You know, retail can come in and buy this like garbage marked up, you know, private stock slop on, you know, their brokerage, but like, oh, you can't actually buy this like SpaceX derivative. I just feel like it's very like, you know, paternalistic.
Not a dividend. It's a tale of Tucoin. Now, your losses are on someone else's balance sheet. Generally speaking, airdrops are kind of pointless anyways. Um, trading firms who are very involved. Is the ultimate DeFi protocols are the antidote to this problem.
Hello everyone, welcome to the Chopping Block. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day. So, quick intros. First, we got Tom, the DeFi Maven and master of memes.
We got Robert, the crypto connoisseur and Czar of Superstate.
And we've got Tarun, the gigabrain and grand puba at Gauntlet.
And joining us once again, we have Paul Grewal, Chief Legal Officer at Coinbase.
And I'm Haseeb, the head hype man at Dragonfly. We're early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock.xyz for more disclosures. So we are here at the Coinbase Institutional Summit. Uh, there's I've been told there's 500 people here from the Coinbase institutional team, thereabouts. Uh, we were very generously invited and we've been told that we're not supposed to talk about the coin price. So where do you guys think it's going? So you can't talk about the coin price. The rest of us absolutely can. It's first amendment. Um, but actually I wanted to reflect on this because the last time we had you on the show was in a very dark hour for Coinbase and we were just reminiscing about this. Uh, last time you were on the show was when you guys were locked in the lawsuit with the SEC and Coinbase was really fighting not just for the life of Coinbase but for the life of the industry. And I'd love to just hear you kind of reflect on what that arc has been like. Now obviously we've come out into the sunlight and you know, this administration's completely different attitude. Cases have all been dropped. Everyone's jubilant or you know, more or less. Um, how does it feel for you personally over the last year?
Well, this is great. This is a lot cheaper than the therapy I would normally pay for. And you know, the choice of the word reminisce is also very interesting because, um, look, a couple years ago it was dark. It was dark in terms of the SEC enforcement case. It was dark in terms of the markets. It was also just dark, I think, in that, um, it was not at all clear that we were going to make it through that period and, you know, get to a place like we are today. Um, you know, for the legal team at Coinbase, it's in many ways though been the greatest experience of our professional lives. Uh, because, you know, in our world where you spend years preparing for fights and very rarely actually get to engage with them, um, all of the fights came at once. There was the lawsuit by the SEC. There was our own lawsuit against the SEC. Uh, we took on, you know, the defense of the Tornado Cash developers and plaintiffs. Um, we've done a whole host of things that I think have hopefully made a real difference not just for the company but for the industry as a whole. And, um, it's just incredibly rewarding to see it all now start to come together in a way that, um, was unimaginable just a short time ago.
Yeah. Well, I have to imagine for, I mean, I'm sure as a company, but especially for the legal team, like this was one of these things I remember we talked about at the time that suing your primary regulator is something you just do not do. It's like the number one rule of running a company is like...
It's the first thing they teach you in law school.
Yeah, I'm sure. I'm sure. Um, but it's of Titanic credit to you and your leadership of the team that you've managed to pull it off and again, kind of usher the industry going forward. So I was chatting with somebody else who's at another company and like everybody in this industry looks up to you as like the crypto legal dad of the industry because you were there protecting all of us and, um, super people internalize it.
But it was a large family. I mean, the fact of the matter is, not only do we have incredible lawyers at this company who really were the masterminds behind the strategy, but one of the things I think that has been the most gratifying and maybe the thing I least expected was that there was a real movement of legal leaders across the industry. You know, I give a lot of credit to people like Stu Alderoty at Ripple. I give a lot of credit to the incredible legal minds at Uniswap. I could go down a long laundry list of people like Dan Gallagher at Robinhood and others who, um, you know, locked arms with Coinbase and with this company in our darkest hour and, uh, I think we've seen the results and it's incredibly gratifying.
Fair enough. Well, let's talk about what's changed since then. So, uh, you know, once upon a time most of the show was about crypto. Uh, apparently now we're a show about stocks because tokenizing stocks is now the new big meta that everybody's talking about. So, um, just catching us up on the news. So, within the last week, there's a big announcement from Robinhood that in addition to launching Robinhood Chain, they are tokenizing stocks and allowing those to trade on Robinhood Chain. It's kind of complicated the roadmap there, but, um, specifically, they're going to be tokenizing pre-IPO companies. Uh, two of which were SpaceX and OpenAI. Now, OpenAI, um, it was a little bit obscure exactly how this worked and did they actually have the stocks or like what was the underlying structure here? They didn't really explain it. And then OpenAI came out on Twitter and said, 'Uh, guys, we don't know what they're talking about. This is not OpenAI equity. We did not approve this.'
