How Crypto Champion, Faryar Shirzad, and Coinbase Are Advocating for America's Digital Future

Oh, thanks Yan. I'm super happy to be here. The one part of my bio you left out was that I was editor of one of the journals at UVA and you were the chair of our advisory council and that's where you and I first met many years ago. So, I thought make sure we include that. It was a really important moment when I got to meet the legendary young Baron and you were extremely helpful as we were we had all sorts of ambitions to make the journal, you know, particularly relevant in whatever the elections were that were going on in that year that I was the editor and thrilled to kind of be back with you here.

Well, my family story is sort of the quintessential American story. My dad was an Iranian diplomat under the Shah, you know, prior to the Iranian revolution. And so he was a diplomat in London where I was born and and he had a variety of postings. We came to the US in 1973 I guess and he was a press officer at the embassy. He then went on to become consul general in New York and then in Houston and then in New York and it was in New York when the revolution happened. I think I was 13 years old and we got the opportunity to stay and move back to Washington where my father had bought a house when he was a press officer and we opened a delicatessen and a food store in Bethesda to make ends meet because we sort of went from diplomat life to having no money life. And you know I think I learned from my father about how exciting is to be at the intersection of policy and international stuff. And so eventually my career took me there and my own version of that. So you know I was naturalized as soon as we were eligible for that. So I'm a naturalized American citizen extremely grateful to this country for everything it did for me and my family. And then more recently I'm a father of two amazing boys and live in Washington and very happy to find myself where I am now.

I was the deputy national security adviser for international economics which was a job I didn't know existed but I think maybe one of the coolest jobs in government you can have. You know, you have the privilege of sitting as a deputy in the NSC and the National Economic Council and you help staff the president and help coordinate the agencies on international economic work. And so when I was leaving, you know, my own background was in trade policy and trade law, even though my job is much broader in the White House, but Goldman Sachs recruited me to come and join them. And at the time, they didn't really have a government affairs office of any scale. And I kind of came in without portfolio. But not long after I came to Goldman, the financial crisis happened. And like every financial institution across the planet, Goldman was faced with regulators, finance ministries, central banks, bank regulators, everyone sort of deciding that it was time to rearchitect the entire framework of financial regulation globally all at once. So I was asked to be the first global head of government affairs of Goldman Sachs. Our team went from a handful of people to 10 or more times that. And much of what I did at Goldman was organized around navigating the financial crisis and then the post-crisis regulatory stuff that follows and the Dodd-Frank Act in the US and equivalents in Europe and and Asia plus a big network of global standard setting bodies. And that all actually became a not to jump ahead became really relevant to crypto because crypto is going through a similar version of that. All the architecture of financial regulation came under reassessment and re-examination and redesign after the financial crisis. So it was a lot of like figuring out what first principles are and a lot of financial regulation was formed over decades and so there's a lot of lost memory as to why rules are the way they are for traditional financial institutions and so when I had a chance to come to crypto it was sort of a parallel it was a version of that in the sense it wasn't policy makers needing to redesign an existing system but figuring out a new system for a new technology and so that was attractive about that so there's been a lot of parallels between my Goldman experience and crypto experience, which I'm happy to talk about.

Yeah, I mean I hate to admit it because everyone's most people's crypto origin story involves some kind of version of reading the Satoshi white paper and recognizing what the future is going to look like and and being a kind of a historic pathfinder. Mine was not that story at all. I got a call from a recruiter and I actually didn't really know much about Coinbase. I Googled it quickly while he was talking to me and I was like, 'Well, I don't know.' And he said, 'No, no, you really need to talk to them.' And I don't know if it was love at first sight or what, but it was very apparent that I needed to jump on the Coinbase rocket ship, and I'm so grateful that I did.

Well, if you think about the traditional financial system, in a way, it's actually useful to think of the traditional financial system as it existed, you know, 60, 70 years ago where every stock, every bond, every derivatives contract, every loan, every everything was sort of recorded in paper form. And much of the financial system involved different intermediaries whose job it was to maintain large file cabinets storing whatever the relevant certificate was, whether it was a, you know, deposit certificate or a stock certificate or whatever.

