Compiled by TechFlow

Guest: Shan Aggarwal, CBO of Coinbase

Host: Yano

Podcast source: Empire

Inside Coinbase’s $375m Acquisition of Echo | Shan Aggarwal

Air Date: October 21, 2025

Summary of key points

Coinbase Chief Business Officer Shan Aggarwal explains the Echo acquisition. This podcast features Coinbase's Chief Business Officer, Shan Aggarwal, as they discuss the acquisition. This episode delves into Coinbase's strategy for bringing capital markets on-chain, Echo's role in compliant on-chain financing, the integration of the acquisition team, tokenized stocks, prediction markets, and Coinbase's ambition to become a comprehensive financial platform.

Summary of highlights

Coinbase's ultimate goal is to completely migrate the capital market to the chain.

When seeking collaboration, Coinbase will proactively express its interest directly. Overall, I would say about 75% of the contacts are proactive and 25% are passive.

Although Echo is not currently profitable, we are more focused on future potential rather than current performance. Many times, acquisitions are mainly for technology and teams, and we look at these transactions in a forward-looking manner.

In the future, after tokens are issued, they can be listed and traded directly on the Coinbase exchange, or they can be published on the Base platform and traded on the blockchain infrastructure. This actually fills the missing "pre-IPO" link in the existing capital market.

If you were to ask me which acquisitions I regret not having, Phantom is a great example. They're very successful now, and the team is fantastic. We were very interested in acquiring Phantom at the time, but ultimately, we didn't reach an agreement.

We were an early investor in Polymarket and have invested in both Polymarket and Calcium. Both companies are excellent, but they have different strategies. Polymarket focuses more on the international market and has been operating on-chain from the beginning. Calcium, on the other hand, is focused on the US market and is striving to achieve breakthroughs in regulatory compliance.

Choosing both on-chain and traditional IPOs simultaneously, as Galaxy did, may be a better strategy, satisfying both on-chain users and reaching a mainstream audience interested in crypto assets.

Coinbase hopes to provide users with a full range of asset services, whether it is cryptocurrencies, stocks, prediction markets, or tokenized private securities and pre-sales of tokens that may appear in the future.

As for whether there will be another bear market in the future, I think it is possible, but it may not be as severe or painful as the bear markets in 2018 or 2022.

Shan's Background

Yano: Many people may know Coinbase's executive team, like Emily, Paul, or Brian, but I've always felt that you've been a key figure behind the scenes, leading many of the key initiatives related to venture capital, mergers and acquisitions (M&A), and corporate development. I'd especially like to hear more about your career background and your journey over the past few years.

Shan:

I joined Coinbase in May 2018. At the time, the company was still quite small, with only about 150 employees and a simple office in San Francisco. I had been interested in the cryptocurrency space even before joining Coinbase. At the time, I was working at Greycroft, an early-stage growth venture capital firm focused on investments in fintech and media. I've always been interested in emerging technologies, and when I first read the Ethereum whitepaper in early 2017, it really clicked for me, as it reminded me of the early days of the App Store—a time when developers could leverage a brand-new platform to create all sorts of innovative applications. Ethereum also coincided with the ICO era, so I spent a lot of time participating in related community activities.

In 2018, I decided to pursue cryptocurrency full-time and joined Coinbase. At the time, we didn't have a dedicated corporate development team, and Emily had just joined to start building our M&A capabilities. I helped launch and scale Coinbase Ventures.

My first major involvement was leading our Series E round in 2018, which we successfully raised at an $8 billion valuation. This was my first real taste of cryptocurrency market volatility—Bitcoin was trading around $20,000 during the round, only to plummet to around $3,000 shortly thereafter. I saw many investors attempt to withdraw their commitments, a truly unique experience, and ultimately, we successfully completed the round. I then led investor relations throughout the company's IPO. I was instrumental in drafting much of our S1 and personally oversaw the entire direct listing process. Interestingly, during our IPO, we attempted to tokenize Coinbase shares and devised a dual-track plan, but regulatory hurdles forced us to abandon this approach to ensure a smooth traditional IPO process. This experience was truly unique, as we became the first cryptocurrency company to go public and completed our S1 before the era of AI.

I started from scratch, following a completely traditional process. Lately, I've been responsible for the firm's partnerships, investments, business operations, and strategy. Overall, my role is to help set the company's strategic direction and ensure we execute effectively.

