Coinbase Global, Inc. (COIN) Earnings Call Transcript & Summary

We're going to wrap up the conference with a fireside chat between Fred Wilson and Brian Armstrong. As pioneers in the cryptocurrency markets, we thought this would be a good way to conclude the conference. So before we get started, I'd like to remind you that during today's chat, Brian may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that cause results to differ from those forward-looking statements is included in Coinbase's SEC filings and the shareholder letter is available on Coinbase's Investor Relations website. Our discussion today will include relevant references to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures is included in the company's most recent shareholder letter. With that, let me first introduce Fred Wilson. Fred will be monitoring today's panel. Fred is a partner of Union Square Ventures and Lead Independent Director of Coinbase. He has been a venture capitalist since 1987 and was an investor in Twitter, Etsy and MongoDB. He is a daily blogger and writes venture crypto and other -- sorry, he writes venture -- on venture crypto and other unrelated subjects. And so Fred, thank you for being here today.

Thank you.

And then I would also like to introduce Brian Armstrong, the Co-Founder and Chief Executive Officer and Chairman of the Board of Directors of Coinbase. He has served as Coinbase's as CEO and as a member of its Board of Directors since Coinbase's inception in May of 2012. Before founding Coinbase, Mr. Armstrong served as a software engineer at Airbnb and was Founder and Chief Executive Officer of UniversityTutor.com an online tutoring directory. So after stumbling through that introduction, I'd like to turn it over to Fred and Brian. Thank you so much.

Thank you. Hi, everybody. I hope everyone still got a little bit of energy left after a long day of crypto. Brian and I are going to hopefully have a wide-ranging conversation. And I'm curious, are we going to take any questions? Or is it just us chatting?

I think, I was told we might do some Q&A. I don't know, I'll leave it up to you.

Okay. Cool. So I thought maybe we'd start with a little story of how I met Brian, which is a fun story. And so it was the summer of 2012 and Paul Graham from Y Combinator asked me to do office hours at their summer program out in the Bay Area. And the way that worked was that I agreed to sit in a conference room for 4 hours and hear 16 pitches, new pitch every 15 minutes. So sort of like speed dating for startups. And somewhere in that group of 16 pitches was Brian, and I really, really like what Brian was talking about. And so at the end of those 4 hours, a little staggered out of the conference room and Paul was waiting for me as I walked out the door and he said, "Well, which one did you like?" And I said, "Coinbase, Brian." That's the one I like. And he said, "that's great." We haven't got a lot of VCs that are that excited about Bitcoins, what we used to call crypto back then. And so when they do their round, we'll make sure that you guys get a phone call. And sure enough, I don't know it was maybe 3 months later, you and Fred started to raise some money and we got the call and we got to invest in the first sort of venture round at Coinbase. So that was, I think, a very fortunate for me, very fortunate that I did office hours that day.

Yes. And I mean, it was great. You put out a blog post as well at that time saying, "I'm interested in crypto or Bitcoin at the time. I think this is important. It's going to be I remember sitting there as an aspiring young entrepreneur just -- and saying, wow, that guy, he thinks what I think is cool also because nobody else thought Bitcoin was cool at that time. So I think putting out a bat signal like that on your blog was like -- turned out to be very fortuitous.

Yes. No. I mean like you, I read the white paper. For me, it was 2011 when I first read the Bitcoin white paper. I don't know, when was the first time you read the Bitcoin white paper?

I think it was December 2010, and I was visiting my parents at home and I just saw it on Hacker News of all websites. You want me to tell that story?

Sure.

Yes. I mean so basically I -- as one does when they're home with their family, sometimes you need a little introvert-recharging moment and you just go to your room. And I decided to read the Bitcoin white paper, I saw this thing and remember thinking this might be the most important thing I've read in 5 years. It was talking about how -- so this new protocol kind of like the Internet that was global and decentralized was being created. But instead of for moving information, it was moving value around. And I always felt like the payment system globally, it had a lot of inefficiencies. I had seen that as an entrepreneur. I had seen that living in Buenos Aires, Argentina. I'd seen at working at Airbnb, where they were trying to move money all over the world. And so it kind of felt to me like wouldn't it be great if the world had this more unified global payment system, and maybe that would be more fair and free and efficient. And so I had no idea if it would work. I couldn't really understand the paper, the first time I read it, I had to reread it a bunch of times. But it captivated me in a way that -- basically I couldn't stop thinking about it for the next 6 months and eventually started working on some prototypes, and that led to Coinbase.

Yes, it's amazing. I mean the white paper is not that long. Was it like maybe 10 or 12 pages?

Yes.

