Fireside Chat: Coinbase Ventures, M&A and Decentralization with Shan Aggarwal and Haseeb Qureshi

Transcript

[applause] >> Okay, so I am here with Shawn. You are the chief business officer of Coinbase. What does a business officer do? I have no idea what that means. Explain that. >> "Haha, business." >> Business. >> Yes. Uh I look after effectively all of the strategy operations and then any commercial deals that Coinbase does. So like partnerships, M&A, investments, uh and then as of I think like a month and a half ago I also lead investor relations. So dealing with like all of our public market investors, uh equity analysts, and that community as well.

>> Got it. Okay, so you got a big portfolio of stuff you manage. One of the things that you also manage is Coinbase Ventures. Or like maybe you did before or that's somewhere buried underneath you. >> start it in uh 2018. >> Okay. So, Coinbase Ventures for those of you who don't know, one of the biggest investors in the industry. I think you are the single most deals of any investor in crypto history under Coinbase Ventures. Um and you guys invest without LPs. So, you know, we run a regular venture fund. We have people who invest in us. You guys just invest Coinbase's balance sheet money.

Um like what what is it that you can do because you are Coinbase that another traditional VC cannot do? >> Yeah, I and I would love to get your perspective on this, too. >> Sure. >> It's actually a huge asset because it just gives us a lot of flexibility. Uh and I think the key difference is that we don't have outside LPs and we don't have rigid rules that we enter into a typical fund structure in. And uh some of the the things that allows us to do is one, it allows us to take a very long-term view. So, for example, like we can make an investment with a plan to hold the investment for 20 years and that's totally fine. Long-term horizon.

We don't have uh any definitions around when we need to return capital or anything like that. Uh the second is it gives us flexibility in terms of our thesis or our focus areas. A lot of venture funds, you know, they start off as seed funds or series A funds or they're focused on RWA or uh, the intersection of crypto and AI. We can kind of flex across any uh, stage, sector or focus area depending on what's interesting to us as a fund at that time. Uh, and then in terms of like the value proposition uh, that we think is differentiated for Coinbase and why we invest with you guys a lot uh, as well as you know, we bring a strategic rationale that uh, I think founders it helps justify why you would want Coinbase on your cap table. Uh, and and

really the key piece is that Coinbase Ventures serves as a conduit to the rest of the rest of Coinbase. Coinbase is a big company. We obviously play in a lot of different arenas in the crypto space. Um, but we can help facilitate partnerships, uh, connect folks with subject matter experts uh whether that's on policy, security or whatever uh, else it might be. Uh, and then in off in some cases it also ends up leading to to M&A. >> Okay, so let's get real for a second. In most industries, a corporate VC investing into a company with which they're going to do business is often seen as like, "Oh, this might be a conflict of interest." And this maybe we need to cordon off, we need to have a Chinese wall or something or other.

Crypto historically, we're like, "Conflicts, come on. That's so boring. That's so trashy." Um, and so you know, famously people would take money from some of the exchanges and that would be like kind of a backdoor listing fee or something like this or there's there's all this stuff that gets mixed together. Okay, so so give me give it give it to me straight. How do you guys think about that at Coinbase? And and is that different than what it's like in other places? How do you think about conflicts? >> Uh, I don't know what it's like in other places. Um, there's no real funny business for us. We basically have all of the information firewalled within the Coinbase Ventures team.

So when I say for example that we can help facilitate partnerships, M&A, etc. it's actually a different team. Uh, now I sit across both of them, so I can help connect dots across the across everything, but there's certain information obviously that we get when we invest in a company or evaluating a company that stays within the Coinbase Ventures realm. >> Sure. >> Uh and then, you know, uh none of the investments or any conversations like that are linked around a listing or dependent on a partnership. Um we we do separately potentially make some strategic partnerships and strategic investments where, you know, where invest we're partnering with a company and we say, "Hey, we're going to be adding a lot of value to that business, too. We would like to actually be an equity owner in the company or a

token holder depending on the scenario." So, those types of deals do happen. >> Okay, so it's interesting cuz you made me think of a story that Jensen Huang of Nvidia told about Anthropic. So, you know, obviously in if you look in crypto VC, there's been this kind of VC apocalypse over the last few years. There's a lot of people raised a lot of money in 2021, 2022, and they blew it all on Game Fi and whatever, all sorts of nonsense. And they they they're coming back to market and they can't raise money.

