Banks vs. Yields!🔥Coinbase INTERVIEW w/ Paul Grewal🚨

Hi, Paul. I'm doing well. How are you today?

Well, Paul, I think it's important to start by understanding why clarity matters. The fact is that we now have 52 million Americans or more who have bought or sold a digital asset. We have an asset class worth not just billions, but trillions of dollars. We need sensible rules for the road to allow this important technology and industry to continue to flourish. There's a lot that we've seen that has been very positive in the draft legislation now in the Senate. It took certain ideas from the Clarity Act that passed the House and expanded on them. But importantly, there were a number of issues that were not resolved at the time the Senate Banking Committee was scheduled to go to markup that we thought needed to be resolved for this to be a productive exercise moving forward. The reality is that US consumers' rights to rewards on their stablecoin deposits were a target. The banking industry made it clear they wanted to relitigate and renegotiate the careful deal crafted when we passed the genius stablecoin bill last year. We felt it very important that consumers' rights to rewards be protected. There were also significant concerns about the ability under this draft language for the SEC to permit tokenized equities to finally take root in the US, as well as concerns about DeFi and other issues. On balance, we felt it was important to hold true to the principle that a bad bill is worse than no bill at all, while extending a hand and making it clear we want to continue to work towards legislation, and we think we're going to get there.

I'm happy to. I think it's understandable if ordinary Americans who aren't living inside the Beltway every day are a bit confused by the process. In a general sense, what happened was that in the lead-up to the Senate Banking Committee, one of the two committees responsible for advancing market structure legislation, there was a release of the final text that would be marked up at a hearing on Thursday. The critical thing to understand is this is not a one or two page memo. It was a document that went hundreds of pages, something like 270 pages or more, into deep detail about all these questions regarding the right way to regulate crypto. We had effectively a day to work through those 200 plus pages of dense text and understand what deals had been cut in advance, how this would work in practice not just for Coinbase but for the industry as a whole and for our crypto community, and what this would mean for the ability of innovation in crypto to continue to flourish while important consumer protections were maintained. So it was the fact that an incredibly dense text was dropped at the very last minute, with very little time to work through it, and real red flags in the text ultimately led Coinbase to decide, and Brian articulated it well, that as much as we have worked on this legislation, thousands of hours, untold dollars, many trips to Washington, it was much more important to get it right than to simply take a bill for the sake of taking a bill.

Well, I think there's always room for improvement in process. I certainly think that more time and more opportunity to weigh in with legitimate concerns and hear the legitimate concerns of others who may have a different view would have helped in this particular situation and led to a better product. That said, the process was not the only concern. There were substantive issues regarding rewards, tokenized equities, DeFi, and the like. So with a bit more time now, it's clear we're not going to see a markup for at least the next week, perhaps longer. We can now dig into those details, work through our differences, and reach what I think will be a sensible common ground that ultimately leads to a bill ready for the president.

Well, we've never viewed the current state of interest rates as a critical factor or even an irrelevant factor to the basic principle that US consumers who hold stablecoins have a right to share in the economics arising from those stablecoins. It strikes us as anathema to the entire spirit of crypto that issuers alone would be able to hold all of that yield for themselves and by law be prohibited from sharing those benefits with their customers. That would leave us with a circumstance no better than what we have with traditional finance right now. You and I, when we want to earn yield or interest from banks, have to make do with a pittance of a few basis points of reward while the banks collect percentages, many hundreds of basis points, from their own deposits at the Fed and elsewhere. So we need to fix that. This has gone on for far too long, but this is a unique moment and opportunity for us to provide competition to that arcane traditional system that puts consumers at a disadvantage.

Well, I think we all were in a similar situation with very little time to react to the text. I think we all share a common goal as an industry of seeing more choice for consumers, more competition to the traditional financial system, and more alternatives for basic financial services that go beyond just investing. We want to see competition in lending and access to credit more generally. So there remains a core set of principles that the industry relies on. We may have different views on tactics and strategies, but I'm confident this industry can and will continue to speak with one voice on the basic principles that matter most: choice, competition, and innovation.