It's not a huge document.

Right.

And I remember, I bumped into a friend of mine right here in Midtown in the summer of 2011, and I asked him what he was working on, and he said Bitcoin. And I said, what coin? And he said, Bitcoin. And I said, what's that? And he said, go read the white paper. And like you, it was an epiphany. For me, it was a little different because for me, it was just like I was kind of reading the architecture of the Internet all over again, but this time sort of applied to financial assets, financial value. And obviously, now we've come to realize it's a lot more than that. But I was just like, "Oh, this is this permissionless network that's kind of like not owned by any entity that we can just innovate on top of." And I was like that -- like I had these really strong pattern recognition moment going on and I was like, I just kind of knew this was going to be the next big thing.

Yes. I remember you saying that you're like something in my gut tells me this could be a big deal. But that was a contrarian view at that time. So...

Yes.

People who had seen the Internet early or some kind of analogy, you had to not only feel like technologically, this was interesting, but you almost needed a more global perspective too because if you've only grown up in U.S. or a country that has a pretty stable financial system and a currency, and you might think why would anybody need another system? But from a more global perspective, like living in Buenos Aires for a year, I had seen a hyperinflation country or people who had lived abroad, had this kind of visceral sense that, you know what, it's actually really not that easy to move money globally. Sometimes the currency gets devalued. This is a tax on the economy and it's a tax on economic freedom. Most people in the world don't really have access to good financial infrastructure, and it's holding back innovation and quality and all these kinds of things. So it took a rare combination of skill sets, kind of that global economic mindset plus a little bit of enough technology for people to see some potential.

Yes. That's great. Well, so we both sort of had the same kind of origin story when it comes to crypto, and that's great. Let's talk a little bit about Coinbase. Maybe let's start at a very high level. I think that founders and the values that they bring to a company are super important. And Brian, that's absolutely true with Coinbase. And I thought it would be great maybe just to kick off and talk a little bit about what Coinbase's values are and how they impact product and vision?

Yes. So we have 9 values that we've written down and if people want to see the full list, they can go look at it on the website, but I'll just touch on 3 of them and maybe just zoom out for a minute and think about how do these all come together to make us, have some amount of success. So one of the first values that we have is top talent in every seat, which basically means let's be kind of unreasonable about going out there and trying to find the best people, right? A lot of companies say that, not very many do that. You have to be kind of high disagreeableness. If you do an interview panel and you find an absence of any kind of issues, that's not the same as being a hell yes on somebody. Hell yes means you went in there to an interview, you learned something. You left with more energy than when you went in. You feel like they're going to come in and raise the average on the team in the first week. And so we got really obsessive about this idea of top talent because, of course, everything goes back to the people, right? You can't have great revenue unless you have good products. You can't have good products unless you have good people. So attracting and retaining top talent is the #1 value. And I think...

And does that mean that you have to say no to a lot of people to fill a position?

Yes. I mean, we do -- we've looked at some benchmarks of the company is, how much we invest per hire in the process and everything. And yes, the answer is, we're more selective. We also -- interviews are just kind of low signal. We do extensive references. You can kind of -- there's a lot of stuff to be innovated on, I think, in how you attract and find great people. The second value I'll just touch on is called repeatable innovation. So I had this idea early on that I don't want us to be a one-hit wonder as a company where we kind of finally found product-market fit. That alone is quite rare. A lot of companies, they find product-market fit with something and they really just kind of scale it iteratively or into more countries or whatever forever. I wanted us to be a company that could repeatably find new products and build them. And so we are a multiproduct company today. We have a suite of products. We're diversifying our revenue streams. So it's not just trading revenue. We're getting various other subscription and services revenue. And I think of us as almost like a portfolio of bets. A lot of them have nice synergies. If we're the primary financial account for people, well, it makes sense, they should probably be able to connect payroll in there or do margin or staking or we're launching new things like NFTs. And so we have this project internally now called Project 10%, which means that any employees inside the company can come pitch a panel. And with 10% of our resources, we make bets on these kind of these venture bets inside the company, if you will. And importantly, it's not a consensus, where you need to get a yes from everyone on the panel because one of my beliefs is that innovation comes from contrarian ideas that happen to be right. And so even if I vote no as the CEO, if you get one of the people on the panel to say yes and fund it out of their budget, then that project gets off the ground. So that's where Coinbase NFT came from, our payroll products like Coinbase Commerce, Coinbase Wallet. So we have this repeatable innovation engine, which I think is similar to Amazon, it's like Always Day 1 or some other ideas like that.