Yano: You mentioned trying to tokenize Coinbase stock, which I wasn't aware of. Can you elaborate on that?

Shan:

Yes, we did try. Internally, we had an initiative called Project Clementine. Our goal was to have Coinbase list on Nasdaq simultaneously with a digital version (a "digital twin") on-chain, allowing the stock to be traded on the Coinbase platform. However, the regulatory environment and market education at the time were far behind what they are today. We had many in-depth discussions and healthy debates to advance this project, but ultimately we were unable to find a viable regulatory path. To avoid delaying a traditional direct listing, we ultimately chose to complete the listing traditionally in April 2021.

Acquisition of Echo

Yano: You are acquiring Echo. Can you give us some details about this transaction?

Shan:

We are very pleased to have completed the acquisition of Echo, a transaction whose core goal is to make capital markets more open and accessible. Through Echo, we can provide a complete solution, offering developers, blockchain protocols, and asset issuers compliant on-chain financing services. This funding can come directly from their most loyal and active user base—the users who actually use their products—rather than relying solely on traditional institutional investors.

I believe this acquisition aligns perfectly with Coinbase's mission to create greater economic freedom around the world. We believe blockchain and cryptocurrency can provide more open and inclusive financial services, and Echo provides us with key tools for achieving compliant on-chain financing, helping capital better connect with investment opportunities.

Yano: How did this deal come about? Echo is a company founded by Cobie. Did Cobie approach you, or did you approach him? What was the deal process like?

Shan:

This is the result of a long-standing relationship between the two parties. We've been collaborating with Echo for a long time, and their project initially launched on the Base platform. Earlier this year, we supported the Echo Group's growth through the Base Ecosystem Fund. The fund's investors are eager to support our portfolio companies while also helping to further grow the Base ecosystem. Many companies within the Base ecosystem are also seeking additional funding opportunities. This collaboration was a great starting point, and as we got to know Echo better, we realized there was a much larger opportunity to help projects within the ecosystem conduct community sales and public token sales, driving the development of the entire ecosystem.

The total value of the transaction is currently uncertain, but it is estimated to be between $350 million and $400 million, depending on Coinbase's stock price. This is a mixed cash and stock transaction, and the exact amount is subject to change due to stock price fluctuations, but it is generally within this range.

Yano: I remember when you acquired Deribit, the initial valuation was $2 billion, but it jumped to $3 billion a week later and then to $4 billion. Apparently, the founders opted for Coinbase stock, which was a good option for them. So, as an acquirer, how do you manage these deals? I'm sure many entrepreneurs hope to be acquired by Coinbase one day. Can you share some of your experiences?

Shan:

That's a great question. Since I joined Coinbase, we've completed 40 acquisitions, making us quite active in M&A. The acquisition of Echo is our eighth deal this year. When we consider M&A, we typically align our plans with our product strategy and long-term priorities. These directions are based on customer feedback and the needs of investors and developers. Once we have a clear vision for our strategy, we evaluate how to best achieve it. While we could build a product from scratch, this often presents challenges such as time delays and a lack of expertise.

Therefore, we scan the market for outstanding companies that have made progress in related fields. If we find a company that not only excels in technology and products but also has a team culture that is highly compatible with ours, we will not hesitate to acquire them, incorporate them into Coinbase, and give them the opportunity to develop on a larger platform.

The starting point is always our strategic objectives. Many entrepreneurs contact me looking to sell their companies, but Coinbase already has a presence in multiple market sectors, so we must focus on ensuring that every acquisition, investment, and integration effort aligns with our long-term direction. Without a clear goal, resources can be dispersed, making things complex and difficult to manage.

Yano: How did you determine the acquisition price? The acquisition valuation was between $3 million and $4 million, which was obviously related to Coinbase's stock price. But how did you arrive at this price? I'm guessing it wasn't based on a revenue multiple, as Echo is probably not profitable yet.

Shan:

It really depends on the specific circumstances. For established businesses like Deribit, with stable revenue and profits, we can assess their valuation through traditional financial analysis. But for companies like Echo, we focus more on future potential than current performance. Often, we acquire primarily for technology and teams, believing these resources can help us achieve faster growth and greater success. We approach these deals with a forward-looking approach, evaluating the likely outcomes over the next 12 to 24 months and the resulting revenue growth, and determine the acquisition price accordingly.

