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

If you just go through each one of their business lines, it's really hard to see any of them growing at a meaningful pace with the exception of Base, right? Base is the one thing they've done that I think actually can grow if they do it correctly.

Hey everyone, Jason here. I'm excited to announce that today's sponsor, Petra, a top non-custodial wallet developed by Aptos Labs, just launched Earn, a new feature to access DeFi with just one click. Earn lets non- non-US users deposit USDT directly into Aries Markets lending pools and manage it all directly from the Petra wallet. This is not financial advice. Participating in DeFi does carry risks. To learn more, visit petra.app/earn. I wanted to take a moment to tell you about Focal by FalconX, the AI-powered insights engine built for institutional crypto. By leveraging AI, Focal empowers institutional investors to streamline research, anticipate market shifts, and make sharper investment decisions. You'll hear more about Focal later in the show. Hey guys, Jason Yanowitz here. Just to let you know, we have Permissionless 4 coming up in June from the 24th to the 26th at Industry City in Brooklyn. This is a conference for the developers and builders where we'll be focusing on the DeFi Renaissance, applications, token design, and much more. Click the link in the show notes to grab your ticket today and use code EMPIRE10 for 10% off.

Welcome back, everyone. We have a very special guest, Jeff Dorman, the CIO of Arca. Uh, Jeff, welcome to the show.

Thanks for having me.

Yeah, so I— when I think of Jeff, Jeff is one of the very few vocal, truly vocal people in crypto. You know, he, uh, at one point— I guess if there's activism in the good sense of the word in crypto, Jeff, you're one of them. I don't know if you'd agree with that.

I try to use the word constructivism more than activism, but yes.

Um, that's great. And, and tell us a little bit about Arca. You know, you've been investing in crypto for a while, just to level set the discussion so people know who you are, what you've been doing in the space. Sure.

Yeah. Uh, I'm the CIO and one of the co-founders of Arca. Uh, we're a crypto, uh, asset management firm. Uh, we basically have two sides of our business. We have the asset management side where we have multiple different fund strategies dedicated to just crypto investing. And then we have our lab side, which is innovating and developing and trying to find ways to bridge the tradfi world into the crypto rails. But before that, you know, 15-year career on Wall Street. I was an investment banker. I was a high-yield distressed trader. I was a portfolio manager for debt and equities. So pretty much everything I bring to the table in crypto is shaped from that Wall Street experience, which sometimes makes me feel like I'm on an island a little bit, given that I do care about fundamentals and I do care about revenues and cash flows. But, you know, I think ultimately, maybe later than I would have expected, I feel like a lot of the crypto world is starting to realize that ultimately that's what matters as well.

Really, the purpose of this discussion, we reached out to you because we saw one of your tweets talk about Coinbase and really just at a point where, look, it's getting— it's only becoming more competitive. And I think you had a really good post, which we'll link in a minute before we go to Coinbase, which I do want to cover. I think like when, when prices go down and we are in sort of a weird bear market, um, people tend to focus more on fundamentals and it comes back into the discussion. Um, what do you think about just in your evolution in crypto, like how real they are? How do you think about like fundamentally looking at crypto assets? And I appreciate there's many different flavors of crypto assets, but for you, what do fundamentals actually mean in crypto?

Yeah. I mean, it starts with everything has to have value for it to be valuable. I mean, it sounds simple, but that is the way I think about it, right? So, how do you define value? There's only 3 forms of value. One is financial value, meaning actual cash flows and revenues. And it's no secret that if you gave 10 equity analysts the exact same inputs, they'd basically give you the exact same output because everybody is now in the equity or debt world uses the exact same evaluation techniques. But that wasn't always the case. 150 years ago, people still traded stocks without really understanding fundamentals. It didn't mean they didn't exist, it just meant people didn't understand them. And obviously, post-Graham and Dodd, post-Warren Buffett, that's become a lot more homogeneous in terms of how people value financial revenues and cash flows. But financial value is the first form of value. The second is utility value, meaning is it useful? Can it be used for something? And that can have a lot of different meanings. Utility, Aluminum, for example, is very useful. It's not very financially valuable, but it's very useful. Most Layer 1 protocol tokens are not valuable from a financial standpoint, but they're useful. You use them for gas or collateral or staking or other services in the same way that loyalty rewards cards are a form of utility, right? The ability to spend your miles or spend your Starbucks points. So you've got financial value, which is cash flows. You've got utility value, which is some form of usefulness. And then you have social value. And social value is real. It's much harder to define, but you can't dismiss it. And I'm not talking about the full end of the spectrum social value where you're talking about just pure meme stocks and meme coins. But there's a cool factor when it comes to investing in certain things. Tesla has a social component to investing in it. NVIDIA has a social component. Clearly, Solana and Ethereum have a cult-like social component to it. So, ideally, when you're looking at value, you're trying to find things that have one or more, if not all three of those value drivers. Layer 1 smart contracts are a good example, or Binance Coin is a good example of something that has all three, right? Binance takes profits of its business and pours it into, you know, buybacks and burns. That's your financial value. Um, clearly the BNB token has usefulness because of the Binance Smart Chain, as well as being able to use BNB for, you know, reduced trading fees and collateral when you're trading futures and options. Uh, and then obviously there's a big social component. People like Binance. People like feeling like they're a part of that, you know, community. So, um, they're harder to find, the ones that have all three, but they exist.

You could argue in the classical, like, Intelligent Investor framework that if you don't have finance— like, if you do have social value, it should eventually translate into financial value. Like, you should be— if you're a good manager, you should be able to capture— like, Binance is the dominant exchange. It has a lot of social cachet. It's made money for people that have held the BNB token. They've made the BNB token valuable in many ways because you could use that to participate in their own launchpads and what have you. But I guess it's a good— I sort of like would question like the durability of an asset or a company can only last so long if there's real social value. It should translate into eventually financial value. And that's sort of a— some of these L1 tokens might be stuck in a between, you know, in a weird in-between because yeah, they produce a lot of social value, but financially it's hard to justify some of these valuations, I would say.

Well, exactly. And I don't think, you know, when I said you have to have at least one of those three, I would say if you just have financial value or you just have utility value, you probably still have some value. If you only have social value, as you said, that's not enough unless it ultimately leads to financial value. But like, you know, Ripple's a good example, right? XRP is obviously an insanely overvalued asset at $100-some billion market cap or whatever it is now, right? $131 billion as of right now. But that doesn't, you know, because there is no financial value, there is no utility value, it's 100% just social value. But you can't dismiss what you just said, which is that social value of being one of the oldest cryptocurrencies and having this massive following could one day lead to something that does have financial value. And, you know, I always said, and when people say like, you know, is Ripple worthless? I say it's not worthless. I can't define what it's worth, but it's not worthless because it is, it's basically just a really, really, really expensive call option on what it could be in the future based on the fact that it has cornered that social value. Right. And I think that's where. I mean, even GameStop is a good example of that, right? I mean, GameStop has been purely social value, the stock, for 3 or 4 years. But ultimately, because they have created such high social value, now they can in theory do other things, right? Now they're issuing debt because of that social value to go buy Bitcoin, which might create some real financial value and things like that. So ultimately, I don't invest in things that only have social value because I can't figure out what that's worth. But you can't dismiss it and say that it doesn't have value, right?

Yeah, absolutely. We're just, uh, in one of the last segments, I was just thinking a lot about the social value. You just mentioned Ripple has value because, you know, it's been around for a while, and, and they've just— it is synonymous with how institutions, like, institutions are coming and DeFi becoming the rails of finance. I would argue Ripple is just— Brad and team have just done a phenomenal job of, like, making Ripple synonymous with the crypto, the promise that crypto is going to transform finance. It's not your local DeFi maker project that has got to catch the bid.