In some of these things, Brian, I mean I don't want to toot your own horn, but a lot of CEOs would have killed some of these things a long time ago. I remember that we asked ourselves about the self-custodial wallet 3 or 4 times, like why are we investing millions of dollars in this, same thing with Coinbase Commerce. I remember multiple times, the Board tried to convince you to kill these things, and you didn't want to do it. So there's another thing going on with repeatable innovation, which is staying the course, right?

Yes. I mean, whenever you have something that's already got in product-market fit and it accounts for 90% of your revenue or some large amount, and you look at this team, and it's like they're never going to move the needle on revenue, and they're so small, and they're taking resources away from the main thing. And the hardest time to invest in the future is when it's like all, everyone's attention is just on scaling the thing that's working. But if you don't invest in the future, at least a little bit every year, then you're just going to have this arc, which eventually peters out. And companies need to have an act 2 and act 3. Netflix needed to be thinking about streaming in the cloud while getting their DVD business going, right? And then they need to think about, "Hey, let's make our own content." It's like -- so you always need to have that mindset, which is why that's the -- Project 10% means it's not going to be like 50% of our stuff on new initiatives. That would be irresponsible. We have a lot of work to scale the existing thing that's working, with 10% we can do. And so it's about finding that balance. I'll give you one more value and then we can take it wherever you want. But the last one I talked about a lot is efficient execution. So we always just try to think about how do we get rid of bureaucracy? How do we make sure that we can move quickly? And then of course, we are storing people's money. So there are certain systems that we need extra checks on and validation. And we're not completely averse to process. But there's other systems where you're not -- it's not a risk-critical system. And so how do we move quicker? One of the biggest fears I have is that as we become a bigger company, a multiproduct company with thousands of employees, eventually, hopefully tens of thousands of employees, we'll ossify and we will slow down because of that. And so efficient execution means doing more with less. It means ruthless prioritization, 80-20 thinking. We invest a lot in, for instance, developer productivity. How do we make sure every developer has tools where they can get a development environment spun up and build in like get the time to do that down and down and down. So efficient execution is another big one. But anyway, those are 3 of the values.

And you have a lot of processes I've seen where you hash things out on a document and then you have a meeting. So you don't just have a meeting to discuss something. You have the process where a lot of the hashing out's happening in advance of the meeting so that the meeting can be efficient about making a decision. Is that part of the like core way that you work?

Totally. Yes. That's been a big efficiency improvement for us as well is, yes, every meeting at Coinbase has to have a pre-read. So people consume that document in advance. And then once you get in the room, the person who wrote it gives you like a 2-minute summary and then you go right into discussion. You have to generate action items at the end of every meeting. There's a bunch of kind of meeting hygiene stuff. The worst meetings to me are when someone can just kind of lob in an idea that haven't really thought out. It's like, if you want to bring up that idea, great, right the pre-read. It's a little bit of a hurdle for someone to actually put that out there. And then once you've had time to digest it and you're thinking on it is much better when you actually show up for the meeting itself.

So I'm going to raise an issue that I think has been one that's bubbled up from the team a bunch of times, and I love your answer to this. What do you -- is Coinbase a financial services company? Is Coinbase a tech company? Or is Coinbase something else?

Yes. So this is complicated at first glance because in some ways, we are connecting into the traditional financial system. We're helping do that bridge between fiat money and crypto. We're regulated as a financial service business. So on the one hand, people might say, you're a financial service business, right? But we also I'd say culturally, all these things I just mentioned, for instance, [ local ] start to look a lot more like a tech company. In fact, I would rather have -- given the choice between the 2, I'd rather have the culture of a tech company. I think tech is -- it's more innovative. It has that repeatable innovation. It's about how to get scale with these massive systems. And I think just technology is kind of like the most exciting thing in the world to me about how to build things which affect billions of people. But I'll give you a step further. So it's not a financial service company, it's more towards a tech company, but what's beyond a tech company, a crypto company. So crypto -- that's what I really want us to be as a crypto company. I mean crypto companies are going even beyond big tech, right? They are coming up with novel governance systems like Dow's. They are finding ways to have their customers participate in building the community and with tokens and various things like that. They are empowering their -- they're more decentralized in nature actually. They're embracing remote work. They're enabling teams of people within the company to kind of spin off and do new ideas. Almost like its own start-up ecosystem within the company. So crypto companies are this very incredible -- there's incredible amount of energy around it. There's so many crypto startups being created right now, and that's where I want us to be a crypto company.

Got it. So as you think about the bank part of our business. Today, I think people would say we're a relatively centralized service. But we operate in a sector, crypto, Web3, whatever we want to call it, where there's a lot of decentralized systems coming up. DeFi maybe is the best example. So maybe we can talk about DeFi. How do you think about decentralizing Coinbase? And what role does DeFi have in that?

