162 - The Coinbase Long Game with Brian Armstrong

crypto is going to outlast any Administration any any official who you know has the wrong idea or whatever and so we can go through good good periods and bad periods as long as we keep building and then the people who are engaged enough on the Civic side who want to do it that's great the people who just want to build that's also great we need both I think we'll get there eventually welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean Adams I'm here with David Hoffman and we're here

to help you become more bankless everything you wanted to know from the coinbase co-founder and CEO Brian Armstrong including his Reflections on 2022 and his outlook on crypto moving forward that is contained in the conversation that you're about to hear a few benefits some takeaways for you an index of things we talk about number one Brian's Reflections on 2022 how bad of a year was it what was learned number two the regulatory situation that faces America right now in crypto how did SBF

infiltrate our Halls of power we ask them that question and how do we undo the damage and win over our legislators number three we talk about base chain this is the new layer 2 Chain that coinbase just launched in the absolute worst regulatory environment we've ever seen why did they do this uh number four does Wall Street even understand crypto do they understand coinbase we talk about the fundamentals and finally number five we get to one of my favorite Parts in this whole conversation towards

the end which is Brian's best advice for the settlers and the builders who are sticking around during this crypto winter David this was an exceptional episode what should listeners pay attention to for me I think the the thing to pay attention to is to try and listen to this episode viewing the force for the trees as it relates relates to Brian Brian arrived on the scene in crypto 2011 and started making coinbase in 2012 and ever since then he's been fully committed to like building out coinbase

laser focused as the high highs of crypto came and then the low lows of crypto came and then that cycle repeated like three or four more times until where we are today Brian has been with his Builders hat on focusing on making the best product possible at coinbase and so just zooming out and viewing Brian as a builder who is able to make it through the the waves of the market cycles and wake it make it through the scams of Mount gox to to FDX and yet be unfazed and just put on the

hat of responsibility for stewarding this intro this industry into where it needs to be into the long term I think if you you can probably listen to every single sub part of this episode and still see how that there are certain qualities that people have that make them just really able to survive in crypto and I think we're just really fortunate as an industry that we got Brian in the industry in 2012 so early and to be an Exemplar of these characteristics to be a really good crypto person and a really good crypto Builder uh I mean I just have a ton of

thanks for it for Brian and everything that he's done uh and so I I think you'll also be listening to that in this episode yeah and also in the debrief because David one of the things I want to discuss with you during the debrief is how not a diva Brian Armstrong actually is which is actually uh pretty satisfying coming out of all of the like egomaniac maniacal Founders and and scam artists of 2022. so reminder for bankless citizens you have access to the debrief which is our episode after the

episode that David and I record with our thoughts on what we just heard in the conversation we just had if you would like to upgrade to become a citizen of the bankless nation there's a link in the show notes where you could do this also David we uh we joke during the episode that hey we should turn this episode into an nft fun fact that's actually happening yeah he didn't catch on that joke no uh so we turn our Monday podcast into nfts we will be releasing this as an nft there's usually a launch at uh 3 P.M on every Monday so this will

become an nft and release this for the bankless nation I'm actually really looking forward to emailing Brian and say hey Brian remember that part about the US turning this podcast into an nft well we would like to airdrop you one of the 100 nfts that we're about to make by the way that wasn't a joke that happens I I don't know if it's legal will allow that but uh you know we'll try anyway uh guys we're gonna get right to the conversation with Brian Armstrong but before we do we want to thank the sponsors who made this episode possible including bankless Nation we have Brian Armstrong on the podcast again he is the

