Coinbase CEO Brian Armstrong on the Two Big Challenges Facing Crypto

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

So Tracy, obviously a lot going on in crypto, but I would say the two big things are like, I guess the crypto winter, there's been some recovery, but obviously all the coin prices are way lower than they used to be. And then there's just everything going on on the regulatory side.

Tracy Alloway (0:33)

Yeah, it's sort of a double whammy for the industry.

And I guess it's hard to determine causality when it comes to price and extra regulation coming in. But yeah, it is not a great time for crypto.

Joe Weisenthal (0:46)

Well, I would say that the historical patterns would suggest the regulators like to come in after people have lost money, after people have lost money in scams, their investments go down. So it kind of makes sense that you see the uptick in regulation right after just like, the lines have been going down for a while.

Tracy Alloway (1:05)

Right, but it does prompt these big questions about should the regulators have been more proactive? Should they have been doing things before people lost money?

Joe Weisenthal (1:13)

And then what should they do now? Anyway, we have the perfect guest to talk about this because we are going to be speaking with Brian Armstrong, CEO and co-founder of Coinbase, right in the middle of all this, the preeminent American crypto exchange. So Brian, thank you so much for coming on Odd Lots.

Brian Armstrong (1:32)

Yeah, thanks for having me.

Joe Weisenthal (1:33)

I want to ask you a question. We've actually asked other executives in the crypto space this question before, but I'd love to get your take on it.

What is yield farming and where does the return of it come from?

Brian Armstrong (1:46)

Well, I mean, yield farming has a little bit of a bad name, I think, in this environment. There was obviously with the collapse of, you know, Terra Luna and BlockFi and some other firms like that, I think that's a very valid question to be asking. And I'm not sure I can even answer it on their behalf.

But, you know, I think there's a lot of other pieces of crypto that people are still excited about. And, you know, there's lots of things we can build beyond that.

Tracy Alloway (2:12)

So one of the things we've talked about on the show quite a bit is this idea of crypto as kind of the ultimate momentum asset. And when money is flowing in, prices go up and everything is great. When money flows out, prices collapse quite quickly, which would seem to make the business of being a crypto exchange extremely cyclical.

But one of the things that stood out from your most recent results, you just reported relatively recently, you talked about how you want to be profitable through the cycle, through the upturns and the downturns. Can you talk a little bit more about how you plan on doing that?

Brian Armstrong (2:47)

Yeah, well, historically, most of our revenue has been from trading fees, which you're absolutely right. It is cyclical and crypto has been a fairly volatile asset class. It goes up and down.

Now, what we've done is we've started shifting more and more of our revenue to what we call subscription and services in our financials and our earnings calls.

And basically, what that means is things like USD coin, a stable coin. That's been a nice growth mechanism for us, even in a down crypto market. Things like custody fees, fees that we earn on Coinbase Card. People are using it for spending in merchant commerce activity. So these things are, I wouldn't say they're 0% correlated with overall market and crypto, but they're certainly a lot less than trading fees, and that's allowing us to build a more predictable business.

Joe Weisenthal (3:31)

So we started in the industry also talking about the regulatory side. And I want to, you know, we'll definitely talk a lot about that. But in particular, I think yesterday I saw that Coinbase, you had some new program, I think it was called the 435 program about, you know, call your congressmen, like let people know that you care about crypto policy. And of course, like Uber sort of famously started this strategy, like telling people on the app, like tell your local regulators you want to drive an Uber. And I'm going to try to ask this in the most like diplomatic way possible. And I have many friends who are into crypto and I like many of them.

But when it comes to crypto, do you want the type of person who would call their congressmen to tell them to do better crypto policy? Is that really the type of person that you want sort of being the voice of crypto regulation?