It's Ripple. Yeah. I mean, I mean, in simpler terms, it's just fake it till you make it. I mean, that's effectively what it is, right? I mean, you fake it until you make it. And eventually, if you fake it long enough and people believe you, then you have a war chest of cash and resources to actually build something real. And, you know, this is not unique to investing. I mean, you know, a lot of companies are like that. A lot of companies can raise a ton of money early on. They have no revenues and no cash flows for a long time, but they do a really good job of building customers or building network effect and then eventually build something real. I think the disconnect between crypto investors and a lot of other people is that anybody who looks at something in the traditional world that only has social value, they know the end game still has to eventually be revenues and cash flows. Whereas I think that was lost on a lot of crypto people over the last few years. They're like, no, no, no, you don't need revenues and cash flows. Or, you know, the SEC is telling you not to have revenues and cash flows because it makes you a security. And it's like, all this nonsense that people started to buy into. It's like, you can make up whatever things you want, but at the end of the day, you're just wrong. Like, it eventually has to have financial value or it has no value. Like, you have to be gunning for— Uniswap's a good example of that as well. Like, just because Uniswap today doesn't give you any of those revenues and cash flows doesn't mean that you can't look to a future where those revenues and cash flows will one day be given back to token holders. Now, we don't own the Uniswap token. We think it's kind of criminal what they've been doing with regard to hoarding cash for the foundation and not using any of it for token holders. But the point is, like, if you were analyzing Uniswap token, it's no different than if you were analyzing, you know, Facebook pre-revenue, right? You know, just because they don't do it yet doesn't mean they can't do it in the future.

Or said differently, I mean, in this case, Uniswap does produce cash flow. It's just sitting in a contract that hasn't turned on the fees. It would be— sometimes companies hoard cash, like Berkshire Hathaway would be an example. Just because they're not issuing a dividend to shareholders, you're just ultimately believing that Buffett and team are going to be really good stewards of that capital. And of course, you can— there are some nuances because Uniswap has like two different entities, right? There's an equity entity and then there's a token entity, which I think you've talked about.

Hey everyone, earlier in today's episode, I mentioned Petra, a top non-custodial wallet developed by Aptos Labs. They just launched Earn, a new feature to access DeFi with just one click. Earn lets non-US users deposit USDT directly into Aries Markets lending pools to gain interest and rewards and manage it all directly from the Petra wallet. Petra Earn was designed to make DeFi more accessible for everyone. You can manage your balance, claim rewards, and deposit directly from the app. This is, of course, not financial advice. Participating in DeFi carries risks. To learn more, visit petra.app/earn or by hitting the link in the description of today's episode. I wanted to take a moment to tell you about today's sponsor, ZenRock, the permissionless decentralized custody network backed by 1Roundtable partners, 10T, Maven11, and Spartan. Now available on Jupyter, ROCK is the native token for transactions within the ZenRock ecosystem and secures ZenRock's decentralized custody network. The first application launching on ZenRock is ZenBTC yield-bearing sharing Bitcoin on Solana. ZenBTC will be live in April 2025. To find out more, you can follow ZenRock on X or click the link in the show notes.

I do want to bring us back to what, you know, Coinbase, because you mentioned something, which is there seemed to be a lot— first mover advantages often produce a lot of value. Coinbase for a long time and still is the dominant synonymous when people in the US at least want to buy crypto. Coinbase is top of mind. Has been for a while. Then you can think in second there is Kraken, but they've had some regulatory moats and they've had some advantages around that. Of course, they have a great contract on the USDC, right? They negotiated that one well. But you had a really interesting tweet, which I'm going to reference now, that I'd like to just make it center. I think it fits so much into the discussion of what are fundamentals and how you think about that. So you tweeted, um, this, uh, April 10th. You said, honestly, don't know how Coin survives. Hood and bulge brackets will win trading business. Custody has no moat. Stablecoin interest income is going to zero, presumably because rates go down. Um, their customers hate them. Look at the comments. Acquisitions have been flops. Management makes baffling decisions, buying back 0% debt. Not to mention they constantly support the VC community while putting zero efforts into supporting secondary trading. And of course they've listed some assets but not others. And their Coinbase Ventures team, like the assets in that book get listed and they haven't listed Hyperliquid, for instance. So these are kind of the things that you tweeted. So I'd like to just go one by one or just overall walk me through your thesis for Coin. Talk about what made you think about this and tweet it.

Sure. And just to be clear, I mean, we have no position in COIN. We're not shorting it. It's not like I think it's going to zero tomorrow. We've been customers of Coinbase since inception at Arca. We've been fortunate enough that across multiple different divisions of our business, we've touched almost every business line that Coinbase has. And it's not a great experience as a customer, but that's not a reason to think that the stock won't go higher just because we don't particularly like the services doesn't mean others won't like it. But I think going down the list of what you just read off, I think it's a really just hard business to wrap your head around. So let's go back to when Wall Street first started covering the Coinbase stock, when they did the direct listing. You can start right there. The direct listing was just a baffling decision in the first place. Why not hire an investment bank and actually build a book and actually do a roadshow and actually do the things that actually make people care about your stock and understand your company. The direct listing was like, it almost seemed like it was like a random decision at like 2 AM at a bar. They're like, hey, let's just, you know, we're Coinbase, we're crypto, we're anti-Wall Street, therefore let's do it without Wall Street. It's like, that's not how it works. Like if you're going to issue a stock in a new industry, I mean, look at the coverage you have of Wall Street analysts who cover it. So sometimes it's their tech coverage. Sometimes it's a brand new digital assets unit. Sometimes it's their banking unit. Like, you have multiple different types of analysts across these Wall Street banks covering the Coinbase stock because nobody even knows what it is. Is it a fintech company? Is it a bank? Is it a, you know, some new entity that they don't have coverage of yet? You have to educate. And first of all, they probably should have just done a fully, you know, underwritten offering instead of a direct listing. Or if you want to just buy into the crypto ethos, go completely the other way and tokenize your stock and say, if you want to get, you know, exposure to the hottest and most diversified company in crypto, come, you know, open up a wallet and buy a tokenized version of the stock, uh, through our Coinbase wallet or something like that, right? I mean, there's other avenues they could have done. So even just, even just the beginning of Coinbase's journey as a publicly traded company was a baffling decision in my opinion. But then you just look at some of the things that they've done, and the reason Wall Street kind of hated the Coinbase stock at first was because 99% of their revenue was being driven by retail trading at super high fees. I mean, if you go on the retail Coinbase app, you're paying like 3% per transaction, which is insane. And everyone in Wall Street knows high margin businesses eventually go to zero. Isn't that what Jeff Bezos said? Like, your margin is my opportunity because somebody's going to eat into that high margin business. So the initial Wall Street analysts, including— I'm using the word Wall Street loosely, but traditional stock analysts kind of hated the Coinbase business because it was so one-dimensional. And to Coinbase's credit, they said, okay, we have to fix this. So that's why they started looking at other business lines. That's when they started looking at institutional and prime and custody and making acquisitions and ultimately BASE and the Circle stablecoin stuff. So to their credit, they recognized that and they tried to diversify. But when you actually look at what they have, it's just sort of a series of businesses that don't work together in any way, shape, or form. And they all have massive competition and no moat, in my opinion. So for instance, if you use Coinbase custody and you also use the Coinbase exchange or Coinbase Prime to trade, they don't talk to each other. It's not like a true prime brokerage experience where if I have a prime broker and I'm like, hey, I want to go buy this stock, I just go ahead and buy it. And then my prime broker later finds the cash and settles the trade. If you have assets at Coinbase custody and you want to go sell it on the exchange, You can't even do it. You have to wait like 48 hours for them to locate it at Coinbase custody, move it over to the exchange. The exchange and the custody don't even talk to each other. And it's like, it's just a horrible, non-seamless process. And that's just one example of a lot of different business units that they have that just don't work together. They don't talk to each other. So their effort to diversify the company made logical sense, but the way they went about doing it just really didn't work. And then you go further into what their business lines and the stuff you read, it's like, okay, well, on the retail trading side, Robinhood does everything Coinbase does and probably does it better because it's a better app and it's a, you know, you could trade stocks.

They have way more distribution. So they have the funnel for stocks that they can then eventually port over to crypto.