I think it was pretty risky for DeFi. For Coinbase, it's always been critically important that any legislation that passes Congress respects and protects the innovation that DeFi offers. The fact is that imposing onto DeFi protocols, DeFi frontends, and ultimately DeFi developers the same standards as if they were running a bank on Main Street is frankly nuts. These are not fractional reserve businesses that control or custody assets. This is ultimately about software and code, and we think it's critically important that distinction be respected. It doesn't mean we can't have sensible rules to protect legitimate national interests. For example, OFAC sanctions can be imposed in DeFi as effectively as in traditional finance, and we would support those efforts. But it can't be the case that we simply graft onto an entirely new technology and innovation rules that were developed decades ago for a very different approach. It's in that spirit that we have pushed hard and will continue to push for a basic recognition of that important distinction while accepting that we all share a common goal of keeping people safe and ensuring consumers understand what they're getting into and have the opportunity to do so on a non-discriminatory, equal access basis.

I couldn't agree with you more, Paul. I think unfortunately some of these unserious voices continue to try to insert themselves in a debate that has long since passed them by. The fact is we now have the most pro-crypto administration in history together with the most pro-crypto Congress in history. In that environment, not only can we expect that we're going to have a fair shot at coming in and registering in the way that Gary Gensler promised but clearly had no interest in, but also crafting sensible rules that balance protecting investors and consumers with promoting innovation. I think that goal is now shared among all the important stakeholders in Washington, and it's achievable if we just keep our focus.

Well, I think some of the concerns about community banks have certainly been misrepresented. It may be the case that community lending is in decline or at some risk of decline in recent years, but that's not a function or result of the proliferation or development of stablecoins. Quite the opposite. The only serious studies ever done on the effect of stablecoin adoption on community lending suggest it has had no statistical impact whatsoever on that important function of community banks. In fact, when the big banking lobby likes to argue that the Treasury Department, for example, has suggested otherwise, they point to a study or paper drafted by the banking lobby. So it's a bit of a red herring. The fact is community banks do play an important role in our country, and we want to continue to see them thriving. But if they are suffering struggles and challenges in the current economic climate and competitive environment, that's not a fault or result of anything coming from stablecoins. There's just no evidence to suggest that.

No. To be simple, no. Their only argument, Paul, has been that stablecoins provide too much competition for banks. The last time I checked in America, we supported competition and wanted to see consumers have choice. I don't find that compelling at all. If the banks are worried about the competitive threat from stablecoins, here's an idea: share some of the benefit you get from your deposits with the people who give you those deposits. I think that's a much better solution to the so-called problem than the one they've offered.

Well, I'd sure like to meet them and have a coffee and hear them out, because I for the life of me can't imagine why someone would want to deny Americans that choice, that option. Look, you may love stablecoins, you may hate stablecoins, or like most Americans, you may not have an opinion about stablecoins. But denying those people who want access to this technology and this financial opportunity strikes me as nuts.

Well, I think you're right to point out that as new technologies have been adopted in our lifetimes, there's always been the concern that too much power would concentrate too quickly in the hands of too few. That was true when the internet first became part of our economy in the mid-90s, and certainly as the internet shifted onto mobile and smartphones became the de facto way people accessed the online world. All these questions are present. I think it's important for us to always ask if there is enough room being preserved in any new technology platform or paradigm for innovators, builders, startups, and new entrants to offer their products and services and compete on a level playing field. Those questions will continue to be asked with respect to crypto and the adoption of new crypto-based technologies. But if anything, looking at the current marketplace and even the political conversation in Washington, there are no shortage of voices and participants. Quite the opposite. I think we have a very healthy competitive dynamic and will continue to for some time.