CEO and founder of coinbase of course coinbase started in 2012 as just a custodial Bitcoin wallet back then uh oh my how far we've come it's grown into a massively successful publicly traded company that we know today serving a lot of crypto listeners worldwide the last time we had Brian on the podcast actually was an interesting time it was November of 2021 what a different world it was back then versus a just over a year later the beginning of 2023 we've

got a lot to talk about including FTX including catching up with coinbase products including 2023 Brian it's great to have you back on Bank list how you doing I'm doing great thanks for having me back guys all right let's uh pick up where we left off last time all right it was a different world back then um 2022 was in some ways what we feel like is crypto's Worst Years I I don't know if you share that because I know you've been in uh some pretty bad years even before we got into the space and you've seen seen a thing or two but what

did you learn in 2022 and what are kind of your Reflections do you agree that it was one of our Worst Years uh is there ever any Silver Lining there and what did you learn yeah I'd say 2022 is definitely a pretty bad one I mean it reminds me a little bit of the mount gox era where similarly the market came down a bunch of people lost some money every the only thing it seemed like people were asking me about or talking about for six months or 12 months was Mount Cox Mount Cox Mount Cox and we had to kind of go it was the

industry was so tiny back then but same thing we had to go out there and educate the world and let people know that it's not all Bad actors there's a lot of good people trying to build in this space even if the headlines are disproportionately about the Bad actors and then you know funny thing happened I think like about 12 months went by and then people sort of moved on and they stopped asking me about it as much I don't know it took maybe 12 18 months something like that and it was just kind of gone from people's memories so I'm hoping something similar happens here we've got a little ways now before we

get to that 12 18 month Mark but that's what a lot of my time has been focused on is getting out there and trying to educate the world remind people that this industry has a lot of great companies and and people in it and we're not going to let the actions of any one bad actor uh call the entire industry into question what were some of the learnings from 2022 in your mind every year presents a new set of learnings what were some of the lessons you took coming out of that year yeah well I mean so one was that I think we grew too quickly at coinbase

um in the upmarkets I always try to remember that it's Never As Good As It Seems right and then down markets you have to remember it's never as bad as it seems so I think I you know I I probably got a little too caught up in the moment just like everybody and it felt like we had a line of customers out the door you know our biggest challenge was really just how do we even onboard all of the people trying to use our products and so it was easy to just keep adding more and more headcount and I think um the culture of a company is really strained if you sort of more than double head count in a year it's got too many

new people who are training the new people who just joined and the culture gets kind of diffused you know decision making is unclear who's in charge of what communication breaks down too many too many too much game and telephone and so um we definitely exceeded that a bit in 20 um that time frame around 2021 2022 early 2022 I think we hit almost 3x or something like that over a 12-month period so that was probably too much I would have I would have changed that in hindsight but I think the the big things we got right which was we always were a company founded uh that focused on

compliance and trust and security and we invested a lot in doing those things the right way and that's not always the fastest way and I have to say it was definitely very difficult in those moments where we saw companies um like FDX come on the scenes and just rock it up and you know um he was kind of speed running the uh the elite conferences of society and all the introductions and everything and part of me was thinking man I've been working on this for 10 years this guy just kind of is coming

moving so fast after two or three years like how is he doing it maybe I'm maybe I'm the one who's got it wrong um well it turned out he was kind of you know um doping I guess if you want to make that analogy and you know using customer money would in an unethical way so that wasn't great you know I think I guess the major lesson I learned from that is yeah it's Never As Good As It Seems like if it seems too good to be true maybe there is something that that probably is and keep focusing on what we know best I mean of course we want to move fast we want to execute but we're also we're not trying to get rich quick or cut any

Corners we're trying to make sure this company is around for generations to come and we can serve as this really important you know Foundation to help people get Fiat into crypto but then also to use crypto in all these different ways and we can talk about how we're decentralizing more of coinbase over time you know some people have sort of incorrectly felt like oh coinbase is like just now pivoting to compliance like no we've even 10 years ago when I founded the company I realized okay we're gonna have to go get money transmission licenses and you know have compliance teams and you know the centralized actors of crypto are going to be regulated they should be regulated

like exchanges custodians and stuff and so that's how we're going to build trust in this industry and make sure it stands the test of time I like the rest of the industry definitely want to move on from Sam bickman treat and FTX but I just got to ask a couple more questions on this front as he was as FTX was peaking and everyone was just like loving the product and uh Sam bakeman freed was a hero among uh many different camps outside of crypto did it like make you like question yourself it's like wow FTX arose so fast uh like what were you