The institutional investors are kind of like, "Look, what did you do with the last 200 million I gave you? Okay, you know, you're you're No, I'm not investing again." And so, a lot of these funds are winding down, which means there's less capital in the space. Okay. Jensen Huang gets the pitch for Anthropic like Series B or something. Um and Anthropic is like coming They they come to Jensen Huang and they're like, "Please give us money." And Jensen Huang is just like, "Why would I need to give you money? I run a cash-flow business. Go talk to the VCs. The VCs can give you money." And he he he reflected on the story that like he didn't realize that what they were trying to do, what Anthropic was trying to do, was at such a scale that VCs just couldn't fund it. They just didn't

understand the scale of what Anthropic was trying to accomplish. And he was like, "That was one of my biggest mistakes." Was not because I didn't invest in Anthropic, obviously it would be a great deal, but more that they took longer to get to where they are because I wasn't able to step up and give them money. Okay. How do you think about Coinbase's role at a time when Coinbase has actually been writing bigger checks and many other people in the industry are writing smaller checks? >> Yeah, you know, it's a good question. You know, when we started Coinbase Ventures in 2018, it was actually a pretty similar dynamic. There weren't really crypto VCs back then. You know, there was like three. And we basically saw the early days of DeFi, the early days of on-chain builders, and we started writing very small checks purely for the

purpose of one supporting the ecosystem of basically saying, "How do we get more entrepreneurs building in the space?" Because we felt as the space grows, then Coinbase will grow, and then, you know, it's very positive sum ethos. And I think you're absolutely right where there's kind of like this dearth in crypto VC right now, especially like late-stage capital. Like if you're a Series B, Series C, Series D company, and and raising a growth round, there's like three or four funds, including Dragonfly that can actually participate in that round. And so, we think it's like a very similar dynamic where Coinbase can actually extend more of the balance sheet that we have because we're fundamentally still extremely bullish on the space.

And hopefully, now we have more of the infrastructure set up that we can actually lean in to actually support those companies and grow, not from just like an advisory perspective, but commercially too. >> Okay, so speaking of supporting companies or projects commercially, famously, you guys have entered into this partnership with Hyperliquid. I don't know if partnership is the right word, relationship with Hyperliquid. Now, Hyperliquid, obviously one of the crypto darlings. Um, Hyperliquid seems very obviously to be going after Coinbase's core business, right? Like they're trying to do crypto trading, they've got spot now, they've got RWAs, things that you guys also have, and you can trade stocks, prediction markets.

They've kind of they're they're going after the the throne. Um, how do you think about a relationship like that where it seems to be pretty directly competitive with your core product, but still also supporting them? >> Let me ask you a question. What company in the crypto space would not look at Coinbase as potentially competitive? >> Um, >> [sighs] >> Ethereum? >> Potentially. >> Yeah, yeah, yeah. Okay. I mean, well, Base, I guess, is maybe slightly competitive. Um, sure, but there's there's there's levels, right? There's levels. >> No, no, no, I'm I'm I'm I'm joking. It's My point just being is Coinbase plays in so many arenas that ostensibly any company in the crypto space might look at Coinbase as a potential competitor.

Right. In some ways we do compete, in other ways we don't compete. And um, you know, I think the key piece is it's obviously like the core part of our business and in trading, it's also the biggest profit pool that exists in the crypto space today. Uh, and that's what Coinbase is known for, so we absolutely do compete there. I think that we we think that uh, Hyperliquid and Coinbase, especially on our purpose business, they cater to different customer segments where, you know, the on-chain uh, trader that prefers a self-custodial experience is different than someone who uh, is willing to KYC and prefers more of a regulated platform. But, besides that, Coinbase also has uh, a number of infrastructure businesses that effectively power the whole crypto ecosystem in different ways, whether

that's on-ramps, USDC, Base, uh, or developer platform like Eric and Yuga were talking about before. Uh, and so we think about opportunities to partner where we can, but just be explicit around uh, we are going to compete in other arenas. >> Yeah, that makes sense. And of course, no Americans use Hyperliquid. Right guys? Right? No Americans? That's right. That's right, they know. Um, okay, so besides besides um, investing, you guys also do a lot of M&A. Um, you're you're out there acquiring a lot of the startups.