Yano: What impressed me most about Coinbase's acquisitions is your ability to integrate them, especially retaining founders after their payout period. You acquired custody from Zapo, prime brokerage from Tagomi, derivatives from FedEx, staking to Bison Trails, asset management from One River, and the list seems to be constantly growing.

How did you integrate these businesses while retaining the founders and team? Can you talk about the integration process?

Shan:

This is something I'm very proud of. In fact, three key members of our management team joined Coinbase through acquisitions. Greg Tusar, founder of Tagomi, now leads our institutional business; Rob Witoff, an early engineering leader at Coinbase who was involved in the development of Unit 410; and Jesse Pollak, who currently leads the Base project, also joined through acquisition.

During the integration process, we focused not only on product and technology integration but, more importantly, on cultural integration and team fit. We hope that teams can identify with Coinbase's mission and become true "missionaries," rather than "mercenaries" driven solely by short-term gains. In traditional mergers and acquisitions, many teams focus solely on the payback period and compensation packages. While this approach is not wrong, it can hinder long-term team retention and the achievement of goals.

We prioritize long-term cultural fit during our selection process. If a team aligns with our culture, they often choose to stay and grow with us. This is why we're able to achieve the results you mentioned: team members often stay at Coinbase for three, five, or even longer. Therefore, we invest significant effort in ensuring cultural integration and team collaboration, which I believe is key to successful mergers and acquisitions.

Coinbase’s ultimate goal

Yano: You recently acquired another, perhaps lesser-known, company: Liquifi. With this acquisition complete, it seems you're working on building your company's capital structure. For the past decade, Coinbase's primary focus has been on traders and investors, but now you seem to be moving into enterprise financial services. Can you talk about the integration of Liquifi and Echo? What's your ultimate goal? What are you working on specifically?

Shan:

Our ultimate goal is to fully migrate capital markets onto the blockchain. Currently, Coinbase's primary role is to serve as a secondary trading market for crypto tokens. Through Liquifi and Echo, we can provide token issuers with a complete end-to-end solution, helping them through the entire process from company creation and token management to fundraising, ultimately driving project launch and growth. While our initial focus is on crypto tokens and blockchain projects, a broader perspective reveals a gradual convergence between traditional finance and crypto technology, with tokenization serving as the bridge. Through tokenization, traditional assets can be digitized and migrated to the blockchain. The infrastructure provided by Liquifi and Echo supports not only crypto tokens but also other asset types. Therefore, these modular components allow us to completely rebuild the capital markets architecture from the ground up and integrate these capabilities into Coinbase's product suite.

Yano: So what is Echo's core goal? Is it to scale project financing? To attract more issuers? Or to increase secondary market liquidity and community participation? How do you evaluate these?

Shan:

Currently, our focus is on promoting capital flows through project financing, which not only provides funding sources for companies in need but also allows ordinary investors to participate in investment opportunities that were previously out of their reach.

Yano: So your vision is that my Coinbase account will not only have Bitcoin, Ethereum, and Solana, but there will also be new options, such as participating in a company's Series A funding round or directly joining a public token sale. Users can invest directly from their USD balance in their account, is that correct?

Shan:

In the future, when these tokens are issued, they can be listed and traded directly on the Coinbase exchange, or they can be published on the Base platform and traded on the blockchain infrastructure. This actually fills the missing "pre-IPO" link in the existing capital market.

Yano: So what else do you need within this capital structure? For example, Liquifi provides capital table management, Echo provides financing support, but what else is currently missing?

Shan:

I believe the next key area is regulatory compliance. The on-chain infrastructure provided by Liquifi and Echo can support any type of token, but the question remains: which tokens can be legally issued? Are they commodity tokens or security tokens? What is the difference between the two? These are questions we will need to dedicate time to clarify before this vision can truly materialize.

We also need to consider where these tokens will be traded. While they can be traded on centralized exchanges like Coinbase, we believe that over time, they should also be able to circulate on on-chain decentralized exchanges (DEXs). Ensuring permission management and regulatory compliance in these transactions is also a significant challenge.