Yeah, exactly. I mean, people want a seamless experience. Like, I don't want to be like, all right, let me go to Merrill Lynch and trade my Tesla stock. And then let me go log into Coinbase and trade my Bitcoin. It's like, no, I want to do it in one place. I'm going to go on Robinhood. I'm going to trade my Bitcoin. I'm going to trade my Tesla all in the same place. So I don't understand how they're going to compete with retail when Robinhood is basically going after their business. We already know that the big custodians, State Street and BNY, are going to start getting into custody, not to mention banks, after some of these rules that are coming out of Washington. So I don't know how they compete on custody alone. That seems like basically a zero margin business over time because there's going to be such high competition and such low rates. The stablecoin stuff is just baffling as well. For those who don't know, Circle's about to go public. So if you read the S-1 on Circle, they basically have a relationship where Circle, who runs the USDC stablecoin, they're paying BlackRock to effectively manage the treasuries that they own, and then they're paying Coinbase for the distribution of it. But basically, all of Wall Street is built on float, who can actually earn the interest. There's no way that stablecoins are going to exist forever where Coinbase and Circle take all the money and the actual owner of the stablecoin gets nothing. So either rates are going to come down and that interest income goes away because rates are coming down, or there's going to be competition out there where they actually pay out the yield to the person who owns the stablecoin, not just the, the issuer of it. I mean, Tether makes $13 billion a year. Circle makes a couple billion dollars a year. And Coinbase gets half of that, like, that's just— I don't think that's going to survive. I think eventually that interest is going to have to be passed through to customers. Um, and then again, you go back to like their acquisitions and some of their management decisions.

On that point, do you think so? I used to think that, but like, if you look at the amount of cash that was sitting in JP Morgan checking accounts, it was not clipping interest. JP Morgan, like, you know, the— if I've appreciated anything in finance is that users are not very well educated and they don't sweep to go to a money market account and clip Treasuries. I mean, staggering. You would think so. And I agree very much what you're saying. Perhaps where I might disagree a bit is the moat and the stickiness of the users that they already have. On the institutional side, I do think it's going to be very, very competitive. You're basically getting chewed up by a bunch of the large guys, BlackRocks of the world, Rob, and that's a tough place to be in. Retail, Maybe on the existing base, I would say that it probably is stickier. The net new probably comes and goes to Robinhood and some of the other places that are going to support crypto in short order, maybe even international exchanges that are now entering the US, which is like— but I do think that their ability to hold on to the user base that they have today is probably, you know, decently strong.

Yeah, potentially.

But I mean, but again, you're not valuing the— it's the asset's not valued on the current customers, it's expected growth.

Well, so think about— but let's think about that, right? Like, I'm sure— I think Coinbase last reported something like 60 million customers. Presumably most of them are US. Most of them probably have an overlap in terms of also having a brokerage account somewhere, right? So either that's a Robinhood account or a Merrill or Schwab or E-Trade, whatever, right? So ultimately people who trade crypto don't just trade crypto. They're traders. They want to trade other things. So whoever wins that one-stop shop and allows you to do everything in one place is ultimately going to win that user flow, right? If right now you're forced to— let's say you have a Schwab account. You have no choice right now. You have to trade your stocks through Schwab and you have to trade your crypto through Coinbase. But ultimately, Schwab's going to have both. Coinbase is trying to have both, right? Coinbase is already applying for like a bank charter in order to do tokenized assets. Um, so if whoever wins that race of offering both is ultimately going to win that one customer's business. There's no reason to have both a Coinbase and a Schwab account if you can do everything in both places, right? So I'm not suggesting that Coinbase loses all of those customers, nor am I suggesting that Schwab wins them all, but ultimately it's going to become more competitive. So the question is, Do you think it's more likely that a crypto-native broker, and let's be honest, Coinbase, just because they call themselves an exchange, they're not an exchange, they're a broker. An exchange would mean everything is listed. There's no listing process like the way Coinbase arbitrarily just lists a bunch of garbage that their VC friends own. They're a broker. The fact that they don't list BNB or other competitors, I mean, that's what a broker does. That's not what an exchange does. Um, so they're a broker just like Robinhood, just like Schwab, just like everyone else. So are you more likely to trust a 10-year-old crypto-native broker that is trying to trade stocks and bonds for the first time, or are you going to trust the 100-year relationship you already have with some brokerage account that's all of a sudden adding crypto? So I don't know the answer, but I just think logically it's hard to believe that Coinbase is all of a sudden going to win the equity race rather than some of the equity guys winning the crypto race. Which then leads to, well, what other things is Coinbase doing that will create a stickier customer base? And I think, again, to their credit, they're trying. That's why they're trying to do things like create this on-chain world through Base and trying to figure out custody and other things. But I think it's just, again, if you just go through each one of their business lines, it's really hard to see any of them growing at a meaningful pace with custom, you know, with the exception of Base, right? Base is the one thing they've done that I think actually can grow, um, if they do it correctly. So if they do it correctly, yeah. And again, I'm not, I'm not, I'm not rooting against Coinbase. Like, I have a lot of friends there. I like them. I want to— I just— it's a very hard business to look at and objectively, when you do a sum of the parts, just say that this is going to succeed in the long run. And by the way, I don't think they're going away. I just don't think the stock is that interesting. Right.

And then to put finer figures, because of course you reference Robinhood, and I think it's always an interesting comparison. For what it's worth, I own both, and I think they're— uh, the exercise that you just ran through, let's overlay that with a couple stats. So Koin is roughly a $50 billion EV enterprise value business. They're trading at 15 times EV to EBITDA. The P/E ratio is 20 times, which has come down dramatically as they've achieved more profitability. It's all very cyclical, of course. It's all very tied to when crypto prices go up, there's trading fees. When they don't, they dry up and it really is a very reflexive asset. It cranked out $7.2 billion in revenue last 12 months. EBITDA is $3 billion. So again, 15 times EBITDA, 20 times P/E ratio, $50 billion asset. Robinhood, $44 billion of EV. It is trading at 35 times EV to EBITDA. P/E ratio is at 27 times. Cranks out $3 billion in revenue, $1.1 billion in EBITDA. A lot of the discussion when investing is not so much, can you objectively look at an asset? And you can go through all of the fundamental analysis. At some point, price really dictates the return. And so the question is how much of it's already been priced in, right? And what are you seeing that other people are not? And I guess that's something that I just want to touch on for a minute here, which is I hear you on a lot of these components. A price reflects what people believe is happening now and in the future. So the question is, is Coin properly valued at $50 billion, 15 times EBITDA, 20 times P/E ratio?

Well, so one of the things you didn't mention there, or actually there's two things I would add to what you just said there. So the first is that revenues for Coinbase and EBITDA for Coinbase in 2021, it was basically like, wasn't it like $10 or $11 billion of revenue and close to $8.5 billion of EBITDA in '21? So all of what you just said, right? Volumes coming back, adding all these different businesses and services. The best street estimate right now for EBITDA for Coinbase is like $3 billion. So in the best case scenario, and I'm talking 2026, not even 2025. So the best case scenario for Coinbase is EBITDA that's basically a third of what they did in 2021. So that's a problem right there, right? If you're just looking at pure growth, that the best case scenario after adding all of these different businesses and building a war chest of cash is EBITDA that's a third of what it was during the peak. And that just shows you the competition, right? They had no competition in 2021. None. And now they have all of this competition, not just from Robinhood, um, and Kraken in the US, but obviously, you know, look at, look at DeFi. So that'll be point number 2. Um, Hyperliquid, for example, is now doing almost 20% of the volume that like the Asian exchanges are doing on the perps. Um, you have Uniswap and others on the spot side that are cutting into, um, the revenues of your Robinhoods and your Coinbases. Like, you know, if you shout out to The Block, if you go to the, if you go to The Block's dashboard, they do a great job with their, uh, with their data and just look at, um, the DeFi section, you can see just a graph that's just up and to the right of the share of DEX to CEX volume, meaning the share of decentralized exchange volume relative to centralized exchange volume. If you look at it from the spot trading side, this was less than 1% in 2020. Now it's 15 to 20% on a given day. So you have a 15x move in decentralized volumes relative to centralized. Same thing is true if you go to the derivative side. You know, what was 2 years ago less than 1% of overall centralized volume is now 10%, mostly because of the success of Hyperliquid. So, and then if you look at the valuations there, you know, you mentioned, you mentioned EV to EBITDA of 15 times for Coinbase and like 25 times for Robinhood. If you do that same analysis on some of the DEXs, Radium is trading at like 3 times earnings, Hyperliquid's trading at like 8 times earnings, and both of those have way more growth than Coinbase or Robinhood. And I'm not suggesting that you should have the same sort of a multiple on a token that you do on, um, a stock, because there is no terminal value, there's no M&A and things like that. But I would much rather own the growth of Hyperliquid or Radium, or, you know, even a, even like a Jupiter or an Aerodrome, um, that trades at, you know, somewhere between 3 and 10 times, uh, versus, uh, the slow kind of, you know, melting ice.