thinking about like Sam bakeman free was he like this insane operator or did you start to get like your hair stand up on end because something like felt wrong what was your intuition as this man seemed to be invincible yeah well you know all of us are driven by ego to some degree and I like I'm no exception to that right and I think I always try to pay attention to where where is my ego getting involved and where is it where am I using good judgment um and so I think there were definitely there were moments where I was like man why is this guy getting so much

attention so fast um where you know we've been trying to work on this for 10 years and it and it did feel a little unfair or something like that but then I would always the thing that I think actually caused me to be a little bit blind to maybe it was too good to be true is I always felt like that's just your ego talking and like you know get back to work like don't you can't you can't ever compare yourself to other people just try to do the best that you can and so I basically try I chalked up a lot of their success to just um I I don't know like it I wasn't going to let my my ego get involved now in

hindsight maybe I should have looked more closely at some of those things and I have to tell you if I ever see anybody again who moves that quickly and suddenly is on the cover of all these magazines with people proclaiming them as the next Warren Buffett like it's definitely going to cause me to be more discoverable yeah one of the differences I really appreciate just the the wisdom that you have around from just being in crypto throughout all the years and understanding like just the the machinations of the crypto cycle and what will it do to you like the the bottom is always not as bad as it seems the top is always too good to be true et cetera um but with malc Ox like coinbase was a

very young company during the mount Cox era I think something just like two years old at the time there weren't a lot of other structures to get torn down as a result of Mount Cox to fall down fast forward to where we are in 2022 though like there's a lot of structures in crypto there's a lot of big businesses and now all of a sudden that's the big difference that I see is that when FTX Falls um now we've got much more of a mess to clean up with Mount gox like we could kind of just like forget about it like we'll just wait this one out this one doesn't seem like we can really weigh this one out this means like we have to actually fight against the regulatory

backlash that Sam bankman freed has left us so how has the FTX collapse in sandbankment free collapse impacted coinbase as a business like how have you guys had to deal with this what's the backlash that you guys have gotten yeah well I think you're right we're not gonna just gonna sit back and wait for the the winds to blow this over there's a lot that is in our control and we don't want to feel like we're we're victims are helpless um you know I think luckily coinbase uh just for I'll talk about there's different orders of ways to look at this so the first order effect was literally

like what what's the counterparty risk you know there was contagion there was um others in the other dominoes that fell as a result of FTX obviously going down and one thing I have this was sort of a learning going back to your prior question was that the importance of risk controls inside these companies is incredibly important and um you know we had an incredible Finance team and CFO and leader who built a risk function within coinbase over the prior years and they were essentially underwriting every counterparty that we where we were storing funds with various things to operate our business

um and we were at some point we here during the crisis we were actually underwriting some of these things daily even Bank partners and and things like that as you saw with silvergate having issues so that's kind of taking some of the best practices frankly from traditional financial services and for the centralized actors in crypto I think some of those those skill sets are actually really really needed um so that was that was one of the first things but I guess just zooming out what can we do how can we actually proactively sort of counteract this this narrative that's developing out there which is that

um crypto is something that needs all this regulatory Crackdown well I think one thing is to say look we agree with it right like the centralized actors again they should be brought within the regulatory perimeter there's there's a misconception I I'm very surprised to hear this but occasionally I'll interact with people in DC who still to this day believe that everybody in crypto essentially doesn't believe in regulation they don't want to do kyc AML they're all trying to Skirt the Rules and from where I'm sitting it's almost like impossible to believe how could this be true because for 10 years we've been working on this we've been saying this but you know you just

have to remember these people are busy they're not in crypto every day they they only hear things you know anecdotally through their friends or through the media they're living in a little bit of an echo chamber sometimes and so just even repeating the very basic messages like that in on the East Coast or in DC when we interact with folks you can't kind of underestimate the power of that now I think going beyond that and just showing up and having these meetings and you know building the relationships and I'm spending more and more of my time on the East Coast um the other big thing I think we can do is we need to activate our user base in crypto and you know