Yes. So DeFi stands for decentralized finance, if anybody is not aware. And it's essentially this movement that's come up in the last few years where people have started to recreate some traditional financial services but in a decentralized way on the blockchain typically using the Ethereum blockchain with smart contracts. I think you saw Robert Leshner up here a minute ago that he's a great -- his company is a great example of DeFi. So at first glance, it's kind of a paradox, Coinbase today, a lot of people think of us as, "Oh, that's a centralized exchange." Well, we're really trying to be something much bigger than that. We're trying to be the primary financial account for people in the crypto economy. It's the place where they store all their stuff. And lots of things can plug into that, trading services but also staking and remittance and payroll and lending. And there will be a number of first-party things we plug into that account. But there will also be third-party applications that we connect into that account because. Just like the Internet, there's now thousands and thousands of new apps being built in the crypto economy. So long way of saying, Coinbase is going to embrace DeFi. We think that's a very important trend in the world. You're going to see DeFi products and services surfaced within the Coinbase app either as third-party apps or more through first-party apps interfaces. And so yes, even though we have a centralized exchange, we need to go see to where the puck is going. And if customers want DeFi, which they very clearly do, we need to make sure that all those things are available within the Coinbase app.

It's also interesting to me that Coinbase Ventures is, as of right now, the most active corporate venture capital business in the world. There's no company that is making as many venture investments right now as Coinbase's, which is kind of remarkable. And you're investing in companies that people would consider to be disruptors of our business, competitors of our business. It really seems like it's a very progressive mind that you and your executive team have about building the ecosystem and our role in it.

Yes. Well, I think we're kind of living in this golden age. People are going to look back on this time, I think, as this incredible moment to create companies in this new way and products and services. And so we just want to help that happen and participate in it. And it's -- in a high-growth environment, it's much less about like competition with other crypto companies. It's one of the great things about the crypto space actually, I'd say people are all very collaborative is my experience. And even if technically, where both competitors or something, I mean we feel like this is the early innings. This is like the year 2000 or something with the Internet, and it's like, how do we 100x this whole market? That's what we all kind of care about. And it's less about who's fighting with who. So if we can do that through Coinbase Ventures, that's great. We're also trying to help other -- the start-up ecosystem with crypto evolve with things like Coinbase Cloud. So we -- this is kind of like our AWS for crypto. We're trying to externalize some of the services that we've had to build. A lot of hard engineering has gone into how do we store crypto and integrate all the blockchains and monitor transactions for AML purposes, do trading and staking and all that. And so if we can externalize all those services, hopefully, we can help not only 1,000 start-ups blossom by using those and having to not recreate it, but maybe even traditional financial players can integrate some of that stuff because we want everybody in the world to integrate with crypto.

How do you think about custody and self-custody? When we first invested in Coinbase, one of the first conversations you and I had was about cold storage and securing the Bitcoin that our customers had with us. And I really feel like you and your engineering team built the best first-gen custody system in the cloud. But I've also heard you say that you think long-term, the answer is more self-custody, which is another example of you saying that, "Well, we started here, but the world is going here and we got to go with it." So I think, I'd love to hear how you think about that.

Yes. So you're right. The early on people were all worried about, how do you store crypto? And people were losing it accidentally. There was famously things like Mt. Gox, where some exchanges got hacked and funds were lost. And so that was one of the key things we built early on, and that Gen 1 storage got us off the ground, by the way I think we're on Gen 4 now of that system. So it just keeps getting better and better. And I think we're storing $255 billion of crypto now...

Something like 10% of all crypto in the world is stored at Coinbase?