Not to mention the amount of flows that you need to believe for this asset to go up is, is far less. I mean, one is, you know, Hyperliquid's what, uh, $8 billion-ish FTV?

More? Yeah, and even, uh, it's, it's, well, it's much higher, but I think the FTV, that's a, that's a whole nother argument that I think CoinGecko and CoinMarketCap are just reporting FTVs and market caps wrong.

Like $18 billion FTV, $6 million, you know, like current market cap.

Yeah, but, you know, again, Hyperliquid, most of that, when you talk about the FTV, most of that will never come out. I mean, that's supply that Hyperliquid may or may not ever issue. The actual market cap that we look at is closer to $11 billion. But either way, the point is like that's a billion-dollar run rate revenue business that is using 90% of the revenues to buy back tokens, um, you know, and it's growing at 1,000% year over year. Like, that's to me, that's just a more attractive asset, the hype token, than either Robinhood or Coinbase. And I would, again, I would— and I think Robinhood is growing faster than Coinbase. Yeah. So, you know, again, when I think about this stuff, it's just it's not that— it's not just on a standalone basis that it's not a cheap stock. It's just, again, when I look at their businesses, I just don't see anything growing except for BASE. And BASE could be really interesting, right? Like, if I were Coinbase, what I would do is I would say, we're going to issue a BASE token and we're going to airdrop that to all of our coin shareholders as a dividend, like a special one-time dividend. But you're going to have to set up a Coinbase wallet in order to claim that dividend. you know, I would imagine if the base token was launched, it probably would be in the $5 to $10 billion range. So you said the Coinbase stock is what, $50 billion market cap right now? So you're talking about a 15 to 20% special one-time dividend if they launch a base token. So I think that's an interesting thing to do, but again, that's like a one-time thing. It doesn't really solve the long-term growth.

Hey everyone, earlier in today's episode I mentioned Petra. A top non-custodial wallet developed by Aptos Labs. They just launched Earn, a new feature to access DeFi with just one click. Earn lets non-US users deposit USDT directly into Aries Markets lending pools to gain interest and rewards and manage it all directly from the Petra wallet. Petra Earn was designed to make DeFi more accessible for everyone. You can manage your balance, claim rewards, and deposit directly from the app. This is, of course, not financial advice. Participating in DeFi carries risks. To learn more, visit Petra.app/earn or by hitting the link in the description of today's episode. I wanted to take a moment to tell you about today's sponsor, ZenRock, the permissionless decentralized custody network backed by 1Roundtable partners, 10T, Maven11, and Spartan. Now, Available on Jupyter, ROCK is the native token for transactions within the ZenRock ecosystem and secures ZenRock's decentralized custody network. The first application launching on ZenRock is ZenBTC, yield-bearing Bitcoin on Solana. ZenBTC will be live in April 2025. To find out more, you can follow ZenRock on X or click the link in the show notes.

Is there anything that would make you change, flip bull? On Coinbase? I mean, other than this, like, it doesn't seem like based on its own, maybe on the near term, like, if I'm investing, like, you know, willing to hold this thing for like a couple years.

So, so they have $10 billion of cash, right? I mean, that's a, that's a war chest of cash that they can do with, you know, in theory they can be really acquisitive and do some great things here. Like, I think there's rumors that they're going to buy Deribit. I think that would be really interesting if they could pull that off. You look at their acquisition history and it's been really bad. I mean, almost every acquisition they've made has been not only a total flop from a financial standpoint, but they basically have taken good businesses that people used and then they bury them inside of Coinbase Prime and then nobody uses them ever again. Skew is a good example. Skew is a great product. It was a great product for understanding options and futures volatility as well as on-chain data. Coinbase bought them, never heard from them again. It's buried inside their Coinbase Prime offering. Bison Trails, another one, right? An acquisition that they made. I don't think it's produced any real revenue for them. Um, you know, not to mention One River Asset Management. I don't even know if they still exist. You know, this is like the third or fourth attempt that Coinbase has had on the asset management side that hasn't done much. Um, you know, and then you look at again some of the other decisions they've made with the cash, like buying back zero coupon debt, which made no sense to me. I mean, it's a creative— it's a, it's a it's accretive to the EPS, I guess, but it's not a great use of your cash. I'd rather them go out there and buy a bunch of liquid assets and buy some market makers and support the prices because all their customers hate them because they keep listing these garbage assets that go straight down because they have no infrastructure for secondary trading. So again, I think what they could do, if you're asking me where can they grow, I think if they make some good acquisitions with that cash, it could be really interesting. I think if they potentially they could win this RWA race. Maybe Coinbase is a place that you go in the future where you own all of your assets through a Coinbase wallet. You own your tokenized Tesla and Nvidia stock. You own your tokenized gold. You own your Bitcoin, your Ether, your SOL, whatever. One day, I think there'll be better assets out there as well. I think there'll be like Harvard and NYU coin. I think you'll see Disney and Netflix coin. I think you'll see Harvard definitely needs a coin to get out. Yeah. Well, I mean, but that's, I mean, that's the logical evolution. Like, I, so it's funny when Trump, when Trump issued the token back in January and it was obviously very extractive and people were kind of upset about, you know, another kind of meme coin that does nothing. I always, I looked on the optimistic side and it's funny, like I'm being very pessimistic in Coinbase when I'm actually a naturally optimistic person. Like I actually, you know, I really believe in crypto. I really believe in things that can happen. I remember going back and forth with like Mark Cuban on Twitter saying like, The Trump token is not the end-all. That's just an example of what can happen now that people aren't scared of regulators anymore. Like, you will see a Harvard coin one day, and that Harvard coin will be, you know, I have a baby and I buy Harvard coin, and in 18 years I can redeem it for tuition, or I can trade it for Yale token or, you know, Columbia token. And if I'm a booster or a donor, instead of just blindly throwing money at Harvard, now I'm going to get this token in return, and that token can, you know, be utilized for things like, I don't know, discounts at sporting events or discounted seats at fundraising, whatever. I mean, there's all kinds of things you can do. I think New York City will issue a token, not the way they did it in the past, like with MiamiCoin and NYCoin that was totally worthless, but they could do a new version where for anyone who's familiar with revenue bonds or general obligation bonds, the way municipalities fund their operations, you can get rid of those bonds altogether and issue New York City coin. And that New York City coin can be not only sold to residents, but it can be sold to speculators. If you wanted to speculate on New York City, but you live in Madrid, what are you going to do? You're going to buy real estate. That's the only way to speculate on the growth of New York right now.

Or use a parcel.

Right. Yeah. Now, maybe you can buy New York City coin, and that coin, if New York City has a surplus, maybe they dividend revenues back to you, or you can use that coin for discounts on the subway and the buses, or you can use it for FastPass at LaGuardia or JFK, or you can use it to be in a lottery to throw throw a wedding or a birthday party at Central Park, whatever. I mean, there's all kinds of things municipalities could do with a token. I also think like companies are going to issue tokens. Like Disney's going to have a token that, you know, it'll be like 10% of top-line revenues go to Disney token holders because it's a way of kind of bootstrapping customer growth. But you can also use that to pay your Disney Plus subscription and use it to get FastPass at the parks. And, you know, maybe you get exclusive content or something. Like there's all kinds of, you know, ESPN Insider, whatever. Like there's all kinds of different things you could do. So if these types of tokens get issued one day, which I think they will, maybe Coinbase is the leader for that, right? Maybe, maybe you do go to Coinbase one day and it's like, I'm trading Tesla stock, I'm trading New York City token.

