The Exchanges

Q It is a cool name. Um, I want to talk about base. Obviously it's powering a lot of, uh, consumer crypto use cases right now. Like what, how did that come about? What has it been like incubating something like that inside Coinbase?

A Yeah. A lot of people have asked me about that because they're always surprised that like a relatively big company can still innovate or whatever, but I think the, uh, the way that it, you know, I can't take too much credit for it, by the way. The big, the biggest thing that I did was I, we have, we have a very entrepreneurial culture of different people we've brought in. And, um, Jesse Paul came to me at one point and he was like, Hey, I want to work on a new chain. And I was like, cool. Like take a small team, go run at it. You know, like, Two pizza team or whatever, like five people, and I had no idea if it was going to work, but the, the biggest thing I didn't, he deserves all the credit to be honest. The only thing I did was I kind of shielded it from the rest of the organization a little bit and just gave them time to cook. And he went through like five or six iterations and I, I saw a couple of these along the way and I was like, honestly, I have no idea if this is going to work. Um, and it turned out to actually really hit. And so that's, if there is like a secret to this, which I don't, I don't know if it's a secret, but It's like, you have to allocate some percentage of your, of your budget to these venture bets and taller and make them small bets. Cause you know, you want to have two, two, three, four people like working on it. Kind of like a YC company, not like don…

AI assessment note: “Jesse Paul came to me at one point and he was like, Hey”

Q Where are you getting the most leverage from AI internally? I can think of a bunch of different potential applications, but I haven't seen you do online virtue signaling about it yet, like other, uh, certain CEOs have. Uh, but I'm curious, you know, what, what you're excited about.

A Yeah. Okay. Well, so I think we're doing a lot of the current best practices that most people are doing with well-run companies. And then there's a couple areas on the horizon that we're, that are more crypto specific that I'll tell you too. So, I mean, the basic ones you probably know, it's like, we got, we onboarded all of our engineers to co-pilot and cursor and everything like that. So we got a hundred percent of them onboarded. That was good. Um, our customer support, I think like maybe 60% of inquiries are being answered by AI now, which is really good. We also, for a long time, been building AI models around, um, fraud prevention and, like, detecting risky transactions. Um, so, but you can, yeah, obviously, like, any process within the company that has a clearly defined input and output, you can train a model on and, like, um, generating compliance reports. Like, there's, so we're trying to integrate it everywhere. The ones that are a little more on the frontier or, like, crypto-specific, uh, for us, so, um, One is that, um, I guess people are calling it agentic commerce, right? Which is like, you know, your agent is increasingly kind of like your assistant and it might need to book you a ticket to go somewhere, or it might need to get through a paywall or something. Like if you're like, Hey, go read all the research papers from nature on this topic and give, give me a r…

AI assessment note: “we onboarded all of our engineers to co-pilot... customer support, I think like maybe 60%”

Q Do you think the conversation around economic freedom over the next few years will shift away from the U.S. and more towards emerging markets who are adopting digital assets, but may face, you know, pushback from, from their governments and You know, potentially even more aggressive way than we have in the United States over the past four or five years?

A Yeah, it's a great point because I think the unmet need is higher in some of these other countries, emerging markets, right? Where people like in Turkey, they're getting like 70% inflation a year or something. It's just like, it's devastating to their entire economy. People have very high demand for the dollar and then Bitcoin. Same thing in Nigeria, et cetera. Now, some of those markets are going to be very resistant to it. Like, especially if the government is not fully aligned with the people's interests, like the government wants to run their Fiat currency, because then they can kind of print money and abuse it, and you know, it's, um, it's one of these kind of original sins of like fiat currency, right? So, or like some of these, these markets have capital controls, right? Like in India. So I, I think the governments will be somewhat reluctant to embrace crypto in some of these places, but the, the average person will love it. Like the people are demanding it. They're rushing toward it. The governments are a little hesitant. And so in, Democratic countries. It'll be an, it'll be allowed because more people will vote for it. But in places like China, they're really cramping down on it. You know, I don't think North Korea is going to add it anytime soon. So it's a little bit like the internet, right? China has the great firewall of China. North Korea has their own private in…

AI assessment note: “I think the unmet need is higher in some of these other countries, emerging markets”

Q I want to talk about Base. Obviously, it's powering a lot of, uh, consumer crypto use cases right now. Like, what, how did that come about? What has it been like incubating something like that inside Coinbase?

A You know, I can't take too much credit for it, by the way. The big, the biggest thing that I did was I, we have, we have a very entrepreneurial culture of different people we've brought in, and, um, Jesse Pollack came to me at one point, he was like, hey, I want to work on a new chain, and I was like, cool, like, take a small team, go run at it, you know, like, two pizza team or whatever, like, five people, and I had no idea if it was going to work, but the, the biggest thing, I didn't, he deserves all the credit, to be honest, the only thing I did was I kind of shielded it from, The rest of the organization a little bit and just gave them time to cook. And he went through like five or six iterations and I, I saw a couple of these along the way and I was like, honestly, I have no idea if this is going to work. Um, and it turned out to actually really hit. And so that's, if there is like a secret to this, which I don't, I don't know if it's a secret, but it's like you have to allocate some percentage of your, of your budget to these venture bets and taller and make them small bets. Cause you know, you want to have two, two, three, four people like working on it, kind of like a YC company, not like Don't put a hundred people on it or something. It's gonna be, like, a big bureaucratic thing. Um, as long as they're small bets, you can tolerate, like, you know, 75% of them not worki…

AI assessment note: “Jesse Pollak came to me... the only thing I did was I kind of shielded it”

Q What about the Super Bowl ad? Was that a similar one person green lights it, and who green lit it, and what was the, what was the story with the QR code?

