E77: Tech work culture, crypto regulation, stablecoins, $NFLX & more w/ Coinbase CEO Brian Armstrong

Brian Armstrong, what's up, bro?

How are you?

It's good to see you as well.

It's so good. I'm really excited to hear what Jay Cal's intro is for you.

Let your winners ride.

We open sourced it to the fans and they've just gone crazy with it.

Hey everybody, welcome to episode 77 of the AllIn podcast. Less than 30 days for the soldout All-In Summit. And there's a wait list, but sadly I don't think we're going to get to anybody on the wait list. We've got a great episode for you. I thought I'd bring a bestie guesty in, but not tell my bestie. So, we'll see if they can figure out who's coming on the pod today. But let's get the intros over with. He's investing in SAS at different stages coming off a Miami Bender for the ages doing shots with Boy and Vanilla Ice. The Rayman is back. He's twice as nice. David Saxs, everybody, how are you, sir?

Good. I'm still here.

How is your adventures with Vanilla Ice? You're still here. And so, Vanilla Ice, that costs $1,600 to get him to show up. What does Vanilla Ice cost to show up for a party?

That's about 10K. I think it's about 10 to 20K.

No,

A little bit more. Really?

A little more.

And did you go on stage and do Ice Ice Baby with him?

I didn't, but there were some like Teenage Mutant Ninja Turtles type dancing around with him and whatever. It was interesting.

It was interesting.

People liked it. It was fun. It was fun.

Oh, very nice. Very nice. And you're still in Miami for whatever tech week. Okay. So, he won't eat your meat, but he'll take your MDMA. He's very interested in your DNA. When he's in the lab, he's in heaven. He hasn't been the same since that rave in 1997. The lord of the laboratory, the Sultan of Science, David Freeberg. How are you, sir?

That was my favorite one. I like that one.

Yeah, I'll have you. You peaked in 97 at about 2 a.m. You were peeking at about 2 a.m.

Did you say he doesn't want your meat, but he wants your MDMA?

Yes. He won't eat your meat, but he'll eat your MDMA.

Shout out to producer Nick who really crushed it this week. Ah, his bank. This one is too funny.

It's hard to keep it together for these sometimes. His bank account would make a crown prince jealous. His knitwear collection is overzealous. When he's on CNBC, he makes a scene. The last time he did leg day was 2019. The supreme leader of Spaxs, the dictator himself, Chamal Polyapata. I've been actually spending a lot of time working out on my legs.

Really? I have been working on shoulders and chest and my legs have always been diesel. I will be doing a shirt off selfie this summer.

Jal, it looks like you have not bought new shirts since you lost all the weight cuz that shirt looks about five sizes too big.

Here's what I bought this one halfway through the weight loss and now it's still too big. So, I got another slimmer. I got the slim fit. No, I got the normal fit and then I got the slim fit.

From peak to now, you've lost what, like 50 lb? 213 pounds was my peak like four years ago and I was 167 168 the other so whatever that is. 45 pounds it's awesome.

Something I feel incredible. I've started running again and I did 40 days of skiing this year and I'm going to take up kite surfing this summer. I want another sport to do in the summers.

Are the people around you annoyed at your increased energy levels?

Yes, people who work for me are annoyed. I'm sleeping better, everything's just going better. I highly recommend everybody.

You know, just try to lose some weight. Lot of options out there for you, including Mique. All right, we have a very special bestie guesty today. He's a lean mean crypto machine who sort of looks like Mr. Clean. If you need some tokens, you know who to call. Satoshi has his picture hanging on his wall. His NFT game is never lacking. If you talk about politics at work, you might send you packing. The king of coins, the tycoon of tokens. Who is he?

Brian Armstrong. Brian Armstrong. Brian Armstrong.

You guys got it. Brian Armstrong's with us. Hey Brian, how are you?

You could have gone vital vitalic at the first part but became Brian by the office part. Anyway, welcome to the show Brian. We've obviously talked about you a whole bunch and you've been on this week in Startups and I think you know all the fellas here. But thanks for joining the pod.

Oh, thanks for that. So I guess you know the topic we all have talked about a whole bunch is work and keeping people focused at work. You took a very bold step which Toby at Choppifi I think followed and you said listen, if you're coming to work our mission is crypto. Can we stop talking about every other thing in the world and just stay focused on that? And I think that was maybe a year and a half ago that you did that. Everybody wants to know how that worked out for the company. So maybe you could tell us what it was like to go through that, because you were a target for a period of time. We all thought it seemed reasonable. And then how has that actually impacted day-to-day life for the people who decided to opt into working at a single focused Coinbase?

