, custody by one company.

And I think that by itself, I mean, that's the figure that impressed me the most. I was just quite shocked by that. And especially if you compare that to the growth from the previous quarter as well, you know, I think back then it was like like at least half of that. And so that number has grown significantly. And you can just see how, you know, large Coinbase is growing, just not from trading fees, but also the custody business. And I think that was quite impressive.

And not only that, but then you look at the institutional split and you find that now it's $122 billion of institutional money custody on Coinbase. and that grew from $45 billion, so almost 3x there. So I think these were really like the biggest takeaways for me. And overall, I just think like a really, really solid growth, really great results. EBITDA was really healthy as well. And also one last thing I'll add is that they also grew the number of users significantly. So it was 6.1 million monthly transacting users.

So users that actually ended up making a transaction that month. And that's up from, I think, around 3 million in the previous coin. Yeah, slightly under 3 million. Yeah, it's absolutely crazy how many people have joined. And I think that kind of goes to show that really in Q1, we've seen a massive change in the dynamic of the market. Where a Q4, it was largely driven by institutions. And, you know, we saw this from the S1 and Coinbase valid as well. I think only like 30% or something of volume was coming from retail customers.

That has definitely picked up. even though Coinbase didn't disclose that yet, that has definitely picked up significant when you can just see that from the crazy increase in the number of transacting users. So I think that dynamic shift is interesting, where initially it was an, you know, it was an institutionally driven market and now we have a lot of retail piling in as the price is reaching new highs. Yeah, one other thing that jumped out at me is something that I had discussed with Jeff Roberts. Here on the show, he's the executive editor at Dick Crypt, who wrote a book on Coinbase called Kings of Crypto. And he and I had last, when he was last on the show, discussed how Coinbase's revenue across

his whole history has really relied on transaction revenue. But in these results, Coinbase meaningfully increased its non-transaction revenue, which, you know, compared to the S1 that it released in February, you know, showed, I think, for me, quite a shift. So to your mind, how do you think Coinbase made that shift? It's just like, you know, we sort of at Tesla and, and, with a lot of companies joining, and a lot of that revenue is coming from an institution. So, you know, that's not necessarily just transaction volume, but it's also just custody fees.

And it's just charging these companies more money for other things as well. And they have multiple different business size. But, you know, even though it decreased slightly, it's still incredibly reliant on the volume. I think it was still more than 80%. But, you know, it's definitely healthy to see Coinbase growing this direction. I think the biggest worry, though, for Coinbase is that even though, even though, the revenue is getting a little bit more diversified, it still relies 100% on how the market obviously will perform.

So I think one risk that maybe traditional investors are not realizing as much is that, you know, if Bitcoin were to go down like 20 or 30%, it's absolutely clear that that Coinbase is also going to go down quite a bit. Because even if, you know, 80% is transactional and the rest is some other revenue, that also relies heavily on the prices. They charge, you know, they charge fees from the amount of, you know, assets, the custody on the platform, if the number decreases, it just goes down as well. So I think that's one thing people should kind of pay attention to. After the announcement,

I saw a lot of people on Twitter just go out and say, you know, Coinbase is going to generate like $8 billion this year. It's one of the fastest growing companies. And I would be a little bit cautious with that because a lot of people are just assuming, you know, this is this is a growth period. Like everything is just going to keep going up. But as we know, these things are quite cyclical. And even in March, we've already seen a slight decline in volumes, which is reflecting in revenues as well. So if volumes go down, I mean, Coinbase is going to perform slightly less. But, I mean, nevertheless, it's still impressive. The numbers that they disclosed, it's pretty good.

And I think, you know, one last thing is, you know, it's impressive to see how much they charge per the volume that they have. You look at like all the other exchanges like Binance, FTX, but even like Cracken and BitStam. and Coimates just gets away with charging so much more. And that's because a lot of the users in this quarter especially have been just retail users that go on the app and they don't care if they pay a couple of bucks per $100. You know, they think that the opportunity is larger. So they just don't, they just oversee the fees. But I think we're going to see some compression as well.