A Yeah. Well, as, as usual, like success has many fathers and mothers, but, um, you know, it, it partially came out of a rushed, uh, like a short time, you know, time constraints breed creativity. Right. So we actually didn't, I think by the time we bought the ad, we didn't have enough time to like go film something for months and months. And so the team just got really creative and, and, um, I don't even remember who it was in the meeting, like our, our CMO and there was an agency involved and it was a collaborative effort where someone was like, You know, well, what if we did kind of like a direct, uh, direct marketing type campaign where we want people just to install the app, but you can never measure the result of most of these brand ads, right? You're always like, I don't know, did it drive revenue or not? Nobody really knows. So we're like, well, we could actually measure how many people just like scan it and sign up if we, if we just put a QR code on the screen. So I don't remember who said it actually in the room, but it obviously it worked. It was cool.

AI assessment note: “it was a collaborative effort where someone was like, You know, well, what if”

Q say, well, we don't actually want to release this because we should just use it ourselves, but it, it sort of could potentially tie into this dynamic between closed source AI and, and open source AI. And is that, Do you think part of Coinbase's opportunity is to, you know, make sure these types of tools are available to as many people as possible versus just a handful of traders?

A Yeah, it's kind of, I mean, so we're not doing prop trading on our own balance sheet. So we're not like trying to be a hedge fund or something with a proprietary algorithm. So our goal would be to like make this available to as many consumers as possible. And yeah, I mean, it might, it's kind of adjacent to financial literacy, right? Like many people might come in and be like, yeah, I want to make like crazy returns. And this thing can kind of tell you, well, okay, that's pretty high risk. Like, why don't you like dollar cost average into this, um, Diversified portfolio over time, and like that might be more in line with your risk appetite, but if you want to take 10% of it and try something more high risk, like, you know, so it can, it can teach people about these concepts, um, and while also doing what they ultimately want to do, what they would have done anyway in the app, but it's just making it easier for them.

AI assessment note: “So our goal would be to like make this available to as many consumers as possible.”

Q Uh, can you talk about the extortion attack, how you handled it? And I'm particularly interested in going forward. There's a lot of tools in your toolkit. You can throw more money, more people, more technology at the problem. What's gonna, what's the next few years look like in terms of beefing up security?

A Yeah. Yeah, well, I, I mean, we've had a really good track record on security at Coinbase over the last 12 years, and even in this attack, you know, we didn't see any private keys or funds accessed directly by the attacker. So what they, unfortunately, they were able to do is they were able to bribe some of our customer support agents and to share with them, like, personal information on, on customers, like name, address, etc. And, you know, they want this information, attackers want this information, because they want to text people, call people, try to socially engineer them, and to get them to send their money. And so, Unfortunately, they were able to successfully do that with a handful of customers, which we've reimbursed a hundred percent at this point. Um, and then they sent us this demand once, once we were, you know, they realized they'd been found out and customers were kind of getting educated about this. Um, they sent us this demand for twenty million dollars, or we're gonna release all this information. And it was an interesting moment. We, you know, we came together and thought about it. And, um, you know, on the one hand, we could have paid them the money, right? But we were, we, we talked to a bunch of security researchers and people, and they were like, you know, there's really, what typically happens in these cases is you, if you pay the extortion, they're just…

AI assessment note: “they were able to bribe some of our customer support agents and to share”

Q I have one last question then we'll let you get out of here. Um, uh, and feel free to just, uh, take it as like meta commentary on the nature of the question, but who is Satoshi Nakamoto?

A Um, So, the official answer is, it doesn't really matter, because, like, the idea stands on its own, and so if anybody ever comes out and we find out who it is, like, in their, their will, or, you know, whatever. But, but the, the unofficial answer, I think, is It's probably some combination of, like, Hal Finney and Nick Szabo and, um, maybe one other person, but, um, that's my guess, is that it was a collaboration between those people, um, and, you know, but ultimately it doesn't matter. And Hal Finney is frozen at Alcor, but he's, you know, he's no longer living, so we don't, you know, but maybe if Alcor actually works, which is a big if, in the future we can bring him back to life, we'll find out.

AI assessment note: “It's probably some combination of, like, Hal Finney and Nick Szabo”

Q Uh, can you talk about the extortion attack, how you handled it? And I'm particularly interested in going forward. There's a lot of tools in your toolkit. You can throw more money, more people, more technology at the problem. What's gonna, what's the next few years look like in terms of beefing up security?