We've already laid the groundwork in many areas, such as the Coinbase Verifications project, which you may have heard of. This project allows users to tokenize their KYC information and store it in their wallets, allowing us to verify who is trading on on-chain DEXs. Through these underlying tools, we hope to efficiently operate securities and capital markets on-chain, providing users with more open and transparent financial services.

Coinbase's IPO Strategy

Yano: What do you think the final form of these token listings will take? What do you think the future of token listings will look like? Also, I noticed you launched the "Blue Carpet" initiative. Could you share your understanding of the final state of token listings?

Shan:

I think a lot of tokens will be created. Historically, listings have been a huge marketing event, and while we believe in listing and supporting as many crypto tokens as possible, I think the real question is how to screen or curate quality. We don't want to impose our judgment and tell everyone what are good and bad assets, because that feels like Big Brother watching over us. So, we prefer to provide comprehensive disclosure and in-depth research, so that people can find accurate information, trust it, and rely on it to make their own decisions.

There's certainly a lot of misinformation and misleading content in this space. Therefore, I believe organizations like Blockworks play a crucial role in promoting transparency and authenticity in the industry. We're also exploring the possibility of introducing prediction markets to further enhance the accuracy and credibility of information.

In the future, you will see more and more tokens for users to choose from. We are also constantly working to provide users with better education and information support to help them make wise investment decisions.

Yano: Let's talk about launchpads. You acquired Echo, and another major player is Legion. I know Legion has a partnership with Kraken and may also collaborate with other exchanges. How do you see this space evolving? Will every exchange launch its own launchpad and ICO services? Will this become a standard offering for exchanges?

Shan:

I can't speak for other exchanges, but for us, this was a natural strategic choice. I imagine other exchanges will likely adopt a similar strategy. We're very bullish on Echo because we believe they are a leader in on-chain capital formation. To date, Echo has helped projects raise over $200 million across over 300 investments, including some very well-known and successful projects like Plasma and MegaETH. We believe Echo has a clear competitive advantage in attracting high-quality issuers and supporting protocol development, while also having a very broad investor base.

Yano: Is there any acquisition that you regret giving up?

Shan:

That's a good question. Phantom is a great example. They're incredibly successful now, and their team is exceptional. We were very interested in acquiring Phantom at the time, but ultimately, we didn't reach an agreement. They capitalized on market opportunities and quickly rose to prominence, and it's truly impressive to see what they've accomplished since then.

Coinbase Ventures

Yano: Next, let's talk about Coinbase's venture capital strategy. The Coinbase Ventures team is clearly doing an excellent job. I believe you're one of the most active venture capital firms in the industry, perhaps even one of the firms with the most deals completed. Are you currently ranked first or top three in the industry? I'm sure you have the data. Can you talk about your venture capital strategy and how it integrates with marketing and advertising (MMA)?

Shan:

That's a good question. Since 2018, we've completed over 500 crypto investments, making us one of the most active venture capital firms in the industry. Our portfolio continues to expand, especially with the launch of the Base Ecosystem Fund. We maintain consistent investment across market cycles. For example, during market booms, many investors flock to the market and participate actively, but during bear markets, access to capital often becomes more difficult.

We initially launched our venture capital program because we observed many talented developers looking to build protocols and applications outside of Coinbase, while there was a lack of dedicated crypto investors. We wondered if Coinbase could support the growth of the entire ecosystem in some way. This was the beginning of the Ecosystem Fund. Initially, we made small investments to support promising founders, particularly innovators working in areas we believed had great potential. Over time, the fund has grown to focus on investing in the best companies in the industry, while also aiming to generate strong financial returns on these investments.

This not only allows us to support industry innovation but also provides us with an excellent opportunity to observe the development of the entire ecosystem. Predicting future trends in the crypto industry is often very difficult, but I've always believed that observing what the best minds in the industry are working on is often a good way to anticipate them. For example, in certain areas (such as social applications or stablecoin issuance), we often see two or three companies launching around the same time, one of which may be a leader, while the others are fast followers. These phenomena often foreshadow future industry trends. This kind of observation helps us inform Coinbase's long-term strategic direction. Once the direction is clear, we decide whether to develop it ourselves, acquire it, or collaborate with the right partners. We have successfully experimented with each of these areas in the past.

Yano: So, what is the core goal of Coinbase Ventures? Is it purely pursuing financial returns, or do you hope to bring strategic value to Coinbase through these investments?