Brian, I've always talked about this as the difference between a hard culture and a soft culture. Hard cultures define what they do and don't do. Sometimes what you don't spend time on relates to product or externalities. Do you think that's become a trend where soft culture in Silicon Valley is about appeasing a fickle employee base, and as a result you aren't clear about what you're not going to talk about, and the troops rule the day and productivity goes down? Can you talk about what you've seen with other cultures and how that's affecting work and where employees choose to go?

Why do you think companies have veered into this place where they have to appease fringes on either side? How did we evolve from being mission focused to dealing with all this other stuff?

I saw this on Twitter, Nick, maybe you can find it. It was a general who commanded battalions. He said 80% of his people were incredible, 15% were wishy-washy, and 5% were always pushing boundaries. He focused on keeping the 5% in line or out, because that solved for the 15%, and the 80% would be fine. If you don't deal with the 5%, the 15% go crazy and the 80% get dejected. It's a reminder that some people join companies with a desire to see them go sideways. And to be fair, you told people they could create their own dinner party off hours and talk about whatever. This was just about staying focused during work hours on company time and servers. You weren't saying they can't have political beliefs. That was one of the biggest mischaracterizations.

Yeah, that's right. And there's a time for those debates. I think a lot of this has to do with Slack. When people are in a Slack room and frustrated, it's understandable they want to blow off steam. But people have to look at Slack as not an AOL chat room or Reddit. Maybe you could talk about electronic communications, and then David has a follow-up.

Yeah, there's a neat feature in Slack now where that level 9 person can post and everyone else can reply in the thread. But Slack needs to double down on this. I also think they put that random room in there, which is like waving a flag. I tell all startups to delete the random room and tell people not to post memes and jokes. David, you had a follow-up.

One thing I was going to say is, Brian, I agree with everything you said. The one place where I might nitpick in a way that gives you more credit is you founded Coinbase back in 2012. If you had created this policy on day one, nobody could have predicted these issues would arise. In 2012, we didn't have Slack, we used Yammer, very open culture. The word 'woke' didn't exist. It wasn't an issue. Over the last several years, there's been a drift towards employee activism, mostly from hyperwoke employees. They engage in petitions, letter writing, threats of boycotts. We've seen it at Apple, Disney, Netflix. Every company will have to decide: give in to the mob or take the short-term pain of realigning around the mission like Brian did.

The good thing with Netflix and Disney is that they'll be clear examples of the business impact of getting distracted. Brian took leadership, but the business impact wasn't measurable from the outside. In the case of Disney and Netflix, it's clear. Netflix botched their business model. Disney is losing a fiefdom in Florida, with repercussions on taxes, debt, and service quality. That will be measurable. In the next few quarters, CEOs will be better equipped to numerically point to why taking Brian's path is value-creating. And you also have the option to run your company with a clear stance, like Twitter with free speech. You have to make a decision and be intentional about it.

No, my only point is that in the absence of intentionality, you'll slip into one realm or the other and not know what you're trying to do. You'll be able to measure the impact of unintentionally slipping around.

Versus picking a course and sticking to it. Let me ask you guys a question. If you're an individual and you want to affect social change, where is the forum you would go to first? You spend most of your time at work. If you're a 19-year-old with a strong point of view, what's the right forum for them to protest and make their voice heard?

I think companies are a great change agent. Startups are a great way to change the world. They have missions. Brian's company has a mission around crypto and democratizing access to the financial system. Elon's company accelerates sustainable energy. He wants to restore free speech at Twitter. There's a mission-driven company out there for any young person. If not, there's a 501(c)(3). You can join a nonprofit or start one.

Exactly.

501 donate money to a cause. You have the whole weekend, you can write a blog post.

What I don't think would work is when people aren't really mission driven. Their mission is whatever the current thing is. They oscillate from one current thing to the next. Every three months there's a new issue they care about more than anything. No company can accommodate that fickle activism.

Brian, can I ask you a question? Are there any decentralized systems that give individuals the ability to affect social change in a way that historically was a hill to climb? People can aggregate resources and voice to affect outcomes. Do you think that becomes a mechanism for social change? You're making me think of DAOs, but a lot of that is unproven. DAOs are probably good for new governance systems for allocating capital or managing a city. But I agree with David: the best way to affect change today is to start a company or join one. Young people are sometimes enamored with becoming an activist, but that's giving up power. They have more power than they realize. If they start a company, they can have a good impact on the biggest issues.

Yeah. I think a good question to ask somebody who purports to really care is, what do you care about that's not currently in the news? Not the hot thing everyone is obsessed with. Well, and then how are you changing it? And is your plan to change it over the next decade or two? You have to take many years to effectively create a startup, five or ten years. If your issue is whatever's in the news, you won't be able to create that kind of change. I do think there are similarities between mission-driven startups and political movements. I wrote a blog post called 'Your Startup as a Movement' where I say good marketing is about evangelism. It has everything in common with what good political leaders do: critique the status quo, describe the problem, present the solution, and how to deliver it. As a leader of a company, you can be very mission-driven and bring about change. You just have to attach a business model. If you don't have a business model, you're just collecting donations. Let's build on that, Brian. What is the stated mission today of Coinbase?