Yeah. Exactly. And so there's a little bit of a kerfuffle online of them trying to explain of like, well, no, hold on. This is a derivative. It's not quite like, don't worry, we're still going to do this. Um, and in response to that, it seems like actually they've opened the floodgates. So now SoFi has announced that they're also going to allow access to pre-IPO companies, including OpenAI, SpaceX, Epic Games. Um, Republic is doing the same thing. Uh, there's, it looks like a lot of these things are happening through private market funds that have exposure to the underlying. So maybe these are less derivatives than what Robinhood's planning to do, but it seems like now this is like a proper movement of tokenizing pre-IPO stocks. Now I've heard this story for a long time that oh, tokenizing pre-IPO stocks is going to happen. Um, and it's, I don't know, it's been like 5 years that people have been telling me the story. I've gotten however many startup pitches and it's never seemed to work. But now all of a sudden you've got these big giants coming into this game. Um, Coinbase soon to enter. Should we have an eye out for that?
Look, we haven't been shy. We want to see a world of tokenized equities and we want to see it now. We've been in active discussions with the SEC for some time. So, yeah, we want to do this. Um, we want to do it in the right way. We want to do it with the full blessing of our regulators. But I don't think the question any longer is whether, it's when and how. And I think...
But what's your thoughts on the pre-IPO tokenization?
Look, my own view is that, you know, private company equities are different. Um, they have different mechanics. They have different restrictions. Um, often times, as I think we saw in the examples you highlighted, um, management teams and boards are reluctant to give permission for their stocks to trade, um, because they're worried about valuations. They're worried about cap table management. Um, so there are some differences that need to be worked out, but I think, you know, whether it's solving the problem of access to private capital markets, whether it's, you know, long-standing frustrations with accredited investor rules, you know, the solution here is a solution to many problems, not just one. And so I think that's what you're seeing in the response and reaction to the announcements from last week from Robinhood and our own interest in advocating for change at the SEC. It's just going to take a bit of time to get all these details sorted out.
Yeah. What are you guys' thoughts on the pre-IPO?
Well, I feel like Robert has to be the first one to talk about it.
Well, I'm focused on tokenizing public companies, right? Because I think, you know, there's very straightforward expectations and rules of the road already there. You know, public companies are already disclosing all the things they have to disclose and making it, you know, safe for anyone on Earth to own it. Whereas with private companies, I don't know the first thing about SpaceX or OpenAI besides their name and I know that it's cool and like it sounds big, right? And so, you know, I personally feel that like the tokenization of public equities is incredibly straightforward and is extremely inevitable, whereas the tokenization of private companies I actually think is going to run into a lot of brick walls. Uh, because at the end of the day, you know, private companies can't be publicly traded without registering, right? At least within the US world and no company wants to get forced into a situation where there's like more than 2,000 holders and they have to register and all of these horrific things. You know, the minute you start like opening up an asset to the point where it's like on a blockchain and like there's like 90,000 people that own it is like going to run head first into, you know, what companies have to go through to go public.
Yeah, Matt Levine made this point on Money Talks, his Bloomberg column, very well, which is that the whole point of like, what does it mean to go public as a company, which is that, well, okay, you have to do all these disclosures, you have all these obligations, you can get sued by shareholders. And the reason, you know, one can look at that and say like, wow, that's really annoying, we should just tokenize these private companies and then allow anyone to trade them at any time with like arbitrary leverage without them making these disclosures, like, well, isn't that what going public was supposed to be about? Like, isn't that why we had this process of going public? So there is this spiritual contradiction a little bit in like the idea that, okay, well, we found this technology that allows us to circumvent what was ultimately like a legal distinction that we created specifically for that reason. Um, but at the end of the day, like, there is this sort of, there's an infinite set of creative ways you can, like, if the market wants to do something, one thing we learn in crypto is that you kind of can't stop it. You can shove it down, but like, it's like one of those carpets where like you push down an air pocket and it just pops up over here. It feels a little bit like what's going on right now.
But if someone tokenized Coinbase's stock before you went public, I'm sure Paul would have sued them.