Shan:

Our primary goal right now is to pursue financial returns, but we also hope to build strong relationships with top founders in the industry through our investments.

Yano: So, is there anything else that's unique about venture capital? For example, do people directly contact you and say, "Hey, Sean, this company has great potential. Should we consider acquiring it?"

Shan:

That does happen, and I usually participate in these discussions, which gives me a clear understanding of our portfolio performance, which companies are performing well, and which ones may be facing challenges. However, more often, we focus on the best companies in the industry, looking for those doing truly interesting things, based on Coinbase's strategic needs. This approach gives me confidence, as we have a good success rate in venture capital. Many of the companies that end up on our acquisition target list are actually former investments. Of course, this isn't a hard and fast rule, and we have acquired companies we didn't invest in. But if we've already established a trusting relationship with the founder, it does make the acquisition process smoother.

Advice for entrepreneurs

Yano: We know a lot of crypto founders, and I think at least half of them are thinking, "One day, I'll sell my company to Coinbase." This seems to be the exit plan for many founders. If you were to give these people direct advice, what would you say?

Shan:

First, I think it’s very important to understand Coinbase and build key connections. Whether it’s through Coinbase’s venture capital arm or the business development team, building connections with us early on will be very helpful in the future.

Secondly, I recommend that founders carefully consider their future strategic fit with Coinbase. Many founders might say, "Here are the products we've developed" or "Here are the achievements we've made." While these are certainly important, from our perspective, the more critical question is, "If we were to acquire them, what value would the partnership create?" In other words, can the combined resources and capabilities of both parties unlock new opportunities?

While history and past achievements are certainly important, our most successful acquisitions often create entirely new value by integrating external innovation with Coinbase's resources. For example, Tagomi, which you mentioned earlier, is a prime example. Tagomi is a firm focused on institutional trading. They have developed top-tier trading infrastructure and successfully established a standalone crypto-premium brokerage business. Meanwhile, Coinbase is expanding its custody business, and we have a strong asset base and balance sheet.

To truly scale a high-quality brokerage business, several conditions must be in place simultaneously: best-in-class trading infrastructure, a balance sheet capable of supporting lending and large-volume transactions, and reliable custody services to ensure the safe storage of funds and efficient trading.

Therefore, integrating Tagomi's technology with Coinbase's resources was a natural fit. Following the integration, we discovered a significant market demand for this type of service. For example, in 2021, numerous companies approached us seeking to purchase billions of dollars worth of Bitcoin, but at the time, no other market solution could meet such large-scale transactions. By combining Tagomi's trading technology with Coinbase's brand and custodial capabilities, we were able to create Coinbase Prime, the leading premium brokerage platform in the crypto industry today. This is a prime example of success achieved through strategic integration.

Acquisition Process

Yano: You've closed 40 deals. What's the ratio of proactive to passive contact in these deals? In other words, how many of these deals were initiated by the other party, and how many were initiated by you?

Shan:

That's a good question, and I haven't specifically compiled statistics on this. It's sometimes difficult to define, because relationships often develop over time, and it's hard to tell who initiated the action. It's like a "long-term, two-way interaction."

Yano: For example, in the Echo investment, you already had a connection with the team. But there always comes a clear moment, like someone asking, "Are you interested in acquiring us?" or "Would you consider collaborating?"

Shan:

In most cases, we proactively express our interest directly. Because we have a clear vision for Coinbase's long-term development, when we decide to partner in a particular area, we typically reach out to leading companies in that field. Of course, there are exceptions, such as when we stumble upon an opportunity and recognize its importance, even if it may not have been our primary focus at the time. Overall, I'd say about 75% of our outreach is proactive, and 25% is passive.

Yano: There’s an old saying: “Companies are bought, not sold.” Speaking of investment banks, when acquiring companies like Tagomi, Zapo, Liquifi, and Echo, did you rely on traditional investment banks, investment banks in the crypto space, or no investment banks at all?

Shan:

While we appreciate the expertise of investment banks, we often find non-banking approaches more efficient and preferred. Our deals are typically completed directly with founders. The number of transactions involving investment banks is so small that we can practically count them on one hand. As for buy-side advisors, we've never used them, as Coinbase already has a dedicated team within the company that's fully capable of handling this task. However, in recent years, several high-quality investment banking services focused on the crypto sector have emerged.