So that would be one of the other risks that I would be watching closely. Yeah. The block also published an analysis and noted, quote, total revenue to trading volume came in at the lowest, quarterly clip in the past two years at 0.54% suggesting take rates, which is transaction revenue divided by total trading volume, also saw compression a quarterly low. So why do you think that is happening? Yeah, I think it's pretty obvious. So whenever volumes go up significantly like we've seen, like you look at like Q4 and then Q1, we saw a massive growth, like a 3 or 4x. Whatever that happens,

you need more market makers, which is basically just, you know, institutions, market making and they are charged way lower fees. So if you increase the number of volume that you need to market make for and they pay way lower fees than the retail clients, it's quite logical that that would decrease. I was actually in my model prior to them disclosing it, I was expecting it to be even lower. But I definitely underestimated the amount of retail customers that would be coming in. I could not imagine that the number of active users would basically double. on the platform. So it's quite logical because we just have more market makers, more larger

volume clients. And those clients, they're charged way lower fees. And Coinbase makes so much more from the retail clients that they make from the institutional clients. And so why do you think that did happen, you know, which you weren't expecting that retail did increase so much? What was the cause of that? I just wasn't expecting it that much. I think it happened because of all the things that happening Q1. We saw Tesla make a massive investment, which I think drove a lot of people, you know, there's so many people that basically praise Elon Musk for everything that he does. And I think that was one of the things that just sparked this. And then we just are starting to see other institutions get interested in crypto. It's just becoming more acceptable for like really

notable macro investors and really notable people overall to be positive about Bitcoin. And we've never seen that before. And I think that that kind of, you know, made the difference. flip for a lot of people. I think before so many people still had the nightmares from what happened in 2017 when Bitcoin went to 20K. A lot of people bought at that time and then it dropped to like 3K in a couple of years. And I think when you start seeing people like Elon Musk, but even just like institutional investors, they're now saying, you know, this might be a good idea. This might be a good hedge. It just flips a switch. Like basically after Bitcoin crash, all the new sites were saying, you know, Bitcoin was a Ponzi scheme. Like how could you have been to?

so dumb to do that. And now all of a sudden, you're seeing Bitcoin outperform and you're seeing all these investors allocate a significant amount of money on a long mandate. So they're not investing to flip it. They're investing in with long-term mindsets. And I think that just for people, like it just clicks, right? You're like, okay, maybe I wasn't as stupid before.

Maybe I was just early. And I think, you know, we're also getting closer to just like complete mania. We're seeing like 2017 coins pump as well and some like crazy stuff going on. We're seeing defy valuations just. absolutely crazy. Like Uniswap is trading at like one-third of what Coinbase will be trading at. So I think it's a combination of things. But it still surprised me how many people actually join. And I think probably not going to slow down anytime soon. In a moment, we're going to discuss Coinbase's competition and what we expect to see when

Coinbase does get listed. But first, a quick word for the sponsors who make this show possible. With over 10 million users, Crypto.com is the easiest place to buy and sell over 9.9 90 cryptocurrencies. Grow your crypto with crypto.com earn, which pays up to 8.5% interest on your Bitcoin and 14% interest on your staple coins. When it's time to spend your crypto, nothing beats the crypto.com visa card, which pays you up to 8% back instantly and gives you 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions. Download the crypto.com app now and get $25 by using the code Laura. The link is in the description. Back to my conversation with Larry Sermak.