there's some really great polling data that's come out recently which shows that about 80 percent of Americans are field the financial system doesn't work for them right and it's too slow the fees are too high it doesn't serve everybody equally and so there's a real interest in sort of updating the financial system if you will and I I really believe crypto is the most important technology that can update update the financial system so you've seen in coinbase's messaging externally internally we've started to go out there and tell that story a little bit more that's a message that I've seen is resonating with people who

are you know kind of crypto Skeptics or they're on the fence they're they're they're thinking about crypto as being a financial product and they're like this is some unregulated Financial product and the point we're sort of making to them is no this is this is a technology it's a technology that can improve uh Financial Services in a variety of ways but it's not itself a financial product per se um and so what we've been doing is um another thing we've been doing is we put out actually this uh this post crypto 435 people can can Google it what we're trying to do is get the the community of

crypto holders out there organized and say let's elect leaders in the United States who believe in crypto they want to make sure that this technology is the Innovation potential of it is protected but it's all also we protect against Bad actors and there's a sensible regulation for centralized players in crypto that could help make that happen um you know I'd encourage anybody to kind of go Google that crypto 435 and it's little it's simple things it's like let's get donations even like 100 bucks from you know a million crypto holders or something or show up at Town Halls

ask these questions um these kinds of things can really move the needle and if we elect representatives in a democracy who believe in our our values around economic freedom um then all of these regulatory challenges are going to end up in a good place eventually well let's let's talk about this so the analogy we've used at bank list like it really felt like this in in 2022 is um some of the kind of the scammers in the frauds of 2022 had this gigantic house party right and uh they destroyed everything like the Furnitures

um torn up like plates are smashed you know biggest craziest house party match there's a fire like the cops show up it's it's a complete mess and now they're gone but we are left to clean up after this party and I want to get a sense of of the magnitude of of backlash that you guys might be seeing in DC and we as a crypto industry now now face it feels like everything got a lot more hostile uh sometime after November of 2022. we've talked about things like

operation choke point which is this some strategy to kind of like choke out the banking sector in the U.S um there's like increased scrutiny on this industry and it feels worse than it's ever been at least the U.S I think you know in Europe and other places people are still sort of moving forward um can you kind of just describe what it's like are you feeling that too and like if so do we deserve this like is this uh something that we caused well as an industry I do think we deserve a little more scrutiny I mean

that's probably fair to say but um yeah I mean look there's a lot of people who they are only tangentially aware of crypto right and there's also frankly a lot of people who um a lot of what they think comes from media headlines right which in crypto that's actually increasingly becoming sort of an unpopular uncommon thing most people have sort of realized that there's each media organization has sort of their own objectives they're trying to push in the world and they're almost more like lobbying organizations in a way and so they're getting their news

from other things but that's not true of the majority of people especially I'd say people over 40 or 50 in the world they're they're still they grew up in a world where traditional media was like the main thing that they consume so um there it's it's very simple it's like if they see bad headlines they start to get more skeptical if they see positive headlines they start to get more optimistic and so that's not really fair it may not even be accurate but it is what's happening and so um as we get the media sort of our messaging out there we need to make sure we're we're using New Media like

channels like podcasts like you know bankless um YouTube Everything Twitter blogs and but also engaging with traditional media channels because sort of some of these Gatekeepers policy makers Etc they're a different generation they're an older generation and they are still using some of these traditional media channels and it's very interesting to under to sort of get a sense of what kind of messaging really works with with those folks right you know for the crypto native audience probably like a lot of your listeners this messaging about like economic

freedom and decentralization and you know like technical audiences especially I that's the kind of thing that resonates the most with me when I read the Bitcoin white paper in the back in the day for these audiences that are older they're non-technical they're not really in crypto necessarily for the same um you know uh religion or something like that that we are but they resonate with these messages around um you know the the financial system needs to be updated it's slow it's archaic the code is from 40 years ago like the laws are from 100 years ago and

that message is actually pretty widely agreed by 80 of Americans um you know I'd say for Democrats they they're interested in a quality of opportunity they want to make sure people get Fair access to financial services that resonates with them I think for um Republicans you know there's often an argument just about um you know actually economic freedom does resonate with with uh Republicans and also just sort of like in a pro business like National Security type argument they they're saying hey this is a major Tech Trend we need to have this industry built in America it can't just