Well, that political adjustment is probably above my pay grade. What I will say is that I am heartened by the fact that JP Morgan and others in traditional finance, even as they've proven to be worthy adversaries on certain topics, are themselves embracing crypto in more quiet ways and now maybe even less quiet ways. These are smart people who understand technology and the evolution of markets. Their growing interest and participation in crypto is, if anything, a validation that this is a real technology with a real future.

Well, you're rightly pointing out that 250,000 or more people have already weighed in that they want to see choice when it comes to stablecoin rewards and the ability to share in the economics of stablecoins and the networks they support. That has only taken place over the course of a handful of days. I'm actually quite heartened by how strong a response we've had in this very short period of time. But look, what those quarter of a million or more Americans have already said, and I think many more will say in the days and weeks to come, is give us the option. Give us the choice. Let us make our own decisions about where we invest our money and where we have a chance to participate in these different systems. That focus on preserving competition and alternatives is a very encouraging sign because it speaks to a core tenet of how most Americans think about our economy, our society, and their right to have a share.

Well, I've actually been encouraged, Paul, that Senator Scott, Senator Gillibrand, Senator Thune, and many in the current debate over this legislation get that the United States needs to lead when it comes to crypto. The best way to lead in the current moment is to pass legislation now. It's true that countries all over the world are racing ahead of the US in this regard. That's been abundantly clear for several years as the Europeans, for example, are bringing MiCA online. We've seen legislation on the move across Asia, Latin America, and other parts of the world. So I take some heart from the conversations I and others at Coinbase have had with members of the Senate and House that there is a sufficient appreciation of the need to act. I think what there is probably not enough appreciation of is that unless we do this now, we will miss our moment, and the rest of the world is not going to wait for us.

Not at all. Quite the contrary, we've always recognized that so long as the Bank Secrecy Act remains the law of the land, there will be certain obligations on centralized exchanges like Coinbase to comply, and we fully comply and will continue to do so. However, it's important for us to lend our voice and perspective on where KYC and other elements of the Bank Secrecy Act are falling short, either of the legitimate objective of keeping Americans safe or, perhaps more nefariously, where it's imposing a surveillance state on too many Americans with zero benefit. We're going to continue to call that out. It's one of the reasons we've been so vocal and strong on the idea that DeFi cannot be ground to a halt with onerous KYC rules that don't make sense, don't work, and would put too many Americans under the thumb of the government who are perfectly innocent and engaging in perfectly legitimate activities.

Oh, very much so. I think it's pretty hard to ignore a quarter million or more emails and other communications pouring into Senate and other congressional offices over the course of 48 or 72 hours. So yes, for those of you wondering if this was all a waste of time or if you should bother to pick up the phone and call your representative or senator, the answer is it's absolutely critical we all continue to do that, and your voices are being heard.

I think you're right, Paul, to call out that Stand with Crypto has done an excellent job of updating the public and anyone interested in these topics on where individual lawmakers have stood on various votes and formal positions for many months. I think it's important that we continue to do that. I also think it's important to give those lawmakers who may still be in learning and listening mode an opportunity to decide what they think about these issues, and even to give lawmakers who have decided they are against pro-crypto provisions a chance to change their mind before a formal record is taken. That's why we've supported the efforts of Stand with Crypto in the way we have, and I continue to applaud the great work they're doing to keep us all informed.

Well, we haven't yet heard back on when a markup might be rescheduled in the Banking Committee or otherwise set in the AG Committee. But I'm confident it's going to happen. Paul, the senators and their staff, even those with whom we've had disagreements, have been working terribly hard on this for a long time. We certainly appreciate the effort. I know many of us really do appreciate how hard Congress has worked on this issue. So I would be very surprised if all that effort and work were simply cast aside and this thing were to die on the vine. I think we're going to see continued progress. It's just going to take a bit more time.

Pleasure is mine, Paul. Thank you for all that you do.