Why the Coinbase Deal Is Good for Hyperliquid -- and How Coinbase Benefits

Transcript

Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shinn. Thanks for joining this live stream. Today's guest is Alex Wesley, institutional data lead at Artemis Analytics. Welcome, Alex. >> Hi, Laura. Uh, happy to be here. Bit of a been a fan for many years. So excited to be here and fanboying a little bit. >> Well, thanks. Thanks for listening. So yesterday I reached out to Artemis about coming on the show to discuss a number of different market related things and in the kind of like pre-show conversation you said you wanted to discuss Coinbase and I said I wanted to discuss Hyperlid and then this morning we woke up to this news that Coinbase is

um acquiring and sunsetting the Hyperlid native stable coin USDH's brand uh sorry US um the brand and it's going to become the official Treasury deployer of USDC and Hyperlid. So this is so interesting because this is less than a year after there was this intense competition between various teams to become Hyperlid's native stable coin and native markets is the team u you know that was behind USD that won that. So what do you make of this new development? >> Yeah, I mean lots to unpack here. Um, I remember going back to I think it was September, October last year where uh was it PayPal, Paxos, Athena, Sky, everybody was throwing in, you know,

bids to to claim the USDH picker on Hyperlid and become sort of the the aligned uh stable coin. Um, and Native Markets ultimately won with a little bit of controversy, I recall. Um, and yeah, they went live a few months ago and it's grown to about 100 million in in supply on Hyperlid. And yeah, today's news that they sold the brand assets to Coinbase. Um, and now Coinbase will be the treasury deployer. Um, it's definitely feels like a big uh shift. I think it goes to show the power of distribution.

Um for stable coins uh you know if you look at Circle's agreement with Coinbase they pay 100% of yield uh generated by USC that is you know on platform on Coinbase to Coinbase and 50% of offplatform USC uh yield. So they're really willing to give up a significant portion of their economics just to get distribution and you know seeing how they've now sort of taken over USCH and USC will now become uh an aligned quote asset uh on Hyperlid. Um sorry so just to take a

step back like what is an aligned quote asset? uh they recently came out with V2 of this type of asset essentially means that uh 90% of the uh yield after costs will have to be distributed to hyperlquid the assistance fund and in that way sort of be aligned with the hyperlquid ecosystem. So this is like significantly uh better than than US. They had a 50-50 split with the assistance fund and the ecosystem growth.

So uh yeah, I guess like a lot to go into there. Laura, love to get your your quick take and anything you want to dive into. >> Yeah. Well, so um the market uh reacted quite positively to this. we saw a 9% jump in hype or at least like an hour or two ago when I checked that. Um and you know the reason ostensively is because the deal gives a really nice boost to Hyperlquid's revenues. um you know previously as you just mentioned there you know like the the interest that was um being earned by the USDC on hyperlquid was not going to hyperlquid

um the you know so there's $5 billion worth of USDC and hyperl so that's like a significant amount and now you know as you mentioned 90% of it will be going to hyperlid so you know when you kind of look at that like do do you feel like it makes sense that hype jumped so much and then what do you feel was in it for Coinbase to do this deal? >> Yeah. So, let's start with I guess the hyper hype price being up 10%. Um maybe let's do some quick napkin math. It's about five billion in USDC sitting uh in hyperlquid you know on the bridge and natively minted.

I'll just do this quickly here on my computer but you know five billion times about three and a half% call it in yield and about 90% of that going to hyperlquid it's another 150 million in annual revenue roughly uh going to hyperlquid so on today's base of about 600 million in annualized uh revenue that hyperlquid generates via its exchange that's a 25% % increase in annualized revenue. And it kind of starts to look a little more similar to, you know,

Coinbase's model where, you know, today I think about half of Coinbase's revenue comes from transaction uh revenue and half of it comes from subscription and services. So seeing Hyperlid diversify the revenue away from purely trading based revenue uh it's it's interesting and you know we're seeing these business models sort of align in a way um I think you could it's a lot more easy to possibly underwrite uh a recurring revenue stream like stable coin yield versus you know cyclical trading revenues.