Gender equality all that stuff.

When you look at the regulatory environment, it has been far from clear what's allowed in the US. You had a strongly worded tweet storm in September 2021 about sketchy behavior from the SEC. Maybe you could talk about the SEC's approach to cryptocurrency versus securities, XRP, and how you've taken a conservative approach to tokens while competitors offshore are yolo. What is the current administration doing right and wrong, and what needs to happen for the US to be competitive in crypto while protecting citizens?

What would you make the test for this?

Is a utility token versus speculative security because that seems to be the one that's really hard for people to figure out. 99% of people are buying a token on Coinbase because they want to see it appreciate and they want to see it gain value and only 1% are using it for the actual utility of it. Is it then a security? Is it by the percentage of people who use it? How would you as the leader in this industry actually define it? What's your definition?

I think what the executive order did was basically give people enough regulatory safety in the sense that something reasonable will probably happen in the reasonable future so that people could keep building. My big takeaway is that this thing is now too big to fail. The government has to find a reasonable framework. The real big issue, Jason, is if they did something crazy and retail would get completely smoked.

What do you think is reasonable?

I think Congress has to pass a sensible set of legislation that clearly demarcates exactly what Brian said. This realm goes to the CFTC, this realm goes to the SEC. Then let them implement. Left to their own devices, those two will use arcane laws and negotiate, but can't arbitrate, so nothing reasonable will happen. Congress has to write something reasonable.

You are building companies at the production board every year. You go through securities law, raise money from accredited investors in the traditional way. But you must be looking at crypto saying, 'I could launch a project with a token and raise money globally or start a DAO.' What is a reasonable way for people playing by existing rules to embrace this new technology? Some perspectives important: go back to the 1920s before securities laws. People told tall tales and investors got swindled. That's the origin of securities laws—to protect from being swindled. The challenge is when there's a more thoughtful way of running capital markets. I'm not sure you'll have a quick resolution to go back to anyone saying anything. The role of the arbiter is to protect those taken advantage of. Even if 85% of projects are great, it's the 15% the government is here to protect. That's why the government exists—to protect the unprotected. It's difficult to assume we can go back to raising money with any story without regulation. All it takes is a few bad stories and Congress will say, 'Let's shut down the miners, data centers, every asset.' Look at what just happened with Russia. Governments can coalesce around digital systems and block things. I don't know if we can assume even with a free internet that systems can be truly decentralized given government reach. It's the great tension of the 21st century: decentralized systems challenging government overreach versus the government's role to protect.

Well, I think it's a very interesting one. Brian, what do you think of this?

Sacks, do you have any input on this framework? You are investing traditionally in stocks but also allocated money to Multicoin Capital and others buying tokens. You have to distribute them and deal with downstream legal issues. How are you dealing with them and what do you think is a proper framework for protecting consumers while allowing innovation?

I think the big picture framework we have is correct: a dichotomy between security tokens and utility tokens. Security tokens are like shares of stock with little functionality—they should be treated as securities. But many tokens are issued as part of creating a new technology network and have real functionality. If you subject them to securities laws with KYC and accreditation, it would destroy the potential functionality. Where there's real utility, the government should foster innovation with a lighter hand. Don't subject them to securities laws. Entrepreneurs need safe harbors and clear lines so they know to avoid crossing from utility to security token.

I think that's well said. I have three ideas, Brian. Number one: a sophistication test for investors in crypto and startups, like a driver's license test. Number two: safe harbors around scale—any project under $10 million is an experiment with a disclaimer; between $10 and $100 million implement KYC and throttle. Number three: founders can launch and disappear with no director-like duty. Do you think there needs to be something similar to directors in corporations?

Hopefully not, especially if it's a utility. Self-custodial wallets and decentralized apps are a huge area of innovation. You wouldn't want the US government to say you need to register to make a website. That would have been terrible for innovation. A lot of this will flow to the country with the most permissive laws—not the most permissive, but the most well-structured that balances pros and cons.

The thing I would add is that there's a lot more than AML and KYC that has to happen for this to be a functioning ecosystem. We average one hack a week in crypto. Beanstalk happened a few days ago for almost $200 million. Last month, Axie Infinity for almost $600 million. In the normal securities world, if you're a director without adequate procedures, there's an audit committee, information security, disclosures, insurance. If you don't do that work and get hacked, you're liable. There's no version of this in the Wild West. That stuff has to exist. Congress needs to update the laws to allow the CFTC and SEC to do their job and incrementally figure this out. Even with AML and KYC right, who do these folks go to to get money back? In the case of Axie, they went to Andreessen and raised a new round to make everybody whole. That's insane. You can't expect that with every project.