Yes. Yes, a little over 10% now. So that's a great indication of trust that people have in centralized custody. Especially for our institutional customers, by the way. Most of them today seem to really want to have someone like us, we're qualified custodian, so they can store it with us. Now there has been this really -- this segment has always been there, but I think it's going to keep growing over time. It's largely retail, but it's the self-custodial preference that people have, which is "Hey, I want to store my own crypto." And there's some nice properties of that. It's not just -- I make sure it's never going to be seized or something like that. They also -- you can kind of do more stuff with it, right? Because when -- if you make a wallet that is self-custodial, if you're not storing customer funds, you're regulated more like a software company, not a financial service business. And so a lot of the most interesting stuff people are doing with DeFi and NFTs, a lot of this is being done through self-custodial wallets. So Coinbase has a self-custodial wallet, it's called Coinbase Wallet. Maybe the name's confusing. But people basically often will come in and buy some crypto on Coinbase and then they'll transfer it to Coinbase Wallet or one good many self-custodial wallets out there. And it's great because we're seeing much more use cases evolve there. It's also -- by the way, the self-custodial wallets are really getting a lot of traction in emerging markets, which is something I was really excited to see because part of the whole mission for Coinbase, and the reason I got excited about it is, we want to increase economic freedom in the world. And we can do that in developed countries like the United States and the U.K. and Japan, but there's a whole bunch of places in the world where people have this like terrible real pain point around high inflation of the currency or they just can't get a loan or the money can be stolen from them. And in emerging markets, we're seeing people now with their smartphones have good financial infrastructure for the first time, which is this great leveling of the playing field. And so a lot of those are happening with self-custodial wallets. So I think you're basically going to see both of those grow over time. I think self-custodial could be even more important long-term because that's -- it's this idea of people being self-sovereign or something like that. And just to give one more analogy, I think 10 years ago, people really didn't care that much about private messaging. And then WhatsApp came on the scene and then encrypted and Signal came on the scene. And first, this was kind of a niche thing like people in tech were using it. But now it's like it's funny when I go to D.C., like everyone's using Signal. And the Fortune 500 like C-suites are all being run on signal. It's like people value privacy now. And so I think that this can happen in crypto, too. It's like more and more people are going to want like privacy of their money and their transactions. It's some of the most private stuff in their life.

I don't think it's an accident that the Bitcoin white paper was written in the wake of the financial crisis. We're sitting in a building that was built by a big investment bank that doesn't exist anymore, Bear Stearns. And I think the idea that -- right now, my funds are at a bank, and that bank can loan out my money to somebody in a bad loan. And then all of a sudden, I have to worry about with my bank is solvent. And I think one of the core beliefs in crypto started with Bitcoin. Then we called it crypto now Web3, is that -- these are my assets, right? I will decide if they get lent out. I will decide how they get lent out. And DeFi and self-custody starting -- you're starting to see that where people are taking their Ethereum and they're putting it in a lending contractor. They're putting it in a staking contract. They are making that determination, right? It's not some bank making it for them. So I agree with you that a lot of what's going on in self-custody is important. But I think there -- it would still be better if some of the security and safety and ease that exists in the custodial world could get extended to self-custody. And I think maybe we could build some of that stuff because we have already built it for our custodial side, right?

You're right. I mean it's funny you bring this up like in this building with this conference. I don't know if we are allowed to say that, but you're right, never really quite made sense to me that like you keep your money at the bank, but they don't really need to keep it there for you. They can like lend it out without your permission and expansion of the money supply. And all -- I've just heard this like interesting historical way that we got here. And now as a result of that, of course, you need so much regulation around banks because there can be a run on the bank and so there's capital requirements. What if we just kind of reset the table here and think about from first principles, what would be the right system. And I think it's probably closer to what you're saying. It's like if you want me to store the money for you, then you can store the money, but you can't lend it out without my permission. I'll opt into that and you can pay me a yield on it. So I think that's kind of how the crypto economy is getting built with from first principles. People are rethinking this stuff from the ground up. And yes, I think it's a good thing.

Right. All right. So you mentioned that we are in the retail business, we're in the institutional business, and now we're starting to build stuff for developers. Do you see that as 3 separate lines of business? Is that how you think about those 3 businesses?

Well, those are really, yes, our 3 customer segments. And so we are -- again, we're coming back to being a multiproduct company. We have different customer segments. We have leaders of these different areas. So I'm really proud that we've gotten in the company to a place where we can actually walk and chew gum. We can build many things at the same time. We have this incredibly high functioning executive team of like diverse skill sets, but everybody's getting along and there's high trust. And I feel like I've really gotten the company to a place where it's not reliant on me as a bottleneck, right? Early at Coinbase, that was always like you feel like you've to kind of fill the gaps. And we have enough people and enough structure that it's like a really high functioning company. We can do many things with good capital allocation. I was talking to somebody earlier about that book, The Outsiders. I love that book. So we are getting to that place. And those are our 3 customer segments. I'll give you one other framework that we think about in terms of our road map. So we think crypto is kind of going through these 3 phases of evolution, where the first phase is crypto has a new kind of money. That's what Bitcoin really was and people was like digital gold and people came in to speculate on it. The second phase was about crypto is a new set of financial services. And so we're seeing people create doing borrowing and lending and remittance payments and earning yield and like kind of recreating a lot of aspects of financial services, but doing it in a more decentralized way with crypto. Now this third pillar, some people are not quite aware of this is happening, but it's really crypto as a new application platform. This is what people are referring to as Web3. And it's basically saying, "Hey, actually, almost every type of new tech start-up or application being built might have a crypto component." And at first people are like, how can that be? Not everything needs to have Bitcoin or something like that. But what's happening is most venture capitalist, I think if you -- getting people to come in and then pitch them on like, "Hey, I'm making this new game." Like coming out of a gaming studio or something, and it has a crypto component, or I want to make this new social media company and it has a crypto component to it. I want to make this new identity system, this voting system, a governance system. And so pretty much -- it's kind of like when start-ups in the 2000 -- early 2000s, you had -- we're a dot-com start-up, it means we have like a website. You don't need to say dot-com anymore because like every startup has a website. And it kind of happened like that with machine learning, too. First, you said we're a machine learning start-up. Now every -- almost every company uses like some kind of machine learning somewhere. And it's becoming that way for crypto. You don't need to say -- I don't think you're going to need to say see crypto start-up in a few years because pretty much every new tech startup is going to have some kind of crypto component. That's pretty exciting, and that's sort of like that third pillar. So crypto is a new form of money. Crypto as a new kind of financial services now, it's crypto as a new application platform. And that's how big could Web3 get, and that's pretty exciting.