I think from that perspective it makes sense that hype would be up 8 n 10% on these more stable revenues. Um and you know what's in it for for Circle? What's in it for Coinbase? That's a great question. Um, so I think both of I think what underlies everything for both of these firms is getting USC to be the number one stable coin across finance payments broadly and being able to get USDC to be, you know, obviously

Coinbase was very favorable terms uh in this USC agreement with Circle. though getting USDC uh to become sort of the ubiquitous stable coin across um onchain finance as well as you know maybe like off-chain exchanges like like Coinbase. Uh I think it ultimately I think it comes down to like liquidity be getting liquidity. So, of course, every dollar that Circle pays Hyperlquid from this uh yield comes out of Circle's uh top line and bottom line. Um, and it comes out of Coinbases too, right?

Because Coinbase in the agreement gets 50% of off offplatform yield. So, uh it's clear that they weighed weighed the options. Coinbase included in this. Uh, and you know, I think there have to be sort of a bilateral agreement to between Circle and Coinbase to be able to come come to an agreement with Hyperlquid on this yield sharing. It can't just be unilateral on Circle side. Um so clearly they both see the benefits in having USC be the native asset uh the native stable coin for Hyperlid's you know perpetual exchange but also you know the outcome markets uh prediction markets that are

that were just so recently deployed on Hyperlid. Um so maybe I'll I'll take a pause there. So, in a moment, we'll talk a little bit more about what Coinbase might be getting out of this and why it's voice for growth. But first, we'll take a quick word from the sponsors who make the show possible. Who in the group chat has the absolute worst sports takes? You guys, it's got to be me. I don't even watch sports unless it's a global event. But, Coinbase is giving me a chance to outpredict a pro basketball coach for a share of five Bitcoin. And honestly, I'm built for this. I have beginner's luck, energy, and absolutely nothing to lose.

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is offered through Coinbase Inc. and Cardless Inc. cards issued by First Electronic Bank. Bitcoin back rates are based on card holders assets on Coinbase. Back to my conversation with Alex, Coinbase also said that it significantly increased its position of stake hype and that was interesting to me because I view Hyperlid in some ways as a competitor to Coinbase. So, I was wondering what it said to you that Coinbase is, you know, through through this gesture aligning more closely with Hyperlid and if that, you know, um kind of move there to increase its position of stake hype even shed any further light on the stable coin deal.

>> Yeah, Laura, I was thinking the same thing. Um it feels like in in many ways, Hyperlood and Coinbase are both going after this sort of everything exchange. um you have spot trading, perpetual trading, equities, prediction markets. Um and it's true like you know they they have to acquire significant amount of hype and stake it to be able to offer this uh you know AQA. Um and so this shows significant alignment between the two businesses even though there's so much competition to me. What this shows is that Coinbase is very certain in its you know growth as an as a US-based

primarily US-based compliant institution. Um whereas hyperlquid you know I think they see as more of this uh you know like outside of US jurisdiction no KYC uh platform which you know I think Coinbase can't really compete as as much in uh but they can leverage the usage of hyperlquid globally to grow distribution of USDC uh but I ultimately in the long term will, you know, positively affect their bottom line.

>> Yeah. I I think um what you said there really um calls it cuz and also it's sort of like even a couple years ago, you could not imagine a public company that would have done this level of deal with a no KYC um decentralized exchange that does not serve US customers. But um clearly it's almost like Coinbase recognizes well okay that you know this this world of onchain finance is growing quickly. the the regulations for, you know, how this is going to to shake out aren't they're not codified, at least here in the US. But because it's growing so fast, Coinbase has to get some part

of the pie in some fashion. And the best way that they could probably do it at this point in time is USDC. And yeah, it's just interesting because like um yeah, I guess Bass isn't directly competitive, but you could see in some fashion where they could grow to be competitive, but it's sort of like for now, let's just let's just do this deal um and and get a piece of that pie, which is growing very quickly. We'll circle back to how Hyperliquid is going quickly in a moment, but first let's talk about Coinbase because you wrote this piece last week called Why Coinbase Wins in an AI native finance world. And in it, you projected that Coinbase could