Yeah. And actually if you think of it in paper form, it actually is more illustrative of how the traditional financial system works. Now a lot of it has been digitally recorded and a lot of the movements are digitally but fundamentally much of the financial system is built on the predicate that you need a whole bunch of intermediaries to store and record your interest in a thing. So whether the thing is a stock certificate, you know, or cash or whatever it happens to be. And so what crypto does, I'm kind of jumping around, but I'm gonna answer your question. What crypto does, crypto is an information technology breakthrough. So when the internet came about, it did a really cool and important thing, which was allowed you and me to send peer-to-peer without an intermediary information. So I can send you a note, you and I can do this video call, people can listen to the podcast, they can post and transfer information seamlessly peer-to-peer. That was the breakthrough. And the data moves across a decentralized protocol governed by a loose network of developers, engineers, and foundations. That's how the internet works. What the internet did not do is to figure out how you move a thing of value. So, if I want to send you a dollar in an email, I can send you a picture of a dollar. I can send you a picture of a $100, but you're not going to have the dollar. You'll just have a picture of a dollar. I can send you a picture of a stock certificate. And the only way you get it is by me asking an intermediary to send that, you know, have my bank, my exchange, my brokerage send the stock certificate to your bank brokerage or whoever. That's how the system works. So in the internet was a giant breakthrough of moving data that represents information, but it couldn't allow for the movement of value. Crypto is a technology breakthrough, an information technology breakthrough that figured that conundrum out. And what crypto allows you to do is to create unique digital tokens. And those tokens can be anything. They can be a dollar. They can be a stock certificate. And so what it does is essentially takes the magic of the internet and applies it to value transfers. And so the first token that was created was Bitcoin. And people now invest in Bitcoin and the market cap is enormous. It's the best performing asset in the last 10 years. The value went from, you know, 0 to $110,000 per Bitcoin. But in a way, that's kind of distracting as to what crypto is. Crypto is the information technology breakthrough. The most visible manifestation of it is this token called Bitcoin. But there are billions and billions of dollars being spent right now to figure out how to create tokens that represent other things of value. Your driver's license, your mortgage, your deed to your house, your title to your car, your stocks, your bonds, your derivatives transactions. And once you tokenize all those, they can move seamlessly peer-to-peer. And what Coinbase does is build the infrastructure for tokenization and transfer of tokenized things on a peer-to-peer basis between individuals.

Yeah. What Coinbase does is it basically helps people wherever they are on their crypto journey, so to speak. So, most of our customers come to Coinbase because they want to trade crypto, but they want us to intermediate it. So they'll download our app, they'll hold their balances in a way that we manage for them. And so if they lose their password or whatever, we can help them. And we have an order matching engine that helps, you know, connect buyers and sellers. So much of what Coinbase is is actually much like a traditional brokerage in the sense that we allow people to buy and sell and we manage and intermediate that. So that's a big big part of what we do. But we also similarly custody. So we're the world's largest crypto custodian. So if you have crypto and you're nervous about losing your keys or what have you, you can give it to us and we're the largest custodian in the world of crypto because it's a very very complicated information security exercise to do that. But at the same time, we're also building the tools for people to not use and not need an intermediary like Coinbase. And so we essentially are the whole complex of how people want to interact with crypto, whether they want to use an intermediary or whether they don't, we build the tools for that.

Exactly. So, you can come to Coinbase and there are a number of other exchanges that provide similar services and you just download the app and you do what you would do when you sign on to any other financial app. And we're regulated similarly to a lot of financial apps. We are subject to the bank secrecy and AML controls. We do checks on our customers to make sure they're not subject to some sanctions block or whatever. So much of our business is very traditional in that regard, but lots and lots of our customers come to us because they want to have what we call crypto first solutions. So they don't want to have us intermediate. And so we have a wallet which is like a basically it's a piece of software that you can download from us. You can get similar wallets from other people, but it's essentially, we call it the TBA wallet, and you can basically go on there and immediately access decentralized exchanges that allow you trade crypto peer-to-peer, but not go through Coinbase and do that. And so, it's a bit of a mindbender because as soon as people think they understand what we do or what crypto does, you hear a different version of it. But it's like trying to explain the internet early on. Like is the internet like is it an email or is it a text or is it a website? Is it a video call or you know like what is it? It's a technology and crypto is a technology too.