And so if we build the cloud services that support these Web3 applications developers won't have to build all that, right? Like when AWS came out, it was a big unlock for value for founders and entrepreneurs because they didn't have to worry so much about the infrastructure, and they could just build applications. And so that's obviously what you're thinking about in terms of our developer business.

Yes. The developer business is definitely enabling that. And then even in all those applications, people are still going to need their primary financial accounts, where they keep all their stuff, and that's what Coinbase is here to provide. So I think that's a great core foundational asset of the crypto economy that will just keep paying dividends and connecting to more things over time.

So we preannounced an NFT, we being Coinbase, when I get involved with a company and I get on the board of a company, I always use the word we even though I don't work there. So that's -- it is how it is. We preannounced an NFT platform, maybe 2 months ago now?

Yes.

And there's a lot of demand already, right? Like we've got millions of people on the waitlist.

Yes, there was a lot of demand. NFTs are definitely having a moment right now. It's pretty exciting. I mean people are always asking, are we in a bubble. I mean crypto, there's like -- there's peaks of excitement and then things correct a bit or whatever, but the trend is clear. NFTs are going to be very important. They're here to stay. It's not just -- I mean art and collectibles is a big thing in itself, but it's also representing any kind of digital good that's provably unique. And so that could be important in the metaverse. It's important for like domain names or ENS names where people have these scarce digital resources, right? There's even things like people making these new CryptoCities and to get like citizen chip or voting rights, you need like to buy the NFTs in there. So it's turning into its own really powerful ecosystem. I was here for the, was it NFT.NYC, that happened a few weeks ago or maybe a month ago. And the level of excitement was just incredible. There's like a line of people, 1,000 people around the block like waiting to get a Bored Ape or whatever, that's brought this whole new category of people into crypto who probably never owned any kind of crypto asset before, but they're really into the art scene or their creatives or their video producers or whatever and they are making games, game characters. And so now it seems like this whole another segment of the crypto world has brought more people in. I think we're getting -- and there's going to be something like this every 6 months, it seems like in crypto now. There's just another kind of wave of something new that gets created. I think we're going to get to a place here -- and we are kind of already are. There's like tens of millions of Americans now who have crypto or using crypto in some way, shape or form. I mean, if that gets to 50 million people, 100 million people, it's like this industry is here to stay, and it's going to be a bigger and bigger piece of global GDP over time.

I think one of the things about NFTs is I think that they made crypto a little bit more mainstream. I think that the idea of owning a Bitcoin or owning an Ethereum was always a little abstract to a lot of people. I think if you were an investor like me or maybe a trader, the idea of speculating or trading those assets was enough to get some people into crypto. But I think when you get into culture, whether it's art or fashion or music or whatever, obviously, just a much broader group of people can relate to that. And to me, that's really what NFTs really unlocked is, it got people who could relate to it as a cultural asset as opposed to a financial asset. And then they started to understand some of these aspects of crypto assets that make them so powerful. Some of these fundamental things that they have and they're like, "Oh, okay, I get it. I own this unique image or I own this unique piece of music and I can trade it and there's a marketplace for it." So I think that's, to me, maybe the biggest thing that happened this year in crypto was that a lot of people who were on the sidelines because they couldn't relate to it got there because of NFTs.

Couldn't agree more. Yes.

All right. I'm going to ask one last question, and then we'll still have 10 minutes left, so we can take some questions from the crowd. It's so important when a founder stays on -- in a company and can continue to provide that sort of unique thing that founders can provide that sort of instinct about the business and the courage to do things that may be the executive team might not have. But how do you -- you've been at it now for 10 years, I guess, when was it?