become a $300 billion company. Um, and that's about 6x from today. And you were and you gave 2031 as the deadline for when that would happen. And you also projected that at that time Coinbase would earn over $4 billion annually in aentic revenue. So go ahead and like outline your your full thesis and how you are getting to the numbers that you posited there. >> Yeah. Um yes. So we we published this piece uh was it last week u projecting you know co painting Coinbase sort of in this world where it's a $300 billion company. you know, what would it take to to get there? And you know, we sort of anchored some of our values uh some of

our numbers in um you know, public projections. You think McKenzie projecting about five trillion in agentic commerce by 2030 2031 um Scott Besset Bane and Co. projecting about three trillion in stable coin supply by 2030. So we think Coinb Coinbase is primarily valued as an exchange. Um, of course they have, you know, some subscription and services lines. Uh, most importantly their sta stable coin revenue line uh their agreement with with Circle and I guess the the TLDDR is um, you know,

we've seen USC on Coinbase continue to grow even through this bare market. uh it kind of s like this regulated um spot within the US and so we could continue to see um USC market share of total USC growing as well as you know onplatform USC growing for Coinbase which would all you know benefit Coinbases top top and bottom lines. Um then there's sort of the agent commerce side and this is of course the most nent I think part of this thesis I think most people you you talk to uh would a lot of people would agree that

uh you know within five maybe 10 years there'll be more agents uh you know transacting on the internet than there will be humans and There's this sort of belief that stable coins are the superior way for agents to transact since they are you know programmable sort of internet native dollars um you know and just currency whereas your traditional card a etc rails are you know maybe not uh set up in structurally to support these like you know agentic agent native payments.

Um so at that point Coinbase has developed X42 which is a payments protocol or you know they they incubated incubated it. Um they have built an own base the chain and they've built you know plenty of developer tooling around like agentic uh payment and and just general agent building. Um and what we're seeing today is X42 dominates uh in terms of you know market share of agent ethic transaction volume on chain uh but high 90% high 90s percentwise the main competitor is MPP uh which is stripes machine payments protocol and that only launched in March uh very

early nent sort of space um but you know even a month two months into MVP's launch. X42 still dominates. Base is the primary settlement chain for aentic payments today. Um also I believe around 90%. And so our belief is that you know these early leads will compound over time. Um you know if base is the primary settlement layer today is where a lot of USDC sets um export 2 is the primary protocol used.

um you know these standards will sort of proliferate uh through through the growth of agent commerce and we see Coinbase benefiting from this because agent commerce will be a vector for growth for stable coins um primarily USDC which is also like 90 95 99% of agent agentic commerce volume today um base being the settlement layer so we think they can monetize sort of across the stack. Um as well as you know have value added services uh tools and things that that they can monetize sort of more at the uh developer layer services layer

>> and I wanted to just ask you a little bit more about the competition. You mentioned how Stripe Tempmpo um you know they're they're competing um Google as well has AP2. So, Stripe has MPPP as you mentioned, Stripe, Google has AP2. Um, and so it is true obviously at this point that X42 is dominating and so for that reason, you know, Coinbase definitely has this advantage right now. But um because Stripe has just like a very different type of advantage, you know, um just with like the merchant network and they already have kind of like inroads there and you know presumably agents will also be buying from stores or transacting with stores

or existing merchants and then um Google has an advantage with like the operating system of Android. And so um it sort of feels to me like it's so early that just so many things could happen. So why is it that your um you know kind of like base case is that the the early lead that comp that Coinbase has will compound over time? >> Yeah, it's it's a great point. you know, Stripe has massive existing distribution um into, you know, potentially some of the exact merchants that would be, you know leveraging um aic payments protocols.

Um and and you know, Android coins are in the hands of millions, billions of people around the world. Um yeah, I I guess our our our base case for, you know, Coinbase being winners here is just uh coming from the the compounding of this existing early lead. Um yeah, I think stripe also has tempo circle launched their agent stack. Uh so I think competition will will be increasingly uh heated.