So as we know, Coinbase is now competing against a number of other companies that have entered this space. How would you compare Coinbase's numbers to those of Square or PayPal or Robin Hood or any other company that is also offering similar things to Coinbase? You're totally right. I mean, we're seeing a massive pickup interest consumer apps supporting Bitcoin and other cryptocurrencies. You know, we now have Robin Hood. We have Square. we have PayPal and then Revoluted in Europe. What I'll say, though, is that even though their numbers are pretty impressive,

it's important to realize that a lot of the volume that they have, especially if it's for a lot of volume, it almost always ends up routing to these large liquidity hubs, which is basically Coinbase and Binance. So, you know, when you look at liquidity analysis of all the exchanges, it's almost always Coinbase, Binance, and BitFinex. those three almost always stand out. And so a lot of it ends up routing to Coinbase regardless.

So I don't think it's necessarily competing. However, I think, and I already mentioned this briefly before, I think that this will have effect on fees because when you have a lot more competitors, a lot more retail-friendly apps, which ultimately Coinbase is, it's the go-to app for a lot of retail people. It's just going to cost a lot of fee compression because you're going to have just much lower fees across the board. So I think that's going to be the most, the largest effect.

But I mean, regardless, I mean, Coinbase is going to be fine for several years in the future, mainly because it just has established itself. And when you establish yourself as the liquidity hub and as the go-to place for, you know, large volumes of trading, it is going to be very hard to get away from that. And one thing I'll add to that is like, perfect example is just institutional investors getting exposure to Bitcoin. We saw Tesla use Coinbase. We saw Micro Strategy use Coinbase.

And when you establish yourself as the company, the counterparty, that can provide this much liquidity for these really large companies, it's very hard to go away from that. So in my mind, like when there are going to be companies in the future that want to get similar exposure to Bitcoin like Tesla and micro strategy, why wouldn't you go through CoinBets? Maybe you go through NIDIC as well, but I think those two companies right now just have too much of an edge.

And what about competition from the other end, such as defy or dexas like uniswap, do you see those posing any sort of threat to Coinbase, even if only in the long term? I think in some sense, they do, especially for the long-tailed assets. So you look at, you know, we call them, well, basically altcoins.

I don't want to say the word. But a lot of these will go to Uniswap, just because sometimes it's easier. But I mean, right now you look at the Ethereum and a lot of the fees, especially when there's some sort of an event on Ethereum, you know, you're paying like 50 to 60 bucks. And you look at like people that are joining, my friends, they're investing like

thousand, two thousand, sometimes five thousand dollars. They're not going to want to spend 20, 30 bucks for trade. And even Coinbase actually is cheap compared to something like Uniswap. So I think, you know, Uniswap will continue grow. It has found a really nice product market fit. And it's going to take away some of it. But I think obviously Coinbase is really strong at regulatory compliance and Fiat onramps. And that's really hard to disrupt.

because they already have the relationships. It's literally just taking money from the bank and converting them into Bitcoin and crypto. And that's just Uniswap can do that and decentralized exchanges can do that. Many people have questioned why Coinbase had so little Bitcoin on its balance sheet. What's your theory? Honestly, it's really hard to tell. I think it's still a lot. I mean, you know, it's still in tens of billions.

It's a lot. I think like related to everything else, yeah, it is slightly lower than I would expect. But I just wouldn't look too much into it. I mean, a lot of people are always trying to say, you know, Coinbase is like unfriendly to Bitcoin. And I think in some ways they probably have been in the past. But I wouldn't look too much into it. I think it's just like what the composition is right now.

And I think, you know, Coinbase has been taking steps to be more supportive of Bitcoin, supporting Bitcoin projects and Bitcoin developers. So I think I wouldn't look too much into it. All right. So based on this earnings, this quarterly report, what would you still want? and know, what to Coinbase not reveal that you'd be interested to see? I would just love to know more about their customers, like the customer makeup of basically anyone who trades on Coinbase.

I would like to see, you know, it would just be nice to see, like, where are the people actually behind? Like, is it, you know, younger people? Is it older people? I think that that would be interesting for me personally. And then it would just be interesting, like, how are they going to deal with fees compressing down the line? Like, what's their strategy to mitigate against that? I think those are the two main things. I would be wanting to focus on. And I think there's going to be a lot more like institutional interest coming in and a lot of institutional buyers.