A I mean, we've had a really good track record on security at Coinbase over the last 12 years. And even in this attack, you know, we didn't see any private keys or, Funds access directly by the attacker. So what they, unfortunately, they were able to do is they were able to bribe some of our customer support agents and to share with them, like, personal information on, on customers, like name, address, etc. And, you know, they want this information. Attackers want this information because they want to text people, call people, try to socially engineer them, and to get them to send their money. And so, unfortunately, they were able to successfully do that with a handful of customers, which we've reimbursed a hundred percent at this point. Um, and then they sent us this demand once, once we were, you know, they realized they'd been found out, and customers were kind of getting educated about this, um, they sent us this demand for twenty million dollars, or we're gonna release all this information. And it was an interesting moment, you know, we came together and thought about it, and, um, you know, on the one hand, we could've paid them the money, right? But we were, we, we talked to a bunch of security researchers and people, and they were like, you know, there's really, What typically happens in these cases is you, if you pay the extortion, they're just going to come back in three…

AI assessment note: “we put out our twenty million dollar bounty for any information”

Q What other industries did you look Have you looked to for learnings to kind of, like, build through these boom and bust cycles?

A Every company has different challenges, so I actually don't think ours are that bad, but one of the, one of the challenges we had when we were getting ready to go public was, like, our revenue was super unpredictable and volatile, right? Like, we'd have a trading quarter where we would just blow it out of the water, and we'd be, like, printing money, and then we'd, it'd be down, like, 70% the next quarter or something. And, you know, in the public markets, investors really love you to have these predictable revenue streams, I don't actually, I still don't to this day know why they're so fixated on that. It seems like they should be thinking about the growth potential, but they love the predictability of it. And so, yeah, we had to look at oil and gas. There's like some energy brokerage, like if, you know, actually the traditional brokerages like, like NASDAQ and NYSE, like they have the same issue. If they can tell you, one of them told me one time, he's like, if you can tell me what the S&P 500 is going to do next quarter, I'll tell you what a revenue is going to be. But of course, like if you can do that, you've got, you got like, you got it made in other ways. So, but you know, whenever I'm, I feel like we're having a bad time, I always look at, like, the hard tech companies, right? Like, the biotech companies in the public markets get beat up way more than we do. Um, they h…

AI assessment note: “we had to look at oil and gas. There's like some energy brokerage”

Q looked to for learnings to kind of like build through these boom and bust cycles? Because it feels like, you know, you guys are, are acclimated to that now, but I know, I know this is, You know, the case oil and gas is, is probably a prominent one. Did you, were you able to pick up anything from outside of crypto to help you steer the ship through cycles?

A Yeah, a little bit. I mean, every company has different challenges, so I actually don't think ours are that bad, but one of the, one of the challenges we had when we were getting ready to go public was, like, our revenue was super unpredictable and volatile, right? Like, we'd have a trading quarter where we would just blow it out of the water, and we'd be, like, printing money, and then we'd, it'd be down, like, 70% the next quarter or something. And, you know, in the public markets, investors really love you to have these predictable revenue streams. I don't actually don't, I still don't to this day know why they're so fixated on that. It's It seems like they should be thinking about the growth potential, but they love the predictability of it. And so, yeah, we had to look at oil and gas. There's like some energy brokerage, like if, you know, actually the traditional brokerages like, like NASDAQ and NYSE, like they have the same issue. If they can tell you, one of them told me one time, he's like, if you can tell me what the S and P 500 is going to do next quarter, I'll tell you what a revenue is going to be. But of course, like if you can do that, you've got, you got, you got like, you got it made in other ways. So, but you know, whenever I'm, I feel like we're having a bad time, I always look at like the hard tech companies, right? Like the biotech companies in the public ma…

AI assessment note: “we had to look at oil and gas. There's like some energy brokerage”

Q the union from your perspective? How would you grade the, the, the, the different executions across the original goals? Some of them have just kind of fallen by the wayside as, We found different solutions to those problems, but what are you, ah, what do you think we've knocked it out of the park on, and what do you think we still have a lot more work to do on?

A Well, the ultimate vision for crypto was always economic freedom in my mind. In fact, that's the mission of Coinbase is to increase economic freedom in the world. So that's like how to give people more self sovereignty, more control of their money. It enables them to not only like live a freer life and have not have things taken away from them, but it also, it's better for society because if we have a society with good property rights and sound money and like rule of law and these things, you can actually Try more things. If people are rewarded with the upside of their labor, they're going to go, they're going to go try more ambitious things in the world. So you see that there's actually economists who measure across different countries, like how high is economic freedom? And you see that in high economic freedom countries, there's like higher GDP per capita, but there's also like less corruption. There's less war. There's lower infant, you know, lower infant mortality, like all these kind of downstream effects. So the ultimate potential of crypto is to get more economic freedom in the world. And we've been trying to push on that through a variety of ways. Like one way we've done it is by getting legislation passed in the U S or pushing on that. We had a big influence in this last election. Uh, the crypto voters showed up in a massive way. We had like two million advocates who …

AI assessment note: “one way we've done it is by getting legislation passed in the U S”