We typically have a clear understanding of the target company's needs and positioning, and we already have an established relationship with them. These deals are more like brainstorming sessions between Coinbase and the founders, discussing how to create future value through collaboration. Furthermore, we place great importance on cultural integration, as these founders are likely to play significant leadership roles at Coinbase, potentially spanning five to ten years. Therefore, ensuring cultural fit is crucial in our acquisition process.

Yano: Do you have a set pattern for how you structure your deals? For example, some are all-stock, some are all-cash, and some involve performance commitments or other metrics. How do you balance these factors?

Shan:

We don't have a fixed model or a strict playbook, which I believe is the true art of trading. The various tools and methods you mentioned are simply means to an end. The key lies in clarifying what we want to achieve, what we are confident in, and how to assess the associated risks.

In most cases, we prefer to avoid overly complex transaction structures. I prefer not to have complex performance commitments and multiple milestones, but this can also lead to misaligned incentives between Coinbase and the acquired company. The acquired company may be focused on achieving the promised metrics, while Coinbase needs to focus on larger strategic goals. Therefore, we prefer that both companies work together and move in a common direction rather than independently. Of course, there are some special cases where performance commitments are necessary, but I believe the premise is to allow the teams to maintain independence and autonomy so that they can focus on advancing their goals.

Yano: How long do you talk to founders before deciding whether to acquire them?

Shan:

Generally speaking, I can quickly determine whether there's a compelling case for an acquisition. Of course, a number of factors need to come together for a deal to happen. The founders need to be willing to sell, and we need to have the drive and urgency to make the deal happen. As you mentioned, it's really about "the company being bought," not "the company being sold." Many factors need to align, and ultimately, success often hinges on timing.

Sometimes I think a company would be a perfect acquisition target for Coinbase, but if the timing isn't right, a deal won't happen. For example, if they've just raised a round of funding and the valuation is already beyond our reach, we'll regretfully miss out. Sometimes I think, "If only we had gotten there six months earlier." But that's the reality of business; if you miss out, you can only move on.

Yano: Have you ever been in a situation like this: after due diligence, your team was very optimistic about the deal and the senior management also approved it, but it was ultimately rejected when it came to Brian?

Shan:

That hasn't happened to us. However, we've encountered situations where due diligence uncovered issues that challenged our prior judgment. That's the essence of due diligence. We hope everything goes smoothly, but after signing the term sheet, we deeply review the company's core operations. This encompasses not only finances and the team, but also compliance, legal risks, and how the company manages its employees throughout its lifecycle.

Furthermore, the crypto market is inherently volatile, making accurate valuation challenging, especially in the short term. We typically evaluate companies over a three- to five-year timeframe, sometimes even longer, rather than focusing on short-term 12-month performance. However, 2022 was a prime example of this, as global markets shifted dramatically and everyone had to adapt to the new reality.

Views on prediction markets

Yano: Let's talk about prediction markets. You recently invested in Calcium. What role do prediction markets play in Coinbase's strategy? What are your thoughts on Polymarket and Calcium?

Shan:

We were also an early investor in Polymarket and are very interested in prediction markets. We've always believed that one of the core values of cryptocurrency is to inject liquidity into illiquid assets, thereby creating new markets. Prediction markets are a great example of how they can allow people to bet on important life events, such as sports matches or elections. As a broader trend, the financialization of daily life is accelerating, and people are seeking a greater sense of participation through these markets.

We believe prediction markets have strong synergies with Coinbase's business and plan to integrate them into our products to provide relevant services to our users. We have invested in Polymarket and Calcium, both excellent companies, but with different strategies. Polymarket focuses more on the international market and has operated on-chain from the outset. Calcium, on the other hand, is focused on the US market and is striving to achieve breakthroughs in regulatory compliance. In the sports betting sector in particular, we are excited about the potential for further legal decisions to drive the development of this market in the coming year.

Yano: So is it possible for us to participate in sports betting through the Coinbase platform in a year?

Shan:

Potentially, we anticipate that within 12 months, users will be able to participate in sports betting through Coinbase.

Yano: Do you think Polymarket and Calcium will compete, or is the market large enough for both to coexist? Have you considered eventually acquiring one of them?