So obviously, I'm also interested in that. And I think Coinbase has already been facilitating some of these without them being announced yet. But I think, you know, those are the main things. I think they have done a good job just telling us how their business functions, what their intentions are. One thing I didn't mention that is that they are expecting that their expenses are going to pick up significantly this year. So I would be interested in like what exactly are they.

thinking about spending their money for. I think a lot of that will go for like hiring, marketing. But I would be interested in like what companies will target for acquisitions. I think after Coinbase lists, it's going to be very easy to imagine Coinbase is going aggressively after companies that they haven't acquired yet because it's just hard for them to build it internally and it's just much easier. They're going to have a massive amount of money all of a sudden. You know, I think they're going to be aggressive with acquisitions.

And so I'll be interested in like what companies they'll target. And do you have any kind of areas in mind of like products or services that you think would kind of round out their offering? I think they will get more aggressive in Defi and wanting to just be more intraoperative of, you know, the applications that work in Defi. So I'm expecting more aggressive plays into those areas. And also just institutional suite. I think they still have long ways to go there.

But generally, you know, I really don't know. I would be biased to say that they all. also need a good research arm. You know, it's going to be a ton of things that they still are not providing. And I think, you know, it's just going to be interesting. I really have no idea. But I think they'll be aggressive. So what do you expect to happen at the time of the direct listing next week?

That's a good question. I think like right now there's just so much interest and there's going to be a lot of hype. There's, you know, I know TV networks already booked up with, you know, having the hosts. And everything is going to be revolving around Coinbase. going public. Bitcoin has been the story of this year in a lot of mainstream media, and I think Coinbase is just going to solidify that. So I'm expecting a massive hype. I'm expecting that a lot of retail customers will invest in Coinbase. And I think the valuations might get a little bit crazy, honestly. I think it's going to be great for the ecosystem. I think what's interesting.

Do you want to throw out a number? I don't know. I think it's going to be above 100, and I think it can go way higher than that. But I really, you know, I have no idea. You mean a $100 billion valuation or what are you saying? Yeah. Yeah. Yeah. I think it's going to list around that and then probably go a little bit higher. But honestly, I have no idea.

What I'll say, though, is that I think it's important to think about the people that are all a sudden going to get a lot of liquidity out of their early investments and what they will do with their money, right? And my intuition would be that a lot of that will be reinvested in crypto. Like we've spoken to some people that have had. shares since like really early on. And almost all of them are thinking about ways to put that back into the ecosystem. Some of them in defy, but I would assume a lot of them in Bitcoin, Ethereum, and just like support other projects. And I think that's going to be quite, quite common,

where we see a lot of these really early investors or early employees just start investing. And I think that's going to be great. But also it's just probably going to result in some even crazy evaluations that we have seen so far, which is crazy to think about. And out of curiosity, did any of them say that they plan to invest in NFTs or did they focus on defy and other cryptos? Most of them, I've only spoken to a couple that told me this. So not a great sample size, but most of them just set early projects and then some the more liquid cryptocurrencies. I'm actually seeing a lot less interest in NFTs recently, despite like all the mainstream interest. I think some of it, like even according to the data that we have in the dashboard is dying off slightly.