Almost 9 years now.

How do you stay excited and engaged now that it's 3,000 people. What are the things that keep you motivated?

Yes. Well, the job definitely changes from me all by myself typing code on my laptop to 3,000.

You coded all anymore?

Not -- they won't even let me into the Codebase. There's too many security things. Everyone's trying to hack my laptop, whatever. So I don't have access to anything. But maybe for fun, a little bit on the side, but no serious code. But how does -- I mean the job changes, your role eventually starts to be almost like more of like almost like a politician or something at scale, which is like a little scary. I think the thing that I love most is building cool new products with technology. That's what I love doing. And what's great is I can still do that at Coinbase. I mean we -- I talked about Project 10%, repeatable innovation. This is coming partially for me. It's partially -- I think it's a really good business strategy to have like second, third [ acts ] in different revenue streams. But it's also just fun for me. I like building new things. And so we have more and more resources, so we can do more of them and we can, I can -- let's put 100 people on this. That's -- this is a really cool new area. So that's really fun for me. I think also -- the way that I add value to the business, I think, has changed a little bit over time. So it's less about me actually doing any of the day-to-day work and like jumping in and trying to fill gaps. We have such an amazing exec team and layer below them, and like that part the business is just functioning, is functioning really, really well. So what is my job? I mean we're going to add value. I think one thing I do is I just -- I spent a lot of time going around collecting information about what's going on in the business. So I go have here's a bunch of employees that got like really good performance ratings. I go of lunch with them every 2 weeks, right? Or I just consume information and walk the floors. And occasionally, I see something and like, I started to get kind of a hunch like this feels off to me. I wonder if we're -- we don't have the right culture here. We don't have the right focus. And then I'll go make a big point about it. I'll try to steer the ship a little bit over or it's me saying let's try something new here. I want to push the business to actually have a little bit more risk tolerance or something like that. And in some ways, that's what the founders can do is they can help push the business to think further ahead, they can help set the culture. They can do contrarian bets, right? You don't want to be too crazy. I think the best companies, they actually have a pairing of like great operators, but a little bit of that founder instinct. If you have too much founder instinct and you think you challenge every idea, you can have companies blow up, and we've all heard of examples of that, that are a little bit too founder crazy energy. But if you have something that just, all the trains are running on time, great operations, you get kind of a boring company that doesn't really build new stuff. So the pairing of that is great, and I have to say I have a really great partner with Emilie Choi, who's our President and COO. She's just an amazing operator, I can provide a little bit of that founder energy on product and vision and culture. It's such a great pairing that I think is just generating enormous value for Coinbase. So I feel very lucky to have her and just like an amazing executive team that's working well.

Great. So let's take a few questions. We have 7 minutes left. So I don't know how many that's going to be, but we'll get a couple of good ones out.

My name is [indiscernible] from New York City. [Technical Difficulty] self-custody and you talked domestically 50 million-plus users. I know there's a lot of innovation space being easier to onboard that 50 million things like [Technical Difficulty].

Can you repeat the question?

Yes. The question is where -- the next 50 million people who are going to come on to Coinbase or crypto more generally, what's the innovation that's going to make it so that they'll come onboard?

Yes. There's a few things I think that could really unlock that next 50 million or hopefully 1 billion people into crypto. I mean, one of them is that blockchains need to be more scalable. It's a little bit like we're living in the Internet and everything is dial up. When we went to dial to broadband, it just -- it came by an explosion of new ideas. So I think there's a lot of great work happening on blockchain scalability. Another part of it is just emerging markets. The U.S. is a big market. There's a lot of people using crypto in the U.S., but we haven't really gotten. There's 1 billion people in India and China in these places. That will bring on a huge additional segment. I also think the other thing is just, we're seeing thousands of these new [indiscernible] or crypto start-ups being built and -- it's kind of -- many of those ideas won't work, but some of them are going to be breakthrough ideas that are, it's kind of like the Internet, right? Like people don't really know about how does TCP-IP work. Like I don't know -- technology people, maybe they know. But the average person doesn't need to know they don't care. They just want to share photos with their family or whatever. So it's really about the applications of crypto. And the good news is we're seeing thousands of start-ups being built. So if the applications come, the 1 billion people are going to come. They don't really actually need to know how the Bitcoin protocol or Ethereum protocol works underneath.