I think it's, I mean, it's a little bit like a release valve, right? It's like companies are staying private for longer because it's such a pain in the ass to go public. And hey, retail investors see that, they want in, and this is like the best way to, that's why all this demand has sort of been pent up and looking for something to go into. And I think that's why there's so much excitement around this idea when in reality even for the Robinhood thing, you know, we're talking what, a million dollars of like pre-IPO stock generate all these headlines, a tweet from OpenAI, like I think that's a testament to how much interest and demand there is for this thing versus this just being sort of a sideshow.
Yeah. And the pain of life as a public company is absolutely real. I mean, talk to anybody on the finance or legal or several other teams here at Coinbase that manage that process quarter to quarter, year-over-year. Um, it's an incredible, incredible overhead that we have to undertake and work through every single time just to get ready for the earnings call, the quarterly filings, and all of that. So I think if there are technological measures that can provide insights into the operation of a network or of a company or whatever, um, that don't require that kind of process, it's not surprising to me that there'd be tremendous market demand for that.
The one thing I'll say is, you know, if I look at the success of stablecoins, right? Like a lot of it came from finding use cases beyond the naive one, right? And like I kind of think that's going to be true for tokenized stocks. Like I need to be able to do something with it on chain that's better than me buying out of the money options on my favorite stock purchasing platform, right? I need to be able to like have some tangible benefit above the existing stuff. And I don't think anyone is kind of, like, I can imagine things, you know, like I think, you know, if you look to some of the past things in DeFi that have like been kind of similar, like these like automatic options vaults and stuff like that from 2021, 2022, that was a very retail friendly product that is much easier to do on chain than it is to do at a brokerage. But like I just don't see, I haven't seen the excess utility jump yet, which is like, I think what you need to actually get people to migrate their demand, otherwise they're just going to stay where they are. And I think there's this argument that hey, international demand will come, but like, I don't know, in a lot of countries I can just use Interactive Brokers. Like I don't totally buy the international demand story yet unless there's some excess, you know, new functionality.
I mean, I don't think you can use international brokers in China or India or, you know, the place where like a lot of people and money are.
Uh, but yeah, if you're in Western Europe, yes, you can use international brokers.
It's true. And of course, as we learned, uh, the Indian options market is 8x the spot market for...
I don't want to trade Indian options.
Yeah. I mean, you do you, you don't want to trade them or do you not want to, you know, you, it depends on which side you're...
Smart enough to trade them.
Yeah. Yeah. You want to add to me?
Oh no. I mean, I think it's also just about all the other nice things that we like about crypto assets, right? So it's like, you know, way lower fees. You're not paying this like AUM or 2-3% fee from these brokers. You can get sort of this programmability, this self-custody. And like, I'm excited to see what people build on top of it. Like, if you ever used IBKR, it's kind of bad. It feels like when USDC started, right? Like USDC's initial growth was driven by usage on Coinbase and by usage in Compound and Uniswap, right? Like those were the main kind of initial demand drivers. And the idea was you got something better than just payments, right? Like, because otherwise it just looks like I'm sending a Venmo transaction. There's not that much excess utility, but being able to get yield on chain, being able to swap for tokens, like that was a real utility beyond your normal fintech dollar that you leave in a fintech account. And I just don't see, like, I can imagine a world where that's true for stocks. I just don't know what that experience is. And I haven't seen anyone present, you know, like a compelling vision of like, this is what you can do with tokenized stocks that's like so mind-blowing that everyone migrates. Not saying that won't happen. I'm just...
Yeah. Well, I mean, the obvious answer for many people is 24/7, right? So, like, we're moving toward 24/5 on the NASDAQ before too long, but 24/7 is like completely out of reach and, um, 24/7 for tokenized stocks is relatively straightforward. Um, obviously, there's going to be less liquidity on the weekends. Um, but, you know, it's like Tom made the point in the previous show that people used to say this about, you know, ride-sharing apps is that, okay, well, what's the point of having 24/7 Ubers? Like, who's going to drive at 3:00 a.m., you know, deep in Long Island or in Brooklyn. Um, and the answer is somebody. If you build the app, somebody wants that ride, somebody's willing to drive, and like the market figures itself out. And so, like, there will be some liquidity. It's not going to be, you know, if you want to buy, you know, $50 million, you probably shouldn't do it on a weekend.
You know, it's interesting that, Tarun, I think you're actually, whether consciously or otherwise, channeling the mindset of a lot of regulators and asking the questions you're asking. Um, it shouldn't be the case that in order to get approved, whether at the SEC or with the New York DFS or any other regulator, that you have to predict or demonstrate that there's a new use case or additional utility. But at the end of the day, you know, human beings want to understand the why or why it matters as much as the what. And so, um, I do think as an industry, we need to be able to at least provide some glimmer of an answer to this question or some version of it. Um, if we, you know, want to see regulators embrace this and run as quickly as we think they should run in order to get these products out to market.