it might go back again, but I think people are realizing that it's maybe not the best idea to put a lot of money into illiquid assets, because when the music stops playing, it's very hard to actually realize any of those profits. So, you know, we'll see, but I'm not expecting too much of investments there. I think, you know, what could be interesting is like some infrastructure place for NFTs like OpenC or some other platforms, but I don't think NFTs are going to be that interesting, honestly. Okay. And by the way, for those of the audience listening on audio, Larry did air quotes around profits when he talked about NFTs. Okay, last question. How do you think the crypto markets will play out the rest of this year? And how do you think that will affect Coinbase and its stock? Yeah, that's a really good question. I normally try not to answer like any predictions or anything like that. But I think overall, what's different about this market is that it's being invested in by long term investors. And a lot of of the companies that are starting to get exposure and starting to invest some of their balance sheet. A lot of the institutional investors, they're investing with long mandates, usually at least three years. Most of the time it's more. And so I think the dynamic is very different. I'm not expecting to see like 90% drops like we've seen before. I think there are going to

be some corrections. But overall, I think the market is right now really healthy. And I think, you know, we're going to keep seeing interest from institutional customers pop up. And that has been really the fuel of this run. If that dries up for some reason, that could be a problem, but I'm not expecting it to. And I know, you know, we've spoken to Coinbase before. It was like a month ago or something. And they mentioned they have like four or five SMP 500 companies almost lined up to get some Bitcoin under balance sheet. So I think a lot of these announcements will happen over the next like two or three months. And I think overall, I'm not worry about the market yet. Great. All right. Well, this has been such a fun conversation.

Thank you so much for coming on Unconfirmed. Yeah, it was a pleasure to be here and happy to come on again and to talk about anything else. I love your podcast. Great. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Meet Interpop, a super team redefining the future of NFTs and fandom. From comics and trading card games to digital collectibles and everything in between, they are building the architecture of an entirely new landscape of fandom,

using technology built on the TASOS blockchain to drive their vision. Visit hellointerpop.io to learn more. Thanks for tuning into this week's news recap. Before we begin, a note on last week's news recap regarding outlier ventures. I reported the Web 3 Accelerator had raised a funding round of $350 million, only to find out that recent podcast guest, Jamie Burke, was playing a well-executed April Foles prank. All right. First headline,

Crypto industry leaders forge alliance to champion digital currencies. The Crypto Council for Innovation, a group consisting of Fidelity, Coinbase, Square, and Paradigm, launched on Tuesday to lobby governments and institutions on crypto-related policy. The CCI will provide extensive informational resources aiming to educate crypto participants, policymakers, and governmental bodies on the benefits of using cryptocurrency. C. Gus Coldebella, chief policy officer at Paradigm and one of the CCI organizers suggests the CCI's work, quote, will require sharing insights and analysis about crypto while correcting the misperceptions that inevitably accompany a transformative new technology. The CCI's inception comes

in the same week that in a letter to shareholders, J.P. Morgan's CEO, Jamie Diamond, who infamously declared Bitcoin a fraud in 2017 included the, quote, regulatory status of cryptocurrencies as an emerging issue in the U.S. that the U.S. must deal with if it is to bounce back from the economic fallout from COVID-19. Regulations regarding crypto remain rather complicated at the moment. For example, the SEC claims authority over most Ethereum-based tokens, while the CFTC oversees Bitcoin-adjacent assets like futures and options contracts. Next deadline. Grayscale states intention to launch an ETF. Grayscale, the world's largest digital asset manager, is, quote, 100% committed to converting

GPDC into an ETF, according to a medium post published by the company. The Grayscale Bitcoin Trust was the first publicly traded Bitcoin fund launched in the United States and helped Grayscale become the first and only company to convert a Bitcoin fund into an SEC reporting company. Grayscale first applied for a Bitcoin ETF in 2016. but withdrew the filing due to an immature regulatory environment surrounding digital assets. The investment company has not submitted another ETF filing, declaring only that the regulatory environment will drive the timing of its next application.

Shareholders of GPDC will see their fees go down when the fund is converted to an ETF. Meanwhile, alternative asset manager NYDIG secured another $100 million in funding just one month after announcing a $200 million round. The additional capital comes from Star Insurance and Liberty Mutual. They joined the previous round of investors including Stone Ridge Holdings, Morgan Stanley, New York Life, Mass Mutual, and Soros Management Fund. Next headline. NFT market correction doesn't slow down the NFT craze. The NFT market seems to have corrected a bit.