Um, maybe somebody in this audience might get acquired sometime soon. You guys have done 35 acquisitions. >> Over 40, okay. So, you've been very acquisitive. And some of your own executive team has come in through M&A. So, when you're buying a team, okay, or buying a company, let's say, team, tech, like what makes an acquisition Do you now seen enough of it? You've got a lot of experience under your belt. What do you What do you think makes an acquisition work? You see it okay, good target, good company, good team, but what makes it fit within Coinbase? >> Yeah. Success and failure always boils down to how a company is integrated. So, everyone when they're doing M&A and then whenever I talk to other companies that want to start doing M&A, they all focus on what deals should we do, how do we

structure the deals, how do we get the deal done, all of those types of questions. Super important, don't get me wrong, but doesn't actually determine whether or not the acquisition is going to be successful or not. The common themes that I have seen that make acquisitions really successful in a company like Coinbase are first, having a a consistent champion for the deal. Someone who's literally willing to put their neck on the line to say, "I'm going to make sure that this acquisition is successful." And that person kind of needs to operate like the Sherpa for the business once it comes into once is digested because they need to, you know, help them get acclimated to the environment, culturally integrate, and all of that kind of stuff. But if

you have like changing sponsors, changing champions, that's that's always a failure mode. The second is a very clear thesis on the strategy for the acquisition and detailed like operational plan. So, if you can't tell me like, "Hey, what do you want to do on day 90, day 180, and then after 1 year?" Then I can usually tell you that it's probably not going to work out. There's often a a tendency to say like, "Oh, we'll just figure it out. We'll figure it out later. This deal makes so much sense." And then you kick the can down the road and then you realize like, actually you're not going to figure it out or we missed something so that we uh potentially can't do it as well as we thought. So, that's the second. And then the third is a huge part of the upfront

diligence process is honestly just assessing the team and the cultural fit. I think the biggest the best acquisitions that we have done the team has come into Coinbase and it's almost like immediately hit the ground running playing on the same team on day one. We've also done acquisitions where there's a little bit of a cultural shock. It's just like different ways of working. Uh we don't write docs. We do things on calls. Okay, interesting. >> You don't write docs? >> No, some companies don't do that. >> Oh, some companies don't write docs. We write a lot of docs. >> So, I'm just using that as an example where you know, we acquired a company and they had never used Slack. And so when they got into the Coinbase Slack they were like, "Oh my god. This is like >> on Teams?"

>> Uh yeah, they were on Teams. >> Brutal. You hear that? If you're on Teams, you're not getting acquired by Coinbase. >> Teams is a red flag. >> Okay. Okay, good to know. Um Okay, so I I I you've been you've been uh responsible for a lot of the M&A deals. What is the deal that you were like "That was my masterpiece. That was like not necessarily the biggest, not necessarily like, 'Oh, we got a great deal.' But just like I nailed that deal." >> I think people would expect me to say Fairbit just because it was last year and it was the biggest deal that was uh done in the crypto space, but I would actually say Tagomi.

Uh which was >> you you you kept your investment >> That was 2020. Early days. Uh that was before institutional crypto was really a thing. And I think at that point there'd been like 3 years of people saying the institutions are coming and uh it hadn't really materialized. And you know, we kind of had some fits and starts in the uh uh 2018 bull run we kind of overinvested in that segment. We started an asset management platform, a custody platform, an institutional segment. We then had to roll it back in the bear market. In 2020 our our custody business had grown to a meaningful amount of scale. And we kind of knew that we needed a brokerage product that specifically catered to hedge funds, asset managers, and all these clients

that wanted to participate in the crypto space. Um but couldn't. And so we it was a very contentious deal because it was at the same time that COVID was happening and we were still in the deep depth of a bear market, but we ultimately pushed it through and our timing ended up being impeccable because immediately after the deal closed, that was when all of the corporate Bitcoin treasury narrative started to pick up and so Tesla, SpaceX, all these companies started calling us and they said, "We want to buy a billion dollars of Bitcoin." And there's no way that before that you could execute a billion-dollar Bitcoin purchase unless you had an institutional prime broker that could bake up break up the trade uh and execute it in a much more sophisticated way. Um so it helped us capture a lot of that market demand in

2020 and 2021 for uh when institutions entered the crypto space. And then it's now become the foundation of our whole Coinbase Prime platform, which is kind of the centerpiece centerpiece of our institutional product. >> Yeah. So you guys really nailed the trend. And also it was a time when crypto M&A was very rare of that size. >> That was That was the biggest deal in crypto at the time. >> That's right. That's right. I remember that. I remember that. Um okay, very interesting. So you guys now are becoming this everything exchange. Um much like Hyperliquid is doing, you guys have real-world asset trading, you have um uh prediction markets. You're you're kind of going as broad as you can in terms of in terms of uh uh platform.