Shan:

I believe the market is large enough for all of them to succeed. Just like futures and options markets in traditional finance, different exchanges have specialized areas. I expect a similar pattern to emerge in the prediction market, with some platforms focusing on live streaming, while others delve into sports, offering specialized services for specific events like the NFL, NBA, or soccer. While the market is still in its early stages, we believe this sector has significant growth potential as the regulatory landscape becomes more defined.

Yano: How much discussion time did prediction markets take up in your recent executive meetings?

Shan:

We've made this a priority for the end of this year and into next. We believe prediction markets can attract a much wider user base than traditional crypto trading, which is highly valuable for our business. This is also significant for crypto as an asset class. Prediction markets have the potential to attract many newcomers to the crypto space. For example, some people who might consider cryptocurrency too futuristic or niche are willing to bet on NFL games.

Yano: When I think about Coinbase and prediction markets, I think about your investment in Calcium. I'm thinking, there's a perception that every competition between startups and incumbents comes down to whether the startup can gain distribution before the incumbents can launch similar innovations. In this case, I think of Coinbase as the "incumbent," while companies like Polymarket and Calcium are the "startups."

While you are investing in and partnering with these companies, why not develop your own prediction market? After all, as an established company, you have greater resources and can quickly launch your own prediction market and directly reach over 100 million users, rather than letting startups compete for this market.

Shan:

You're right, we do have the ability to do this, but I think some of the core capabilities these companies have built aren't easily replicated. For example, companies like Polymarket and Calcium hold key licenses that aren't readily available. Furthermore, their ability to resolve market issues with a degree of discretion, without a real-time data feed, is also a unique capability. So, this is a trade-off we need to consider.

We already have a designated contract market, a derivatives exchange under CFTC supervision, which was approved in 2022. In the future, we will choose between "building, acquiring or partnering" with the goal of providing the best quality products to our users while continuously optimizing our business.

Yano: Can we get back to the topic of tokenized stocks and your equity tokenization? I'd love to hear your thoughts on this market, like tokenizing your own equity, tokenizing stocks, and the possibility of putting them on a blockchain.

Shan:

I believe we're still in the early stages of this field. The biggest obstacle right now is regulatory, not technological. In fact, the technical conditions for tokenized stocks are already mature. I believe that in the future, most equity capital markets, or even the entire capital market, will likely be on-chain. However, this must be done within regulatory compliance. Traditional equity markets generally function well, although not everyone has equal access. For example, people in some regions lack equal access to the capital markets. Mechanisms like T+2 settlement, if implemented on-chain, can significantly improve efficiency.

However, much work remains to be done, such as enhancing market transparency and integrity and ensuring user confidence in the security and participants of on-chain markets. I believe some of the companies with the greatest potential today are those bridging traditional financial markets with on-chain capital markets. For example, Superstate is particularly interesting because it enables interchangeability between exchange-traded securities and on-chain securities. I have great confidence in the future and believe such markets will emerge.

But for now, the practical uses of on-chain securities remain limited. Questions like how to transfer them, where to trade them, and whether lending markets can be built around them remain unclear.

Yano: You can see that compared to Galaxy's stock, this market isn't really working right now. I hope it opens up, but it's not working well right now.

Shan:

While this is true, I think it's an important step forward. I admire their efforts, and what they're doing is very similar to what we're trying to do in 2021. They've set an example for many companies, and in the future, traditional and on-chain markets can coexist. I believe we'll see more markets moving to on-chain, especially innovative applications like perpetual swaps. Since spot stock markets don't trade 24/7, 24/7 trading is currently difficult to achieve. However, once assets are on-chain, it will be possible to support 24/7 market trading, enabling the launch of perpetual swaps. Similar applications could also be extended to private securities, although these may not be freely tradable. I've noticed some interesting experiments recently by Hyperliquid in this area, especially with the launch of HIP 3. Their vision of enabling perpetual swaps for all assets is very compelling. However, this requires that the underlying assets be tokenized and held on-chain to reduce market imbalances caused by price discrepancies.

Yano: I'd like to ask a hypothetical question. I imagine Blockworks is a traditional equity business, without a token or on-chain infrastructure like a protocol. So, according to the traditional path, we would choose to IPO on Nasdaq, a typical approach for startups over the past few decades. However, our audience is largely on-chain, and they hold a significant amount of capital there.