The average price of an NFT dropped from its February peak of $4,000 to $1,500 at the start of April. with trade volume mimicking the mountainous rise and fall of average NFT prices, peaking at 80,000 weekly trades before settling at roughly 45,000 in early April. However, before you go out and sell all your NFTs, the current average price of $1,500 represents a 10x increase in the average cost of an NFT from six months ago. And NFT weekly trade volume has more than doubled compared to Q4 of 2020. As if to spite the bubble-popping narrative, the NFT headlines,

were just as wacky as usual, if not more so. A few of the more interesting stories include Tom Brady and Peyton Manning are now fighting for NFT supremacy. Brady, the seven-time Super Bowl champion, is launching an NFT platform called Autograph, seeking to extend the idea of an autograph into the digital world. Manning, along with his brother Eli, is set to launch the Manning Legacy Collection

made up of eight unique art pieces through Maker's Place on April 16th. Forbes, my former employer, dropped an NFTE of its recent WinkleFi profile on Nifty Gateway. The cover, depicted Cameron and Tyler Winklevoss, smiling behind the title, A New Billionaire Every Day, sold for $33,33.33. The proceeds will go to the Committee to Protect Journalists and the International Women's Media Foundation. Two Coinbase employees decided to get married on the blockchain. The happy couple, by the way, that's the Ethereum blockchain.

the happy couple exchange NFTs in addition to the traditional swap of rings, cementing their marriage on Ethereum for all time. As if Brian Armstrong, the CEO of Coinbase, doesn't have enough going on right now. He is collaborating with DJ Davy to produce electronic music, a skill he picked up during COVID last year. The songs will be released as NFTs. And if you want a deeper understanding of how NFTs work or what they may become, I highly recommend this NFT Canon by A16C, a carefully curated collection of articles and resources for the NFT Curious.

Next deadline. Ripple wins lawsuit for access to internal SAC communications on crypto. In December, the SEC announced a lawsuit against Ripple Labs, claiming that XRP was a security and that the company had raised more than $1.3 billion in unregistered offerings. On Tuesday, Ripple Labs won a discovery ruling that will require that. SEC to hand over internal communications on how it determines whether a cryptocurrency is a security. The SEC does not consider Bitcoin and Ether to be securities, but has not issued any formal guidance explaining how it arrived at those conclusions. Ripple likely hopes the SEC mentions XRP as a virtual currency similar to BTC and ETH, which would help its case to be treated as

a non-security. Barring a blatant mention of XRP in the same vein as Bitcoin and Ethereum, the ruling could still offer the general public its first in-depth look at how the SEC regulates crypto. Ribble Labs' token, XRP, is up nearly 20% since the report broke. Next headline. VC-backed stablecoin protocol Faye is off to a shaky start. Faye, an algorithmic stablecoin pegged to the dollar, recently concluded its Genesis event. In total, the protocol minted 1.3 billion of its Faye tokens. As a stable coin, Faye got off to a shaky start, trading between 5 cents and 10 cents off the targeted $1 mark for the first few days before tanking to under 80 cents on Thursday. The situation emphasizes the

difficulties in creating an algorithmic stablecoin. The protocol aimed to create a stable coin that would purchase assets outright with its token rather than holding them as collateral, like a tether. Faye is created with a trade instead of debt. However, a vulnerability in its incentive mechanism made it prohibitively expensive for users to sell in the days following the genesis event. To enforce its peg, Faye had established a Uniswap burn penalty that penalizes traders for transacting with Faye under its $1 peg and a reweight of Faye tokens on Uniswap that burns underpegged tokens, thereby increasing demand back to $1. However, eventually the penalty became so high that at times the burns would exceed 100% of a trade's value, effectively making the