Let's get into that, right? I think I want to get your overall take on tokenization of stocks is something that I think is inevitable. It probably happens sooner rather than later based on what I've heard. You know, folks like Robinhood, BlackRock, they're all chomping at the bit. I mean, I think that there is a They will likely come this year, maybe next year, but it's a who wins in that game and who stands to lose the most. Because I've always felt that distribution is what matters the most. If you're doing an IPO, if you're in the world of finance, like it is like the entrenched players and robo-advisors kind of learned this the hard way, which is like it is really hard to acquire customers because the stickiness of a user, is, is there? You mentioned it with Coinbase, right? If tokenized stocks are going to come, I guess the concrete question is, for every incremental dollar that gets invested in a tokenized stock, is it going to come from Coinbase or Robinhood, BlackRock, you know, uh, you know, Interactive Brokers or whatever?

Well, I think, I think the real answer to that is DeFi holds the cards because there's no real reason to tokenize a stock unless you can then make that tokenized stock productive, right? It's not like people don't have access to stocks right now. Maybe there's the emerging market cases where you get rid of ADRs and things like that and people want to invest in US stocks more easily and it's easier to do it through a token than through some brokerage type relationship with a non-US brokerage. But ultimately, if you really think tokenized stocks are going to take off, it's for two reasons. It's one, because you're going to start turning investment vehicles into payment vehicles, meaning the workflow right now of saying, hey, I'm going to go make a $25,000 payment to buy a car, but to do that, I have to go sell my Tesla stock, wait T+1 from my brokerage account to clear the cash, send the cash from my brokerage to my bank, and then wire money from my bank. That's a much worse workflow than saying, hey, I'm going to go buy a $25,000 car and I'm just going to send you Tesla stock. In kind, right? And you can pro rata my Tesla stock. So the one reason tokenized stocks become interesting is because of that, right? You're turning an investment, what was once only an investment vehicle, into a hybrid investment and payment vehicle. So if that actually happens and you start seeing a world where you can spend your stocks and you can spend your bonds, then tokenization makes all the sense in the world. The other one is that, again, most of the time you can't really use your stocks very productively right now. So for example, For example, I have a life insurance policy, a whole life insurance policy where I can basically loop it and leverage it, meaning I can take my whole life insurance and instead of making my whatever $10,000 annual premiums to the whole life because whole life is a terrible product by itself, it's only interesting if you can actually do some interesting things with it. But, if you take a whole life policy and let's say normally you have a $10,000 a year premium that you put into it, well, what if I say, "Okay. Well, instead, I'm going to go 5 or 10x levered on this whole life policy and 10x the size of it." and I'm going to take out a loan from a bank and I'm going to have the bank pay my premium and I'm just going to pay interest to the bank for the loan. But that interest rate is super low because I'm pledging all kinds of collateral, including my life insurance, to the bank in order to get that loan. Right. So you're basically just, you know, looping it. Well, that process takes a year between all the paperwork and all the things you have to do to do this. Whereas like if you have tokenized stocks, you can just be like, here, you can see my wallet right here. I can pledge that directly to you. And all of a sudden you have the collateral you need in order to do this.

So yeah, to me, that's when it gets interesting is that, you know, and by the way, the rate that you probably get is probably more attractive and it's real time. It's, you know, the, you know, the real time of that collateral is powerful and very composable. Right.

So think about how many, you know, and this is where I think Coinbase and others have really screwed up is that, you know, we continue to pitch crypto as if it's some sort of like commodity or currency product because everyone fell in love with Bitcoin. But like, people forget that 99% of the world's assets are stocks, bonds, and real estate, traditional kind of cash flow assets that are more fundamental properties. That's what people understand and know. And yet here's this crypto world trying to pretend that everything's a currency or something else that only a bunch of CTAs and macro funds care about and most people don't care about. Ultimately, if we can get those assets that people do care about, your stocks and your bonds and your real estate on-chain, it's not just to say that they're on-chain. It's because you want to use those. I want to use my stock as collateral to pull out cash, or I want to use my stock to make a payment, or I want to Ultimately, I see a world one day where people don't even own cash. Why do we own cash? As you said, you don't earn any interest on your cash. There's no reason to own it other than the fact that you have to make payments with it. So if we get to a world one day where I go to Coinbase and I have, let's say I have my net worth is $10,000 and that's $2,000 worth of Bitcoin and $2,000 worth of Tesla stock and $1,000 worth of a money market and $5,000 of an auto deed or deed to my car or something. If all of that exists on-chain and it's tokenized, then you can start doing really creative things with that. Like, you know, like I said, like using DeFi applications for collateral or, you know, making payments directly from, from this entity where just pro rata takes it from all your assets. So there is a world where Coinbase could win that, where they say, like, from a technical standpoint, what they're doing is better than anyone else and they can do custody and on-chain better. And if you actually believe that the world is heading on-chain, that they're going to win that race. The flip side of that is by the time we actually get there, you know, Schwab and BNY and State Street and JP Morgan and Goldman and BlackRock are all going to offer the exact same thing, and they have much bigger distribution.

I wanted to take a moment to tell you about Focal by FalconX, the AI-powered insights engine built for institutional crypto. With Focal, you can create charts and generate answers to questions in seconds. Used by over 80 funds with more than $10 billion in assets under management, you'll feel like you have a team of analysts at your fingertips. Ask Focal questions like, what's causing the uptick in liquidations? How much Bitcoin did Michael Saylor buy last year? And what is crypto's correlation to traditional markets? Focal pulls data from trusted sources like CoinGecko, Token Terminal, and The TIE with enterprise-grade privacy and security. Learn more at askfocal.com or check the link in the show notes. Thanks to Focal for making today's episode possible. This episode is brought to you by Token.com, the social-first platform transforming how people discover and trade through crypto content. With a mobile-first interface, Token.com transforms crypto investing into an intuitive scroll-based video experience. Trade the latest and trending tokens tokens at your fingertips, all while discovering captivating Web3 stories from the top industry leaders and influencers. With Token.com, you can earn points for tasks on the app, including on every trade you make. Just scroll to watch and tap to invest. Thanks to Token.com for making today's episode possible.

What about the reverse? Like someone like, um, a DeFi protocol verticalizing up? I mean, because like from a— you're talking about like this use case of like the composability, the tokenization, and the what AAVE allows you to do with flash loans. Like hyper— like perps are really powerful instruments. They're printing cash. You know, you're sitting there within treasury value of a couple billion, and then you're spitting out cash Why not go buy a business that allows you to enter the real world? Like from a technical— because what you just said is like, all right, I just heard you say Coinbase has not been a very good acquirer. They're all the different products and don't really stitch well together. And so the tracker was kind of poor. So like, would you— I guess I would probably bet more on a DeFi product protocol verticalizing up. Yeah, I mean, like hyperliquid, or if they really wanted to, right? Like in this tokenized stocks idea, or partner, like, you know, like some of these Athenas of the world and Ondos of the world have partnered with a player in the traditional world that has a lot of distribution, and you just strike an agreement in there that, you know—