As the head of IR, the head of investor relations, you go out, you talk to people who are interested in buying Coinbase stock, and you're like, "Here's why you should buy our stock." Okay. What do institutional investors looking at Coinbase see differently than us kind of crypto-pilled, you know, brain-damaged people? When we look at Coinbase, what's What do you get different from that crowd versus this crowd? >> Specifically for the everything exchange? >> For Well, for for how you position Coinbase now. >> Um I think institutional investors look at Coinbase as the scale player that is mature, globally compliant, has a very strong track record of uh security by being the largest custodian in the world, and that is further ahead in terms of

executing on this diversification strategy. One of the big knocks on uh crypto exchanges but uh particularly spot crypto exchanges is it's super volatile business. You know, it's like you're in a bull market, revenues are up, volumes are up. If you're in a bear market, volumes and revenue are down. And so we saw that uh pretty early on in Coinbase and we made a very deliberate decision to invest in diversifying the business. We started the custody business, we invested in co-founding USDC. Uh now, you know, roughly 50% of our revenue comes from non-trading fees, which is encouraging, but there's still inherent volatility in our business, so we're uh uh pretty early on in that journey.

And then I think people view a lot of the things that we are doing on chain and supporting agentic payments as effectively call options right now. Cuz public market investors, they want to see how does it translate into money? Like how when is it going to flow through the P&L? And uh a lot of those pieces are still early, but you know, when we talk about uh some of the traction that we see with X 402 and the adoption that we see with X 402, that's super exciting. It's going to take time for it to materialize. Um but I think people are long the option of having that exposure within one name. >> Right. Right. Um So the other part of the Coinbase portfolio, of course, is Base, the layer two that you guys have helped launch. Um it's been a breakout success, and yet it has no token.

Um we are now in a pro-token administration, tokens galore. Um you guys even have token launchpads that you've acquired and and built. Um When When token? >> It's a good question. Uh we are in a pro-token administration. Maybe we're just bucking the trend. I don't know. >> Is that Is that what's going on? >> No, we're In all seriousness, we're we're we're still looking into it. >> Looking into it. And you know, we've always said that we our plan is to decentralize base. We invest in incentives and community growth significantly, but we want everyone to be an owner or feel feel like they have part ownership in base.

The thing when you look into a token, especially for a public company, is it's really a one-way door. And so we just want to make sure that we're being very thoughtful about how we design the token structure, the distribution mechanism, how it flows to Coinbase, how it flows to other parties, and not rush that because it's a very consequential decision. And you know, we're doing that work so that we have the option of doing it. It will happen, but we're not ready to talk about a specific timeline yet. >> Sure. Sure. Okay. You just Morse code, just like a blink blink at me betting on if it's happening this month.

Um there has been a vibe shift in crypto. There's been a there's been a number of vibe shifts, but one of the vibe shifts has been this idea that maybe decentralization is a little bit overrated. And I think it it interplays a little bit with the story you were just telling about base, which is that I think with the rise of hyperliquid, the rise of the revenue meta, this idea that basically, you know, look, the high priests of decentralization, they've been telling us the same sermon for years now, and it doesn't seem to actually translate to users, to adoption. And maybe it's like, look, you need enough decentralization to be able to get the thing out the door, and any more than that is kind of just, you know, wasting time.

For Coinbase, how does that land with you guys and how do you think about this way in which the values of crypto has really changed? Like I remember in the early days, Coinbase used to feel very defensive that the Bitcoin maxis were very mad at them. I I get the sense now that you don't care what the Bitcoin maxis have to say. How does that translate within Coinbase? >> We love the Bitcoin maxis. >> You love the Bitcoin >> We we we love all the >> They do not love you back. They do not love you back. >> I mean, I think if I think about the early days, people talked about the benefits of decentralization without talking about the downsides. Like the trade-offs. Like what do you actually lose with decentralization? So, we talked about like all of the virtues of it. Uh and I think after, you know, 7 8

years, you start to see that one of the biggest downsides is it slows down execution. It's harder to make decisions. It's hard harder to build great products. And I think for where the market is today, I don't know of any user that gravitates to our platform and their first thing they say is, "I was really stoked because it was decentralized." People gravitate to Hyperledger because it's a great product. It's an awesome product. People want to go for a good product. And in order to have a good product that is constantly staying on the bleeding edge, you need to have some element of control to drive uh a road map and drive execution. And so, I do think that now there has been this vibe shift towards People still believe in decentralization. We still believe in decentralization. Uh and we