token worthless when attempting to sell it on Uniswap. Additionally, the team was alerted to a bug via its bug bounty program, and so it had to suspend the minting rewards that come with buying Faye, leaving only the sell disincentives. Faye currently has a market cap of $1.6 billion. Next headline. Messaging app signal to integrate cryptocurrency payment feature. Signal, an encrypted messaging app, is rolling out payments using the cryptocurrency mobile coin. Unlike WhatsApp and IMessage, which allow payments to be sent via bank accounts, Signal is looking to provide a way to send money that nobody outside the sender or recipient can track. While Zcash and Monaro are the most popular cryptocurrencies with that sort of privacy

capability, Signal chose mobile coins for its user experience, minimal storage requirements, and quick transaction time. In a blog post announcing the news, signal clarified that it would not have access to user balances, transaction history, or funds. While many in the crypto community expressed excitement, there were also a few dissenting voices. Matt Corallo, a developer at Square Crypto, tweeted, there is no technical justification for signal requiring its own blockchain in order to get the payment throughput they want. There is no reason at all for requiring the token issuance to go entirely to the small number of founders except to maximize profits. There is zero reason

even to require their own token at all when this could absolutely have been built using existing cryptocurrency systems pegged to traditional fiat currencies, which would offer significantly better U.S. and avoid the massive value fluctuation risk that signal is now hoisting onto its user base. Next headline. China's digital currency head start. The Wall Street Journal wrote an end-depth analysis of China's digital yuan, calling it, quote, a first for a major economy. The digital yuan launched through a mobile app that has since been downloaded over 100,000 times. The government issued digital money can be used to track people spending in real-time, speed relief to disaster victims, or flag criminal behavior. The article also notes, quote, the money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly for times when the economy needs a jumpstart.

However, the Wall Street Journal adds that the digital yuan may also be used to tighten President Xi Jinping's authoritarian rule as a tracking tool, making it possible to collect fines as soon. as an infraction is committed. The article also points out that the digital yuan could undermine the supremacy of the dollar, saying, quote, it would provide options for people in poor countries to transfer money internationally. Even limited international usage could soften the bite of U.S. sanctions, which increasingly are used against Chinese companies or individuals. Josh Lipsky, a former international monetary fund staffer now at the Atlanta Council, Think Tank, said, quote, anything that threatens the dollar is a national security issue. This threatens a dollar over the long term. The Wall Street Journal notes that a Chinese marketing campaign depicts

a man in an American flag shirt being knocked out by an animated digital yuan. Conversely, PayPal co-founder Peter Thiel wondered if Bitcoin should be considered a Chinese financial weapon against the United States. His comments, especially coming from someone who considers himself a bitcoiner, brought out vociferous opposition from crypto-twitter. As Nick Carter of Island Castle Ventures tweeted, So there's two nations. One of them has a free floating currency and permits the free flow of capital. The other has a managed currency and maintains strict capital controls. Which nation is Bitcoin more hostile to? All right. Time for fun bits. Happy birthday, Satoshi. Happy 45th birthday to Satoshi maybe. The pseudonymous Bitcoin creator celebrated his or her birthday on April 5th on Twitter, Alex Glassene chief strategy officer. at the Human Rights Foundation offered some insight on why Satoshi may have chosen that particular date.

He says, Satoshi listed their birthday as April 5th, 1975. If you are wondering what animated them to create Bitcoin, April 5th equals a date that Franklin Delano Roosevelt

signed Order 6102, making it illegal for Americans to own gold. In 1975, Americans could legally own gold again. It's all about financial freedom. All right. Thanks for

tuning in. To learn more about Larry and Coinbase, be sure to check on the links in the show notes for this episode. Follow Unchained on Twitter at Unchained underscore Pod, where you can find all sorts of content ranging from my weekly newsletter to updates on my upcoming book and a whole lot more. Unconfirmed is produced by me, Laura Shin, with help from Anthony Yoon, Mark Murdoch, Daniel Ness. Thanks for listening.