Yeah, I mean, I think, I think that's the most logical answer. That's how, that's how our portfolio is positioned. We actually believe exactly what you just said. That it's more likely that these DeFi applications that have already figured out self-custody and already figured out smart contracts and the ability to use collateral are going to just vertically integrate into all these other areas. And the difficulty there is that we're still in sort of this fragmentation world where it's like, well, which chain, you know, is it going to be on Solana or is it going to be on ETH or is it going to be on, you know, Hyperliquid? So I think that's the challenge. You know, we have a very simple thesis right now in terms of like how we are positioned. And the thesis is very similar to what you just said, is that ultimately, we are moving towards an on-chain world and we already know that the technology works really, really well, but the technology only works with assets nobody cares about right now. Nobody cares about a bunch of meme coins and all these random L2s and VC coins that nobody cares about. Once the world's assets that people care about, meaning stocks, bonds, and real estate, are actually on blockchain, there's naturally going to be a few winners, right, as these barriers break down between crypto-native and non-crypto-native. So as these barriers between tradfi and crypto break down, ultimately you're going to have the beneficiaries are going to be whichever layer 1 blockchain wins that business. And like, even though Ethereum and Solana have a big lead right now, the reality is there's almost nothing of relevance on either of those chains, right? Like, it's all a bunch of non-speculative activity. Um, I mean, Solana is a good example, right? Solana is like the, the emperor that has no clothes. It was all, you know, the technology works and could be applied to a lot of different things, but it's currently almost exclusively being applied to meme coins. So I don't think—

and by the way, I don't think it's a problem of Solana. I think this is a problem that we have as an industry. Like, we just can't— we can't— we can't— we're not going to onboard users that are going to, you know, buy a life insurance policy through an exchange. Like, the user that comes to an exchange is going to Vegas, digital Vegas. It doesn't close. And so we can't pretend that we're going to catch a bid for more fundamental core non-speculative stuff through an exchange. So like that's why I think the— can you leapfrog? Historically, like the industry's been kind of constrained by that funnel, which is you need to go and kneel down on exchanges because they're the ones that have the— they're the user aggregators, right? The 60 million Coinbase users that you mentioned, the users in Binance and Kraken, OKX, Bybit. But you know, I've been thinking more and more about, okay, well, if you're a protocol like Athena or Hyper or Liquid, like just why not circumvent that? Like go directly to a BlackRock, go directly to your, the person that is going to really facilitate that bid for you. The question—

I think you're right. But again, I think that's like the—

exchanges always want to probably be too value extractive.

Yeah, but I think that's why it's difficult to, like, again, even though our thesis is really simple, that, like, again, all these assets are going to come on-chain and ultimately, the winners are going to be whichever layer 1 protocol wins and whichever DeFi applications are built on that layer 1. The hard one is you just don't know who that winner is going to be, right? And do you end up just, you know, like, to me, like, what's the difference right now between Solana and, you know, Cardano and, you know, Sonic and Avalanche? Like, They all technically do the same thing. None of them have achieved any scale of any meaningful applications. So, like, if you tell me tomorrow that we wake up and the US government and Walmart and JP Morgan say, from now on, we're doing all of our transactions on Sonic. Like, you tell me Sonic doesn't immediately beat Ethereum and Solana. And by the way, we're not betting on this happening. I'm just saying, like, if you were going to make a bet on which layer 1 protocol is going to win, it's not because of anything that's currently happening on the chain. It's because the biggest users and customers of the world ultimately choose your blockchain, right?

Yeah, let's be honest. I mean, you cannot justify any valuation for the base layers on any discounted cash flow, 10-year discounted cash flow. Everything is like 99.9% terminal value predicated on this idea that we're going to grow users and all this other stuff's going to come online.

Mm-hmm.

Which, you know, you can believe, certainly. I am curious where you think value accrues. Like, there's all these hypotheticals, like, you know, fat protocol thesis and then user aggregation theory. How do you, when you position your portfolio, like, you say, okay, these are the protocols that we like, you know, reasonably valued. Like, I think you guys have a position in Hyperliquid. Okay, well, like, you know, you just mentioned trading at 8 times earnings. And, you know, perps are a very— so, so the thesis for hyper liquid, but like, how do you think about like the durability of that type of company, the, um, or asset, and the value accrual in the next like couple years? Because I think you guys are long-term investors, so you're not like day trading stuff.

Uh, somewhere in between. I mean, we're not day trading, but we know long-term is a subjective word. When, when information changes or our theses change, we change with it. But, I think the answer is, let's dumb down what a layer 1 blockchain really is. If you think of it as, imagine if you could just, you find some random island in the middle of nowhere that no one's ever found before. On day 1, that land has some value. You found something that nobody else has. There's all this possibility and opportunity of what that land could do one day. There's no actual economic activity on it today, but there's some value to the fact that this is new raw land that can be developed into something. That's your speculative value. That's your social value, whatever. But then, as you start to develop on this land, you start to have the applications come in, your schools, your houses, your businesses, your tax revenue, et cetera. That's effectively what a blockchain is. A layer 1 blockchain, the day it's announced, is just a blank island with possibilities. And then as apps are built on it, you ultimately build a real economy, and that real economy builds transaction revenue, which is effectively tax revenue to the government. So there can be more than one winner is what I'm getting at. I'm not suggesting we're going to have a one-winner-take-all blockchain. I think there probably will be multiple blockchains for different services. Bittensor may be the blockchain for AI, and Solana might be the blockchain for DePIN and Ethereum might be the blockchain for DeFi or whatever. And there might be interoperability and things like that as well. But ultimately, the value of these smart contract platforms, these layer 1 blockchains, is just the value of the applications built on top of it and the revenues that they create, right? No different than the Apple App Store, right? The Apple App Store by itself is worth very little, but it's worth a lot when all these apps are built inside of it and you have all this a movement back and forth, and you have these transactions and things like that.

So on that point, Jeff, um, how do you think about the actual— like, Apple is a monopoly, and, and because they have the user, that they, they sell the device the user uses, and therefore they're able to extract really interesting terms on the App Store, monopoly-like terms. That's not the case in crypto, right?

So how do you—

can be, but you think you can? Yeah.

Well, I think that's what I'm getting at is like, okay, let's use another— sorry, I'm big on analogies, but like the internet didn't become the most important tool of the last 25 years because of the handful of internet native companies that were built on it, right? It wasn't because of like Pets.com and Amazon and Priceline. The internet became a reality because every company in the world started using the internet, right? Domino's Pizza became an internet company. JPMorgan became an internet company. Walmart became an internet company. You know, Harvard became an internet, like everybody started using the internet, right? So that's what I'm getting at is like each of the layer 1 blockchains that exist today, while they have a couple of cute, fancy, interesting things on them, like, you know, maybe some of them have stablecoins like Tron and maybe some of them have DePIN like Solana and some of them have, you know, a few random gaming assets here and there like IMX, like the world's assets that people care about are not on-chain yet. And once that happens and the entire world starts going on-chain, Ultimately, the layer 1 blockchains that are going to win are the ones that these big institutions use. So, my point is we just don't know who the winner is yet because 99% of the world's assets are not on-chain yet. So, once they are, again, if the US government and JP Morgan and Walmart came out tomorrow and said, this is the chain we're using, that's the chain that's going to win because they have all the users. So, I don't think we head to some monolithic world, but I do think it's going to be like a duopoly or a very small number of blockchains that ultimately succeed based on which blockchains ultimately get the most assets and the most users.

Beyond tokenized stocks, on-chain activity like, you know, perps and, you know, trading of assets or crypto-native assets, is there a particular use case that you really are excited about, whether it be DePIN, gaming, NFTs?

Again, again, I think DeFi is the— is just the no-brainer. It's the natural backbone that puts all that together. So whichever DeFi protocols can really become vertically integrated, like you said, and can offer spot trading, perp trading, lend-borrow, maybe insurance, all kinds of banking-type services. DeFi is an absolute natural beneficiary because the entire on-chain economy is going to run through these DeFi rails. And then the other ones are a little more ancillary that I think are really interesting. Like, I think the intersection of AI and crypto makes all the sense in the world because there's no doubt at this point after the success of ChatGPT and Grok and Deepseek and others that you're going to move beyond just the LLMs that answer questions. And pretty soon you're going to have autonomous agents. And those autonomous agents have to have some sort of spendable currency in order to be autonomous. Like, you're not going to have an AI agent walk into a bank and get a bank account. They're not going to walk into a brokerage and get a brokerage account. They don't— yeah, they don't have a tax ID. They don't have a Social Security number. So the idea of using wallets and spending, like, you will see a world where every single person on Earth has either an AI agent or multiple AI agents that are transacting for them and doing things for them. And that's naturally going to be on-chain. So I think stablecoin growth is real. I think DeFi growth is real. I think AI agent growth is real. And then there could be a couple other things here and there that maybe we don't really have our— sinking our hands into all that well. Like I think You know, gaming potentially could still be interesting even though it hasn't done much in the last 5 years. But, um, you know, that's, that's where we're focused from an investment standpoint. Yeah.