believe that that's the right end state. And I think the question is, how do you get there and over what time period do you get there? Um but this idea of pre-progressive decentralization does balance the ability to actually just deliver a great product, uh which is critical, right? Because you need to actually bootstrap these products and have real users and usage. Um and so, that's I think the direction that we'll probably take and uh seems to be the way that the market is going right now. >> Yeah. I mean, we're right now as I said in this permissive regulatory environment, everyone is very mindful that, you know, we want clarity to pass. We want there to be this this long-term legislative framework that's going to put us on good footing. Um but right now, if you look on Polymarket or maybe the Coinbase I don't know what

the odds are on the Coinbase prediction market. On Polymarket right now, it's 50/50 whether or not clarity passes. Um and if it doesn't, you know, look, there's the regulators uh and the agencies are probably going to be very uh constructive, but you know, could be in 2028, Democratic administration comes in and they reverse what's happening within the agencies. Um, how do you think about positioning Coinbase for that world that may end up turning back against some of the progress that we've made in crypto over the last couple years?

>> Yeah, I think you're quite I mean, so first off, we are optimistic that we will get clarity done. You know, going through the US legislative process is a whole ordeal. We got it done with genius. It's very rare to see two bills specific to one industry specific to one industry make it through law in a single administration, but we're pushing for it. Um, there's a lot of parties that you have to get involved around the table, but the conversations are very productive and I would say we feel the odds are better than 50/50.

Um, in terms >> what would you place the odds at if you were a betting man? >> If I was a betting man, I don't know, probably 60 60 to 70%. >> 65? >> Yeah. >> Okay, 65. >> Um, in the inverse scenario, you know, if it doesn't go through for whatever, I think it would be a real loss for the crypto industry because like you you mentioned, it's an opportunity to basically solidify a framework that can serve as the foundation for the next wave of crypto businesses and founders to actually build in the space. For Coinbase specifically, you know, we have been operating as a business for over 10 years largely in that circumstance, so it wouldn't be the biggest change for us. We've already developed operating

principles that basically say here's how to run the business in a compliant way without a formal piece of legislation, so we would just revert to those operating principles that we have. But we we think that the ambiguity out there is bad for the space because when you look at a lot of these large institutions that are basically lining up with their tokenization their on-chain efforts waiting for clarity to pass. If there's ambiguity, then they may say, "Oh, you know, we'll wait another 2 years or we'll wait another 3 years." And I think that's net negative for growth of the general ecosystem.

>> Yeah. So, there's been this malaise in crypto. Um you've seen since October prices have been trending down. There's been this uh lack of retail engagement in the market. Um how are you going to position Coinbase this for people to keep investing in Coinbase even if crypto is in this long stupor? Why should I still buy Coinbase stock? >> Yeah. The You should buy Coinbase stock because uh Coinbase is full-stack financial infrastructure for the future of finance. All assets will ultimately be tokenized and on-chain, and Coinbase offers a vertically integrated platform across the base layer two blockchain, USDC as the transaction layer, a suite of APIs that support trading and payments. And

looking at Coinbase purely as a crypto exchange or brokerage, I would argue is a very myopic uh view that's meaningfully outdated. And so, even in a world where, like you were mentioning, there's a malaise in crypto prices, if you look at the fundamentals of the ecosystem right now, there's a lot to be like really excited about. Stablecoin supply is at $320 million and continues to grow. Tokenized real-world assets is at like $30 to $40 million, continues to grow. Uh on-chain trading continues to grow. You see greater diversity in revenue-generating protocols. It used to all be layer ones or layer two blockchains, but now you have applications that are generating revenue. So, I think all of these things are actually really exciting.

Uh and then you also have uh the growth of new use cases like payments. And on the payment side, it's completely uncorrelated with crypto prices. When we talk to customers that are looking to use Coinbase as payment services, they're like, "We don't care what the price of any crypto asset is. We just care about moving money and moving money efficiently." And so, I do think that the underlying fundamentals are very, very strong right now and crypto prices will go up, they will go down. I do think that they'll ultimately catch up. Um but there's a very strong thesis for the rest of the ecosystem supporting a a really strong growth story for Coinbase and crypto.

>> Fair enough. Well, we are at time, but we were joking backstage that this should be called the Coinbase stage cuz seems like all we do here is shill Coinbase. Um but let's get a round of applause for for Sean. >> [applause]