be pushed offshore just like what happened with semiconductors and 5G and now with AI like they're like this is critical infrastructure to be built in America we need to support our American companies so you have to sort of tailor the the message to the Right audience but um this updating the financial system argument is the one we've found that work that works best in the broadest audience that's great yeah we'll come back to this but I think there's also like huge wins for for the US in terms of exporting its monetary policy and exporting the the Dollar by route of stablecoin but but we'll get there one one question that because you've spent

some time on the east coast in DC now one question that's I I'm still perplexed about is how in the world this is our last question on SBF I promise but like how in the world did this guy get such influence in America's Halls of power it was like reports of like one-third of Congress had received donations um political donations from SBF he clearly had the attention in in DC like how is this game played and because if if it can is just kind of a money game

that doesn't actually not make me very optimistic on um like the Democratic process and the systems of of control and power in in the US but you've seen this from behind the scenes and like how is this game played Brian and how did this guy get so much influence in our Halls of power you know I've asked myself that same question and frankly it's funny I I feel like I show up and I and I um I'm pretty easy to get along with people once they meet me they're like okay this guy's clearly he's trying

to do the right thing and maybe I agree with him or disagree with him on some stuff but he's just like a legitimate person trying to build something in the world he you know I'm an engineer by background like I I sort of just if people ask me a question I'll like sometimes all I know how to do is say the answer um I think that SPF so a few things one he had an I think he had like an incredible passion for policy actually he was spending an inordinate amount of time in DC I think that um he also the shibboles right which was the quote that he put out there he basically started saying

what they wanted to hear now it wasn't really fully authentic and so that ultimately blew up in his face but he basically was framing these things in a way that they was music to their ears for some of them I guess maybe more on the Democrat side and I think they got duped by it and it wasn't even authentic if you look at some of his texts that got released and everything like that so was that an effective strategy in the short term maybe but it ultimately totally blew up in his face because you just can't be inauthentic with people that's like that's one of my learnings

if I disagree with somebody I'd rather you know I'm not going to be a jerk to their face or something but I'm I'm going to say what I actually think in a polite respectful way because if if I say something I don't believe like they might leave the meeting feeling good but then a week later or a year later when they realized I didn't even believe it they're just going to feel even worse and so um in a way I don't think I'm like I'm not sophisticated in how I play the game I'm actually playing a very simple game which is just I show up and I say what I think but I think that's actually the right solution long term that it's not a game at all I'm just trying to be an authentic person

um now by the way I don't think donating money I don't know how much his donations move the needle I it's definitely raises some big questions and I hope some of that money gets clawed back in one way one way or another um I don't think donations are entirely bad I think you know the crypto Community actually if you look at um the banking Lobby or you know the oil and gas or any of these other Industries the motion you know the entertainment industry or whatever like they actually do put a lot of dollars behind um their lobbying efforts in DC and it's not all just companies doing it by the

way it's the it's the individuals it's it's people so there's something like 50 million people in the United States now who've used crypto I mean imagine if we only even just got one million of those people 150th um to become a sort of politically active or donate 100 bucks to the right candidate in their jurisdiction um and in every Congressional race when there's an open seat or whatever there's going to be somebody who's more crypto positive and someone who's not and we've actually started building some of this stuff into the coinbase app so people can go look up in their area you know what what's the rating a through F of the the people in your in your area

I think if we can get just a million people in the crypto space politically active you know show up to the town halls donate the money um you know uh like tweet about it and like build this movement it's going to be incredibly powerful um DC does not yet I don't think they don't yet respect the crypto Lobby they don't realize how big of a movement this is in the United States it's bigger than some of the biggest ones you've thought about some of the most powerful lobbies we actually have more people in crypto um and they don't realize that yet oh my God where do I sign where like where do