As we look to wrap the episode, Jeff, I mean, we— I think we used coin as a good, um, case study to discuss fundamentals and how you think about overall where the industry is headed. Anything else that we should touch on, things that are you think about, um, you know, things that are exciting to you, which I think we covered to some extent. But yeah, anything else we should cover in the pod?

Um, yeah, I mean, that's a, it's a loaded question because we could probably talk for days. Um, you know, actually, for anybody who cares, and this is not to promote myself, but I actually, um, recently pinned a tweet at the top of my profile just talking about like, you know, these are the crypto hills that I'll die on, uh, because there's just a lot of things. Uh, one sec. Sure.

You can keep going. I'll pull it up. Yeah.

I mean, over almost 10 years doing this now, as well as 15 years on Wall Street beforehand, there's just certain kind of crypto hills that I'll die on now that I just think are little changes that really make a big difference. Things like, I just think lockups on these VC deals are pointless. There's just no reason to have lockups when you have instant liquidity. I do think this move towards value, as you said, To me, it's not just because you've had a bear market that makes people care about value. I think it's more that value has always mattered, and I think people are just now starting to realize it a little bit. So I think as more and more traders and investors start to pay attention to tokenomics, meaning it's not enough to be a good company or project, you have to be a good company or project that actually knows how to feed value back into your token price. Um, you know, I think little things like that are really interesting. Uh, like I said, I, I'm, I'm a huge believer, um, in sort of this intersection between stablecoins, AI, and DeFi. I mean, I think that's the holy grail. But I also think, you know, the most exciting thing for me is what we already touched on, is like, I just want to see better assets. I don't want to see nothing but meme coins and Trump coins and, uh, you know, uh, uh, random governance and utility coins. Like, I want to see real companies and entities issuing tokens. Like, I want to, I want to walk around the corner in my neighborhood and see the local restaurant owner issue a token to their customers, you know, as a way of kind of quasi-equity. And, you know, I think that's kind of where it gets really interesting is that, again, so much of the world's assets are either not able to be owned by the majority of people for regulatory or workflow issues, or they just like haven't even thought about how to monetize them. You start monetizing stuff like that. The very first thing I ever wrote about crypto was in 2017 or '18. In fact, I don't even think it's on the Arca website because I think I wrote it before the website was even up. But I just talked about how I've been a Starbucks shareholder for 20 years. I don't drink coffee. I don't have any relationship with Starbucks. The only time I ever use Starbucks is to steal their Wi-Fi or to go to the bathroom. I get nothing out of Starbucks. They get nothing out of me. It's a purely financial arm's-length transaction. Meanwhile, all the things that I do on a daily basis, like I spend 12 hours at some local baseball field because my kid has a tripleheader and I'm paying for money at their snack stand and I have no financial ownership or any direct benefit from what I'm spending all my time doing. Or we go to a local theater or we go to a local restaurant. So, it's like bridging this gap between what people actually do and what they own is a big part of why I think crypto is so interesting. Like, I hate the fact that McDonald's shareholders and McDonald's customers are basically like a Venn diagram that doesn't touch, right? The people who own McDonald's stock don't shop there. The people who shop there don't have any financial— like, we can certainly change this. Like, you know, the Uber drivers should be the ones who own Uber stock. The DoorDash, you know, bike riders should be the ones.

Like, it makes so much— it makes It makes so much sense when you say it. And I had the same thesis too, which is, wow, I was investing in open source software before VCs believed that you can accrue any value because the code is free. So how do you capture value? Mongo and Red Hat just kind of proved that and everyone was like, oh, okay. And then crypto comes along, something like Ethereum and says, we'll map contributions to a token. And then it sort of solves a lot of the issues that open source software development has had, which is the continuity of it. How do you map contributions to, to attach a real value in a broad open source system, and it requires a lot of coordination. Crypto is really good at coordination.

Exactly.

And so like, I kind of came at it from that angle. I said, sure, like, why is it— and there have been attempts to that— is, is it been the regulatory constraints and issues? Has it been that just from a— you haven't had to do it, and therefore companies just don't think that they need to do it in order to be successful? Or like, how do you explain that? Uh, you know, if you're YouTube, right, you're extracting 80/20 split creators. Like, you go through the list, we're in a, uh, con— like, creator-generated content economy across media, social networks. They get the, the ratio of what the creator takes and the, and the owner of the network takes is totally off base. That will be transformed at some point, but why is it that that hasn't been the case?

Yeah, and you're absolutely right. I mean, like, and this is not a hard concept. Like, my now 12-year-old, when he was 10, I opened up a Robinhood account for him just to teach him about stocks and things like this. And, you know, we were flying one day and he said, Dad, when you— I think he owned the Jets ETF, so he knew about airlines and stuff. And he said, Dad, when you fly on Delta, do you get any of their stock? I'm like, no, but you should, right?

If you're a customer or a user of Delta, you should financially benefit from their You get their miles, their airline miles, which are not really fungible and are not really useful. It's tied to their own local economy.

Well, and more importantly, and more importantly, they don't at all map to the success of Delta. If you own a bunch of Delta miles, you don't care if Delta succeeds or not. You just want to be able to use the miles, right? So it's like, again, to your point about coordination and incentives, you're not coordinating, incentivizing the right things. There's no global, um, you don't have stakeholders aligned in the same way. And that's a big part of what crypto was trying to do at first when I got into it. And I think the, you know, the ICO boom was a big part of that as well, like trying to, you know, make your developers, your founders, your users, your customers all sort of aligned for the same goal. So to answer your question, why hasn't it happened? I think it's twofold. I think one is just in general, the status quo is really hard to break, you know, and I think workflows matter. So people's workflows right now are buying stocks and buying bonds and separating that from the things they do. So, I think it just takes time. As Bill Gates always said, people overestimate what can be done in a year and underestimate what can be done in 10. So, I think part of it is time. It's no different than I remember in the early 2000s when airports started putting up kiosks to get your tickets and you could fly paperless and stuff like that. There was maybe 20 people who would be standing at the kiosk and hundreds of people still standing in line at the desk because they did that that they were used to the ticket counter. And then over time, you hit this Malcolm Gladwell tipping point where now everybody used the kiosk. And if you happen to walk up to the ticket counter, somebody just walks you over to the kiosk and shows you how to use it. It just takes time for some of these workflows to happen. But the other one, I think, and I think this is the real lasting legacy of how bad the Gensler US SEC was, and shout out to one of my colleagues, Topher McPherson, who wrote a great article on this on our website the other day talking about The lasting legacy of Gensler was not the lawsuits and not the courts and not all this nonsense that they were doing. The lasting legacy was that they scared innovation away from doing what we were doing, um, because they were in fear of getting sued or worse, getting put in jail for creating these projects that actually do align the value of the project with the value of the token, right? If you go talk to any lawyer in crypto over the last 2, 3 years, they were actively advising their founders to not tie any value to their token because of fear of it being a security and getting, you know, thrown in jail. And as a result, like, that's what led to the nonsense of these meme coins and these valueless governance tokens. I mean, look at the Zora launch.

It's just had a perverse side effect which has created this uncertainty area where it's like, let's— no value, it's purely meme, so it's not a security. And it's like, well, no, We can do so much more. Let's compare pound for pound a protocol, which is people light. It's code that works like smart contract. You compare Uniswap and Coinbase. I love that comparison. We're at ParaFi, we use that comparison a lot, which is a fraction of the employees, the amount of scale, 0 to 1, and just the velocity by which you can tap into these global capital markets. Fascinating. But of course, you have to structure it in a convoluted way, which is you have the foundation the entity and the labs and all these disconnected pieces where you just, wait a minute, collapse it. Just one thing. Let's call it for what they are. It is the next evolution of an exchange, which is asset, like people light and just at a global reach without having a platform.