Yeah, so that's a really good question. So it's confusing because like I said crypto is a technology and it can manifest in a million different ways so just at the moment people think they've figured it out then another manifestation of the technology comes up and it gets confusing. I would think of crypto tokens like websites. Anybody can set up a website and your website may be extremely well curated and provide enormous value and be worth visiting and investing my time in, but my website might be frivolous and dumb. But the technology of allowing people of having people build websites is a very democratic one. And so your website maybe was born and we all thought it was dumb, but you iterated on it and developed it and it became better. And so people's affinity to a token or whatever is just, you know, whatever the market bears. And so I would say that's kind of one frame of reference to think about it. But fundamentally, each time somebody issues a token, they're generally building a crypto network that then they issue a token that provides governance rights with regard to that network. So if you have Ethereum, if you have an Ethereum, you have governance rights with regard to the Ethereum network. And so for the 95% of the market cap of crypto is all concentrated in maybe eight or nine tokens. So yes, there are tens of thousands or more crypto tokens out there, but the overwhelming, you know, 90-something percent of crypto activity is really concentrated in eight or nine tokens. And those tokens represent two different types of networks. One is Bitcoin, and Bitcoin has become adopted globally as a store of value that competes with gold. So people have just now adopted Bitcoin and feel like it's a safe place to put your money because it operates under a protocol that governs how much Bitcoin can be created, limits the supply, and the adoption is now so comprehensive and global that people feel like if you live in a hyperinflationary economy or you have another reason why you want to store your money somewhere where you feel like it's safer than your domestic investment options or currency options you would invest. That's Bitcoin and Bitcoin is, you know, 50, 60, 70% of the market of crypto. The rest of the big crypto tokens Ethereum, Solana and others are what they call programmable networks. So much of the applications that are being built in crypto to facilitate payments to facilitate social media to facilitate whatever are being built on those eight or nine other networks that have huge adoption. And so there's a race going on to build networks that can match the processing speed of traditional payment networks. So right now the largest payment processors in the world are, you know, in terms of volume of numbers of transactions, Visa's number one I think and maybe Mastercard's close second or something like that and they can process, you know, millions of transactions per minute or tens of millions I don't know what the exact number is off hand. And so what crypto networks allowed you to do is allowed you and I to transfer an Ethereum token seamlessly but they couldn't get scaled. You couldn't build an application on Ethereum that matched the processing speed of the computers that underly the Visa network. And so what people have done, including Coinbase, is building networks on top of things like Ethereum, which is what we did, that allow you to have the peer-to-peer transaction capabilities, crypto, but at speeds that begin and pricing that it begins to approximate the big payment processors. And one of the big important things that happened in crypto about a year ago was that Visa announced that they were actually integrating crypto technology into their processing systems. And they issued a really thoughtful paper on this and they basically said we think I'm paraphrasing obviously and they said this in a much more nuanced sophisticated way but we think we've reached peak processing in terms of our ability to scale our processing networks and we think stable coin or crypto-based settlement can be an unlock for us to build resiliency speed and scale that can augment our capabilities. And to have somebody with the sophistication of Visa say that I think is really important. So, it's really it's easy to kind of look at a coin that people wonder like why are people buying the Trump coin or whatever they're buying? You know, happy to have a discussion about that. But I think there's a lot of huge news that's being broken every week, including by companies like Visa who recognize that the technology is the future and are integrating it into their traditional systems.

Exactly. I think that was said perfectly. So, the Genius Act is a piece of legislation that Congress just passed a couple months ago that creates a federal regulatory framework on the issuance of US dollar stable coins.

Yeah. So, remember I said that crypto allows you to create a token and then trade it peer-to-peer without an intermediary. Maybe the most important token you can create is the dollar, US dollar. So, right now we have dollars in paper form and we also have the dollar manifested in digital form. But what you don't have is a version of the dollar that could be transferred between two people without the need for an intermediary. And so the Genius Act was essentially a sort of a bet that just like we've moved huge parts of the economy to the internet that we're going to move huge parts of our economy into tokenized activity. And the dollar being available in tokenized form allows people to transact peer-to-peer using crypto technology. At the moment there's about 180 billion US stable coins in global circulation. They annually turn over on the order of three to four trillion in terms of the turnover over the course of the year. A lot of analysts, Citi, Bank, Citi and others expect the market cap of stable coins to go from, you know, the 140 billion or 180 billion right now to something on the order of 1 to 2 to 3 trillion. And what a stable coin is is a token that represents a dollar. So if I'm an issuer under the Genius Act, I'll be regulated by the office of the controller of the currency which is the national bank regulator in the US regulatory system subject to a licensing and regulation by the OCC. An issuer can get customers like you and me to come. We give them a dollar and they give us a dollar token. And then once you and I have our dollar token, if I take you to lunch or if we go to lunch and I cover you, you can send me $20 peer-to-peer in an email or whatever without requiring the bank to intermediate that.

You can use what is known as your crypto wallet. So you can, you know, so I have a wallet. You'll have a wallet and I'll just send it from my wallet to your wallet seamlessly.