But I do think that the one thing that's a little tough today is I want to just NFT because it's easy. If I want to buy an NFT. I got to get a self-custody wallet, so I go get my Coinbase Wallet. Then I got to get some Ethereum in it. So I got to go buy some Ethereum and either in the wallet or buy it somewhere else and put it in the wallet. And then I got to go somewhere where there's NFTs. I got to connect my wallet to that application and then I can buy the NFT. So that, again, is a little bit like dial up. I mean remember, we used to have to like dial up and then we could launch our browser. And then -- so I do think that it's incumbent upon Coinbase and some of the other big companies in the sector to make some of that. We used to think about onboarding to crypto was FIAT to crypto. But there's also just like the whole wallet integration thing is still kind of clunky. And I mean my mom's 90 years old, there's no way she's doing that. And she is posting to Facebook and Instagram, right? So we made it easy enough for a 90-year-old woman to do that, but we haven't yet made it easy a 90-year-old woman to buy an NFT.

Yes. And that's part of what we're hoping to do with our Coinbase NFT platform is like we've already got you signed in and your payment method's there and your crypto is there. So let's just show you all the stuff with one click, you can buy it and make it even a more social experience. It should be more like Instagram than with people you follow in feed of cool stuff then like eBay or an auction?

Right. If I already have a Coinbase account and I already have Ethereum in it, and I can just buy an NFT right there, it's a to a lot more people are going to be able to do that. That's for sure.

Brian. Big fan of Coinbase. Have you ever thought about incentivizing your users the same way? Do you have a feel like you messed up by not doing a token? You have plenty of users, millions obviously, and you have not given them the incentive mechanisms that are available in the Compound and some of your other platforms out there to really bootstrap or get them excited about using Coinbase base as opposed to any other platforms. Yes, I feel like it's a missed opportunity and if there's still a chance to do something like that?

Yes, it's a great question. So there's definitely -- we've seen kind of exchange tokens that have done very well in other companies. I do think that it would be great to do something like that, but as a company that's leaned into regulation, and we're very -- we're doing this in the U.S. market, not kind of more internationally, I'd want to -- we need to make sure we do it right. And so I would love us to have a security token like that, registered as a security and trading in a very regulated way. My worry is that some of those exchange tokens they're sort of -- there's a big question. Are they really securities? Are they -- do they have some of like a shadow equity component to it? Or are they actually more like utility and rewards? Everyone's still trying to figure that out, and it's a big unanswered legal question. There's a lot of, Paul, our Chief Legal Officer, talked a bit about this earlier. There's a lot of open questions there. So I think that's -- we're going to -- we would love to do something. If we're going to do it, we're going to do it right and the legal way, which is kind of what Coinbase has done. Even if it's harder, we're going to do it the right way. There's other tokens that could be launched that are more like rewards tokens, like loyalty points or airline miles, credit card points. And those could be interesting as well and would not be securities.

Let me take one from -- any questions over here?

Brian. So you have 10,000 institutional investors, and you grew about like 1,000 in the quarter. What is Coinbase doing to accelerate the growth of the institutional client base? And in addition, what is Coinbase's strategy in terms of offering DeFi to institutions?

Yes. So our institutional business has been growing really well, which I'm really happy about. And one of the things we're doing is we launched a prime brokerage. So the initial thing we launched for institutional clients was just purely custody. And everyone was thinking, how do we find a qualified custodian to store crypto assets. Okay, so we launched Coinbase Custody. We got that all squared away, and it started to grow very, very quickly. But the next thing we did was we launched the prime brokerage. So now not only do you have the assets in custody, but you can trade them. We're building out our sales team, our client services. So we have people who you can talk on the phone, do very large trades and orders. There's -- we have a smart order router as well. So there's clients who call us up and they want to do $1 billion plus in trading some asset, and they want to do it in a way that has best execution, best pricing, doesn't move the market. We can help do that and fan out those orders to every exchange out there over a period of a week or however long it takes. And then our institutional clients are also telling us they want more support for more assets. I think we have about 100 or so today, but there's going to be hundreds of thousands that we need to eventually support. They want yield generation with staking. We've given them opportunities to do things like post-trade settlements and margin and things like that. So that's the set of features that are being built out there, and it's a big investment for us. I'm really, really bullish on our institutional business.

Well, we have 3 seconds left. So Brian, I just want to say that I've been an investor, USV has been an investor in Coinbase for 8-plus years now. And obviously, it's been a very financially rewarding investment, but it's also been so fun and gratifying to watch you and your team build what I think is a truly a treasure of a business. And I just can't wait to see what you're going to do for the next 10 years.

Thank you for taking a bet on us. And I think it's very early innings. We're going to stay humble and keep building cool stuff. So thank you.

Great. Thanks, everybody.