Yeah. I mean, think about if you could do Uniswap over again with the current kind of hands-off regulatory regime. It would be really simple. You'd say the founding team is going to keep maybe 20% of the tokens. The LPs and market makers are going to keep maybe, you know, 30%, 40%. The customers are going to get the other 40%, 50%. And then there's going to be a revenue split where 80% of the revenues go to LPs and 20% go to the customers. And you're like, okay, great. What happens is everybody's now on the same page. Your customers, your market makers, and your founders are all aligned to the same goal of growing this. You're all financially rewarded if you pull it off. You become lifetime users and evangelists. You want everything running through Uniswap because you know you're getting— like, it's, it's, it's no different than what you said about before. It's like, what is crypto good at? It's good at coordination. Well, like, the same thing could be true of airlines. Like, yeah, if, if I actually— the more I fly, the more financial benefit I get, I'm going to fly on that airline more. And I'm also going to tell my friends to fly on that airline.

It's such an obvious thing. Like, you lower— like, the reason why companies go out of business is because they they fail to grow and improve unit economics. And like, just, it all kind of boils down to, do you have a product that people use and they use repeatedly? Meaning the lifetime value of that customer, the LTV keeps growing, it's robust. And then can you acquire that customer? Boy, I mean, we're throwing stupid airdrops to like, you know what I mean? Your degen on-chain is not your core user for the most part, but you can use that airdrop construct As opposed to just make it a simplistic airdrop, we'll make it a work airdrop, which is the more you fly, the more you get a tokenized Delta stock or United. I do think there is like a regulatory constraint around that, which hopefully with regulatory clarity this year, stablecoin legislation, more clarity on tokens, and perhaps an orderly process to register, disclose information regarding a token and the token issuer, we probably enter into this new frontier.

Yeah, and by the way, what you described, airdrops— airdrops is another perverse sort of, uh, answer.

You want to— let's decentralize quickly as possible, so give away 50, 60% of the supply, which is totally bonkers.

If the, if the Gensler SEC didn't do what it did, you probably would never even have airdrops, right?

I mean, again, like, all in my new project, we're actively thinking about, like, this is— I think the, the airdrop, the simple airdrop, just is not how I think about using that treasury strategically.

I mean, people value what they pay for. So like Binance works because people— you pay a nominal amount, but you paid for it. Trading fees. Again, I think a lot of the legacy of— you asked again, like what gets us there? I think one of it is just time and breaking down workflows. And the other is basically erasing the memory of the last 3 years. Like what happened over the last 3 years was was so damaging. And again, it wasn't the courts, it wasn't the lawsuits, it was— it completely changed the ethos and the business model that most crypto companies were striving towards. And I think if we can reverse that back to where we were in kind of the ICO— and again, it's not even just in protocols and software. Like, think about restaurants. Restaurants have like, what, what, 95% failure rate? Like, imagine a local—

terrible margins.

Yeah, imagine, imagine a local restaurant, um, opens right by your house, and for the first 2 weeks, they give away all the food for free, right? That's equivalent of an airdrop or something, right? But in doing so, they build some stickiness. They tell— they find which customers actually like them. They learn from their customer behavior, and then they say, hey, we're going to, you know, sell some tokens from our restaurant to any of our customers who want to come back, and you guys will get, you know, 20% of the profits or something. Like, you can build other businesses. It doesn't have to be software and decentralized protocols. You can build other businesses the same way where your your customers and your employees and your founders are all incentivized to grow the business together.

So, right, someone from the outside in, and I know we're bumping up in time, might say, Jeff, that sounds great, that's a security, and there's a reason why venture capital exists, um, and don't try to reinvent the wheel on how companies have been funded for the last like 100+ years. There's some truth into that. Don't try to— and, and by the way, if the customer wants to buy or invest in that company, he can knock on the door of management or he can go buy the stock. That's it. I don't agree with that, but what's the answer to that?

My answer would be there's nothing illegal about being a security. What's illegal about a security is if you are the issuer of a security, you have to jump through an amazing amount of hoops and costs in order to issue the security. And if you are a licensed broker or exchange offering the services of that security, you have to jump through all kinds of hoops. Anybody can own a security. Like, I own securities. There's nothing illegal about me saying I'm going to go buy a stock. Like, there's nothing illegal about being a security. The illegalness comes from—

The issuance and the distribution.

It's the issuance and the distribution. So it's a lot easier to, instead of just fearing everything being a security, let's write new laws that are not from 1939 that allow you to more easily issue and distribute securities. Like, the reason securities laws existed is because of buyer beware, right? Caveat emptor. Guess what? That doesn't exist anymore. If anything, buyers know more than sellers now. Like there's a great book. I read a lot of books by behavioral psychologists and like Malcolm Gladwell and things like that. Like there's a great book called—

Nudge, Richard Thaler, and Dan Ariely and these guys.

There's a great book called To Sell Is Human by Daniel Pink. And the whole premise of the book is that everything you do is sales. Right? If you're a doctor, you're trying to sell your patient that you're giving them the right care. If you're a teacher, you're trying to sell your students to believe in them. And if you're a used car salesman, you're no longer the used car salesman of 50 years ago where you're like a snake trying to make a sale. If anything, you're like a friend now because the buyer already comes in with all the information. They know everything about the car. They're on Carfax. They're on AutoTrader. They know everything before they get there. Your job as a salesman now is not to sell them a clunker. Your job is to build trust that they like you and that they want to work with you because they already know the answer. The buyer has all the information now. It's the same thing is true in the stock market and the security market. Like the whole reason these securities laws existed was to protect the buyers who didn't have information. Guess what? The buyers have all the information now. Information is ubiquitous. The internet changed that. So it is much easier to change accredited investor laws and change security laws than it is to hide from everything being a security. So I think that is the answer, is that every time someone says it's a security, I say, "Great. I don't care. Call everything a security.

Just make it easier for selling and distribution and issuance of securities." I think we got to look at ourselves and be honest that we are operating under a set of rules and regulations that were written before the internet. Accredited Investor Rules, Investment Company Act of 1940, then some amendments in the 1980s. But by and large, the regulatory framework in the United States for capital markets and issuing securities relies on certain tests and precedent that precedes the internet. We're going to look back and say, wow, okay, like a '99 accredited investor rule, the origins of that. Go study a lot of this. And look, there was always that tension, right? The music industry, the entertainment industry had to go through this. You had Napster, which broke all the rules, but then you had Spotify Music and Apple Music and all these different providers. And I think we're hopefully coming now to that, closer to that state, which is so exciting about this current administration, which is you have folks like David Sachs that understand it and are pro, you know, are business people, technologist people that, you know, appreciate the need to, not just for crypto, just for the industry writ large, to just kind of like write rules and regulations that meet the technology that exists today. And that's going to have a benefit, not just for crypto. But really much just capital markets in general.

Yeah, 100%. And I really look forward to seeing— it's funny, it comes full circle that, you know, a lot of this podcast we've been talking about Coinbase and why I don't think it's a great stock to own. I will say that what Coinbase has done better than anyone is this legal fight and what they've done in Washington. Like, shout out, shout out to everyone on the Coinbase legal team for everything you've done for the industry. Yeah, I mean, again, I, I do not hate on Coinbase, the people or the company. I just don't think the stock is that interesting. But they've done some amazing things, and I hope some of these things they do will start to lead to some of the things you and I just talked about.

Well, Jeff, I've had the privilege of seeing you from afar. I think you place a healthy— I think we should always be skeptical in crypto, not cynical. And you are a true skeptic. And I think that serves you well when you're investing because we should always be asking the hard questions. So, you know, really encourage you to— people, if you don't follow Jeff, go follow him. You might not agree with everything he says, but he raises interesting questions. And that's always important to push the space forward. So Thanks for coming on, Jeff. Really enjoyed the conversation.

Yeah, it was great to talk to you and catch up. Thanks for having me.