I send money like seriously um if this could be organ organized and aggregated in an effective way and maybe we'll talk about some ways coinbase is doing that like I we would be happy to provide be a megaphone for this this is for us this is about um like it's not a it's about crypto but like you know I also live in the US uh so does David we care very much about the US like protecting these digital Liberties in the 21st century and so I think you'd have uh we would have a large Collective of not only small donations from a large motivated

population but the idea of like a crypto kind of um you know movement uh and a Lobby group that is kind of bottom up from the from from the people but like your comment on the long game you still think it's worth playing Brian you still think over the long like in the long run your strategy of just telling people what you think what you believe the truth like reminding them is an effective strategy that this is not a dead end because I think there's a certain segment of of listeners out there bankless listeners who they've just given up on the

political process they've just given up on kind of regulators they've just even given up on like voting they will not show up town halls because they no longer believe that the process works and they'll even point to things like 2022 SPF right he had it was pay to play it was just you know lining politicians with with money and like the longer the long game you're playing sounds nice Brian but like it doesn't work it's not effective these politicians are corrupt you seem more optimistic than that can you give us the uh the case for why we

should be optimistic yeah I mean look I understand why people are um cynical about it it is it raised a whole bunch of questions about the process and does it work and if if not where um there's a really great two by two graph that I love that shows up sometimes I think it's from Edelman but it shows um sort of trustworthiness and competence I believe and it sort of Compares different you know government and ngos and for-profit businesses and um for a while there was sort of nobody in the top right quadrant who was both

trusted and competent and slowly people have started to view um and government's not there by the way it's viewed as not trusted and incompetent if you believe this survey um business is sort of increasingly moving into that top right quadrant if you look at their recent data and I think business basically some you know for-profit businesses have a role to play as champions in this space of helping organize um individuals hoping craft policy um you know we don't ever want to take credit or like inter you know inject

ourselves into the Democratic process because I think there's uh there's a line you can cross there as just one private company but if you're talking about the individual citizens the voters I'm talking about there's 50 million you know people who've used crypto in the United States I'm talking about the people here in a democracy the government works for the people not the other way around right so democracy is is it's slow I think that um that's probably the biggest frustration people have is they're you know they're saying this is so obvious like all my friends are using this I'm on Twitter every day like how do people in government not get this and

then in DC they're sitting in a different world there's a there's an age generation gap there's the type of media that they're consuming Gap now but the good thing about America America has many flaws and it's slow and bureaucratic in many ways and it there's you can be wrong for a long time but what eventually ends up happening is that sentiments shift in the U.S um a new a new generation of people emerges they get people who run for office the vote the electorate the voters you know um change and basically America has this kind of self-healing

system imagine how bad it would be if we got someone anti-crypto and they were dictator for life or something like at least we can just wait four years or eight years in the worst case or something and get a new crop of people in right so that's that's very slow by technology standards but in terms of governments in the rest of the world it's it's not bad and so um you know crypto is going to outlast any Administration any any official who you know has the wrong idea or whatever and so we can go through a good good periods and bad periods um as long as we keep building and then the people who are engaged enough on the

Civic side who want to do it that's great the people who just want to build that's also great we need both um I think we'll get there eventually I want to Circle back around to the original question that Ryan asked which was how did Sam penguin freed get so involved with politics and and Brian your answer was that he was really playing the game uh he was playing the game of politics and and he just by the nature of what happens when you intentionally play that game for playing The Game's sake like that's what happens like you just find you find your way in and I really appreciate your answer of

like uh you said that um you're in just a naturally born engineer you see a problem and you state and answer and so what I'm saying is like as someone who's known you and we've had like uh an episode and a half of a podcast now and I've also thoroughly enjoyed the the coinbase documentary as well first principles type guy a problem mindset type guy and it sounds to me like you're um thinking of way about Waze at coinbase to funnel those people who care about crypto and crypto values into

being able to connect to the politicians that will resonate with those values and as my co-host likes to say if you adopt crypto protocols you adopt crypto values and it sounds to me like you're out you're addressing the same sort of like engineer mindset that you did to build coinbase to also allow for people younger Generations because I'm assuming the average coinbase users a younger uh generation uh customer to connect to the politicians in question that resonate with our values and is that is that my my intuition in this criteria is like