When we saw Superstate's attempt, we wondered if Blockworks should have chosen an on-chain IPO instead of a traditional one. If we IPOed on-chain, would that mean we would need to issue a token? What would you think if you were us?

Shan:

I believe an on-chain IPO is a good option, as it better aligns with your core audience. If you choose an on-chain IPO, you can use tools like Liquifi to manage your capital table and conduct on-chain fundraising through Echo or Sonar. This approach is well worth exploring. However, the trade-off is that while an on-chain IPO may be more suitable for your audience, the scale of on-chain capital markets is still significantly smaller than traditional markets, especially in terms of funding pools and available capital. So while an on-chain market may be a better fit for your business, its overall scale is smaller.

I think that during the transition period, choosing both on-chain and traditional IPOs might be a better strategy, like Galaxy did, which can satisfy on-chain users while also reaching the mainstream audience interested in crypto assets.

Yano: That's a great idea, and we should delve deeper into it. So, what topics surprisingly took up a lot of time at Coinbase executive meetings? Besides prediction markets and perpetual contracts, what else is worth mentioning?

Shan:

Yes, we do spend a lot of time thinking about the speed of the transition from off-chain to on-chain, as it directly influences our decision-making. As you know, in the early days of Coinbase, we needed to apply for regulatory approvals and open bank accounts in each market to provide a bridge for our users to access crypto assets. This was a very tedious and complex undertaking. But once assets are on-chain, they become more flexible and portable, making it easier to create new financial markets. We've invested a lot of energy in our on-chain future, ensuring we have the infrastructure in place to support this transition, such as Base and the Base app, and even integrating on-chain protocols into the Coinbase platform.

Based on our expectations of the speed of change, if this change accelerates, we will need to adjust our resource allocation strategy to prioritize the development of the on-chain market; if the change is slower, we will need to balance resources and continue to support the operation of the off-chain market. Therefore, we are constantly seeking this balance when setting priorities and resource allocation plans.

Yano: Shan, is there anything else we haven't talked about yet, specifically regarding Coinbase's vision of becoming the "Exchange of Everything"?

Shan:

I think we've covered a lot of ground. The "Everything Exchange" can be seen as a summary of the tokenization process. In the past, people often distinguished between crypto assets and traditional financial assets, but when financial assets are tokenized, these boundaries begin to blur. We aim to provide users with a full range of asset services, whether it's cryptocurrencies, stocks, prediction markets, or future tokenized private securities and pre-sales. The acquisition of Echo is a significant step toward this goal. More broadly, it marks significant progress in our efforts to bring capital markets onto the blockchain.

Do market cycles still exist?

Yano: Before we wrap up, Shan, I'd like to hear your thoughts on market cycles. Where do you think we are in the cycle? Do market cycles still exist? I'm looking forward to your latest insights.

Shan:

That's a great question, and one of the topics we just discussed in depth at our executive meeting. I believe market cycles still exist, but they are less volatile and less extreme than they were in the past. Today's crypto market cycles are significantly influenced not only by internal industry factors but also by the macroeconomic environment.

As for whether another bear market will occur in the future, I believe it's possible, but it's likely to be less severe or painful than the bear markets of 2018 or 2022. This is because we're beginning to see the development of more stable, real-world use cases that are less correlated with the price volatility of crypto assets. Stablecoins, for example, are a prime example. They can be said to be early representatives of tokenized assets. Since 2018, the stablecoin market has experienced astonishing growth, with a total market capitalization currently exceeding $300 billion.

Furthermore, we're seeing a surge in innovation around stablecoins. Across the globe, numerous new stablecoin banks are rapidly emerging, providing users with more efficient and convenient financial services. These services used to require significant capital and time to implement. Therefore, I believe these innovations are gradually reducing overall market volatility and mitigating the impact of crypto asset price fluctuations on the market.

Yano: If you feel the market is nearing the “top” of the cycle, would you choose to slow down your investment or M&A pace?

Shan:

We're not deliberately slowing down; our focus remains on identifying the best investment opportunities that align closely with our company's strategy. Of course, when evaluating pricing and valuation, we consider market trends over the next three to four years, which inevitably involves cyclical factors. After all, most crypto businesses are, to some extent, dependent on the performance of the overall market.

While we don't have a clear plan to adjust our investment pace based on market cycles, new investment opportunities typically decrease during market corrections, a pattern we've observed in past cycles.