Let me ask you a question, Brian. Everybody seems to be very concerned about Tether. You don't participate in the Tether ecosystem at Coinbase. Is that correct?

They've been banned in New York, had regulatory action in Canada. People are concerned about their attestations and lack of clarity on commercial paper. What do you think of stablecoins getting very big? USDC seems tightly covered, but there are concerns about Tether. Is it a nothing burger or does the lack of transparency concern you?

Thank you so much to Brian Armstrong for joining us for the first hour. Now we'll continue with our Netflix discussion.

Brian's fantastic. He was very honest, answered a lot of questions, he's a super fan of the show. That business is a great business. He's thoughtful. I really think the challenge Brian faced a year and a half ago in policy is now being faced by every CEO across America. The former McDonald's CEO said companies have no business being in politics. That's a radical line in the sand, standing on Brian's shoulders. The CEO of McDonald's, a Fortune 500 company, saying we're not doing this anymore. They were willing to do it if it scored points, but realized once you engage, you can never disengage. Let's pivot to Netflix. They reported a drop in subscribers for the first time in 10 years. Stock dropped 35%, market cap from $155 billion to $98 billion. Worst performing S&P 500 stock in 2022, down 63% year to date. Icahn dumped his stake, booked a $430 million loss. They missed subscriber targets and lost 700,000 Russian subscribers. Is this a bellwether for something bigger or just poor execution? There's a macro thing and a Netflix specific thing. The macro thing is Apple's privacy changes hurting online advertising. Netflix was a canary in the coal mine. Facebook and Google are also suffering. The micro thing is Netflix's content value. People churn when there's not enough value. With $20 billion on content, yet people leaving, you have to question the library value. Disney Plus has done incredible work. Apple won the first Oscar for best picture among streamers. Netflix has lost its edge. Competition is fierce with HBO Max, Disney Plus, Amazon. Netflix's relative share is declining. The first rule of capitalism: excess returns get competed away. Netflix had a monopoly, now everyone else invested and created compelling content, so returns spread across competitors. The network advantage in streaming is content and consumers. Diminishing returns have hit. They haven't built advantages in search, discovery, or social sharing. They're also three times the price of Disney Plus. Sacks adds that the woke mind virus is making Netflix unwatchable. The quality has gone down. They almost threw Chappelle off. That episode revealed the programming people are out of touch.

I agree. I would add what Elon said: the woke mind virus is making Netflix unwatchable. The quality of programming has gone down. I can't think of a show I watch on Netflix. HBO Max and Disney Plus have shows I like. Netflix's programming people have gotten out of touch.

Are they pandering to that audience, Sacks? Similar to Disney pandering? Is there a broader media problem of pandering to the wrong audience?

They almost threw Chappelle off, who is the number one comic in American comedy. They would have if he didn't have such a big deal. They reasonably heard employee concerns and said we disagree.

Yeah, but that episode revealed that the people doing the programming at Netflix have lost touch with where most of the country is.

I will give a shout out. I haven't watched a series on Netflix in probably a year. Never Have I Ever is amazing, but outside that, no reason to pay for Netflix.

You guys, let me ask a question. Going back to the Disney pandering, the whole industry suffers this. Do you remember the Oscars? We don't even watch that anymore. Do you think there's a cultural difference in management of media companies that creates an advantage? Warner Media, Disney, Netflix, Amazon. Is HBO Max operating differently because culturally different?

HBO has always been culturally different. They take risks and follow the vision of the director and writer. They have great shows now.

Disney has Marvel and Star Wars, which keeps them extremely relevant. The rewatchability of their content is a huge advantage. Kids watch Moana 100 times. HBO Max doesn't feel like it's pandering and is operating at a next level.

Netflix went with big celebrity deals and lost their uniqueness in risk-taking. Adam Sandler, reality TV. Meanwhile, Hulu, Apple TV, HBO Max are producing great content. Euphoria would never be made on Netflix.

They don't want to take risks. HBO is for adults, takes risks. Disney can't touch that. Hulu is a sleeper.

I'm watching Severance on Apple TV. I started paying for YouTube TV for streaming cable.

Thanks for tuning in. The summit is going to be amazing. We've got great speakers: Ryan Peterson, Nate Silver, Claire, Brad Gerstner, Palmer Luckey, Elon Musk, Keith Rabois, Joe Lonsdale, Tim Urban. Elon Musk is coming! Antonio Gracias, Glenn Greenwald, Matt Taibbi. All right, see you next time on the All In podcast. Bye-bye.