Uh I think maybe more more the the bold case for Coinbase uh is this agent of commerce scenario where they're able to monetize the four billion of of revenue by 2031 versus the base case. Uh I think a few things have to go right. It's you know they can't just have an early lead and and hope to win off of that. Um so yeah I'm not sure if that answered the question but >> Okay. Yeah. Yeah, it it's it's just really hard to to know what's going to happen. Um like like even if I look at just more the pure AI side, then it it sort of feels like yeah, there's just a lot of

competition there. Um literally with things changing almost seemingly week to week. Um, but okay. So, I did want to ask about one other piece on Coinbase because here we are at this moment where the odds that the Clarity Act will actually pass are sort of increasing day by day. It actually feels like um we have another show where three lawyers gave their you know odds on passage and it was funny because it ranged from 35% to 90%. So clearly there's not a lot of agreement on on you know how significant each of these little milestones are but um you know because things are in a

positive trajectory at the moment and the clarity act is about the you know market structure piece of the industry which you know obviously is uh dominated by Coinbase um at least at this moment or at least is it it's uh Coinbase's domain. I was curious to hear, you know, your thoughts on how clarity could, if it passes, how it could affect Coinbase's business. >> Yeah. Uh, I'm looking at the policy odds right now. It's about they're creeping up. I think right now the the Senate is in markup, so maybe people know things that are buying buying it up a little bit. Um

yeah, I mean the clarity is very comprehensive. Um I think that the most important component of the clarity act is probably the uh tilts also brook's compromise on stable coin yield. So, of course, you know, the the banking lobby pushed very hard against uh stable coin issuers and also, you know, distributors like Coinbase uh and their their ability to just offer passive yield on stable coins. So, I think it's still TBD what the exact final language will be. It's likely likely case that it stays as is today. Coinbase will be able to

provide, you know, interests or interestlike payments on USDC um that are activity based. So maybe if you're a Coinbase one holder, you transact or you trade uh you can earn on your sort of idol USDC contingent on your activity. Uh, you know, it's it's tricky because I think this interest on passive USC is like a it's a nice thing to have as a customer.

Um, you know, from like a customer acquisition perspective. So, you know, I think that they definitely take a bit of a hit there in their ability to maybe acquire and retain certain customer set that maybe isn't quite as active. Uh whereas maybe a Robin Hood does offer, you know, uh passive yield on on your cash. Um, so I think it'll it'll benefit, you know, their their more active and engaged customers, probably the Coinbase subscribers, the active traders, uh, maybe the the base users in some

capacity. Um, so I I think it's overall a net positive that, you know, there wasn't like a a complete ban on on stable coin yield. Uh, I think there's, you know, probably room for this to maybe be amended in in in coming years. Um but yeah, I think primarily what it what it does that it probably hurts their their customer acquisition a little bit. Uh but generally like a positive thing to be able to offer even activity based rewards, you know, when you're coming up against the banking lobby.

>> Yeah. Yeah. And and you just mean like from a scenario where Yeah. um which I guess is now where they are able to just offer yields on an idle balance. Um so one other thing that's really interesting that I think a lot of people are noticing on the horizon is that it looks like Coinbase and Circle are becoming more competitive rather than collaborative in a number of areas. And Omar of Dragonfly recently tweeted, "How long until the Circle Coinbase marriage gets messy?" And he noted that because Circle's now public, it basically needs to pitch investors with a broader growth story and that he said will be that they'll be the

infrastructure layer for global payments. Uh which means ARC. Um and that also they need to own their own customers more. Um, but he pointed out that it puts that put Circle head-to-head with Coinbase's base and his conclusion was that he thought the relationship will ultimately end in divorce. So, I was curious if you agreed with that and generally how you thought the relationship between the two would play out. >> Yeah, it's a really interesting relationship.

Um, you know, Coinbase and Circle of Incubated USDC with the Center Consortium many years ago and eventually, you know, uh, Circle sort of took full control over USDC, but had this sort of business agreement with Coinbase. And what we're seeing happen now is Circle becoming increasingly competitive with Coinbase. Um, you know, Coinbase has the base chain and Circle's launching arc and Circle launched the Circle BTC.

Um, whereas Coinbase has you CBTC. Uh, there's Circle's new agent stack. So, they're they're competing on on many fronts. And you know, I think Omar's point that this marriage might end in a divorce. Uh I think there's like some some truth to it. What's what's interesting about the agreement between Circle and Coinbase is it has to be like a strong sort of uh bilateral agreement to terminate it or change the terms. Like it's very favorable to uh to Coinbase. But surely I think these these competing business interests

uh could eventually lead to you know like an anulment or you know non-renewal or change of the terms to the that USC agreement that really I think is sort of like where Coinbase and Circle are married sort of at at the hip uh in some sense. Uh, so I I don't think we'll see this happen for another many years. I believe, you know, now in August or September when the renewal comes up for the USC yield agreement, I strongly believe that they will renew it and that'll extend it for another three years. Um, but the space is so rapidly evolving that in three years time I'm not sure

that I'll have the same confidence in the renewal of that uh contract with the same terms. Um so you know one other point to make here is like Coinbase by not you know owning USC completely does does have some optionality in what you know stable coins they ultimately support on their platform. Um and you know with the passage of Genius I think we'll see the growth of other regulated you know genius compliance stable coins uh that cobbase could potentially you know support or partner with uh maybe similarly to how they have done with with circle and USC.

>> All right so before we go I just want to circle back to Hyperlquid. Um and I didn't mean to use the word circle but but I just did. Okay. Um, so Hyperliquid's in a very very interesting spot right now. I mean, we have just seen it's like it's just like this juggernaut that cannot be stopped. So, first of all, just on, you know, the per front, it's beaten back a number of competitors. It has real traction. Arthur Hayes was just in the show. He talked about how, you know, for a lot of these exchanges, he may not be able to know how much of the volume is real.

But, you know, when he uses a certain ratio, which is the volume divided by the open interest, he can kind of get like a number that tells him just how, you know, or it gives him some level of confidence in how real that volume is. And, you know, by that metric, he he says, "Yeah, it's, you know, clearly out competing." um you know it's implemented HIPP3 HIPP4 both of these have been successful we've seen with the war that real world assets are now just you know a huge part of or or have been a huge part of the trading volume um you know and yet it's it's in this interesting space that we talked about with the no KYC you know cannot

serve US customers all these things so you know I'm just so curious to hear like what you're looking at when you look at its trajectory forward, you know, what kind of either milestones are you looking for or what questions do you still see hanging over it? And yeah, just generally where do you think it's headed? >> Yeah, I mean, I think in mid to late last year, we had this sort of explosion of I guess like the the perp wars, if you will. And you know I think a lot of people sort of questioning Hyperlid's ability to maintain its its market share and its growth. Um you know there's lighter edex aster

plethora of you know exchangebacked perexes that came onto the market. Um, and I think we we did see hyperlits market shares sort of compress and there's some questions as to the validity of some of the volumes of some of these other purpose exchanges. But here we are in midmay and hyperlid commands like a very comfortable like 50% share of the purpose market and you know even through this crypto downturn um hyperlquid has actually been able to see you know some growth from these three

markets trade XYZ uh RWA per equity per uh that are doing, you know, billions in volume per day. Um, so, you know, it's it's really been fascinating to see these 247 markets where people have been trading oil on weekends where no other exchange really offers that. So yeah, I mean I I really do see hypoid as like having proven itself through a a period of where there was a a barrage um you know an attack on on its on its

market share and it was able to to hold up really strongly. Um in fact I think it's got like one of the strongest communities and developer ecosystems in the space. uh really almost nothing quite like it as far as you know what I see. I think you know some of the questions do come around to you know how will hit four play out. Uh prediction markets are another one of these like ultra hyper competitive spaces. Robin Hood's launching their own you know full stack prediction market with North Carolina. Uh Coinbase bought a a prediction markets clearing house as well. So everyone is trying to go for this you know everything exchange

but none of the you know all of these are Robin Hood Coinbase very regulated onshore businesses um I think Hyperl's niche in this sort of offshore uh market they've really dominated uh I really don't see anyone coming close to, you know, taking any of their share away anytime soon. Um, but yeah, I think it'll just continue to be an exciting year, uh, just watching how these things play out.

>> All right. Well, it has been such a pleasure chatting with you. Thank you so much for coming on Unchained. >> Thank you, Laura. It was a pleasure. Bye-bye. >> And thanks to everyone for joining this live stream. We'll catch you next week. Nothing you hear on Unchained is investment advice. This show is forformational and entertainment purposes only, and my guest and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com. Hey,

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