Tarun is kind of the regulator of the show. That is...
Yeah, that's what we say behind the scenes every time. Play the role. Well, what can I say? Every regulator colors their hair.
Yeah. Well, this is actually like, I think, like a double-edged sword of like the killer use case, but like, you know, again, there's not necessarily an institutional use case. It's way more retail, but like I definitely think that some people are going to make 20x levered stock type trading on chain because on chain today you have all sorts of opportunities to do 20x long and short everything already and that draws a huge amount of demand from retail. And I think that answer is very scary for a regulator or scary for institutions. But I do think a big use case is going to be people being able to trade traditional assets with radically more leverage than they're able to in any traditional venue. And that's scary.
Well, to be clear, that's true for perps. It's not necessarily true for tokenized stocks.
It could be. Why not? Like a lot of even like spot borrow lens stuff, you can get 10x leverage. So like...
Well, the other thing too is that with pre-IPO stocks, right? Um, or I guess not stocks, whatever. Pre-IPO companies. Um...
Pre-IPO company derivatives.
Yeah, pre-IPO company exposure, whatever. Um, technically, like, the reality is that there's not that many companies that are pre-IPO that people even know of, right? Like, so obviously we know them because we're VCs, but, you know, I can count on one hand, it's maybe like OpenAI, Stripe, SpaceX, you know, Epic, Anthropic, right? It's like probably 10 at the most period compared to all the stocks that are traded on the stock market that many more people around the world are interested in trading. So it is, I think, relatively marginal but a lot of brain damage to actually figure out how to do it for the amount that it expands the investable universe.
Yeah, fair enough. I think this is also just about like consistency and fairness in rulemaking. I mean, there is like, there's like Destiny 100 or whatever, which is like this like private company IPO vehicle thing that publicly trades in the US. It's trading at like 10x NAV because it's like a closed-end fund. So, you know, retail can come in and buy this like garbage marked up, you know, private stock slop on, you know, their brokerage, but like, oh, you can't actually buy this like SpaceX derivative. I just feel like it's very, like, you know, paternalistic. One thing I will say is a tangible use case from the perspective of regulators is actually identifying things like this India options thing. Like, if that, let, one of the reasons, actually, so sorry, I should give a tiny bit of background. Uh, I guess the Indian regulator banned Jane Street from trading there this week because they were sort of doing this oracle manipulation looking trade where they would like trade the spot, basically, they would sell a bunch of options at some strike price, let's say a dollar, and then they would trade the index to never touch a dollar. And so then they got the premium, but they expire, they kind of expired out of the money. And, you know, the main thing that's interesting is like why was there so much more demand in the options market in India? It was pretty much because there's no shorting and there's no leverage on Indian stocks and basically everyone had to synthetically emulate that. Whereas if you do have an open environment, you could imagine that like, hey, you don't have this kind of easily manipulable market. And it's like much more transparent to even the regulators. The regulators only realized that this was happening because Jane Street tried to sue the team that did it for moving to Millennium on a non-compete and then that got leaked in court and then all of a sudden they settled, but then obviously now they're paying this price. So my point is I actually think that type of transparency and leverage is something that's a little more nuanced, but I actually do think that that is like a real value you could...
Okay. Well, so speaking of regulations, um, this next week is going to be crypto week. Uh, so far it's felt like every week is crypto week in my life, but apparently, uh, starting July 14th is crypto week, which means the GOP wants to have three crypto bills fast-tracked before the August recess. Uh, this means the GENIUS Act, the CLARITY Act, which is the market structure bill, and then another one that like bans CBDCs, which like somehow we're still talking about that, but apparently that's on the same platform. Um, so people are very confident in the GENIUS Act. It passed the Senate 68 to 30, bipartisan margin. That one's a stablecoin bill. That's looking good. Um, the CLARITY Act is the one that people I think have more uncertainty about whether this is actually going to pass. People have been talking about stapling the two together, but maybe there's some political risk to doing that. Um, so I'm... And then there's this anti-CBDC surveillance act, which like, I, you know, Fed can't issue CBDCs, which again, I don't know why both parties are like, this is really important that we don't let the Fed issue a CBDC. It's like the Fed has never said they want to, like, nobody wants to issue a CBDC. Like, why are you so afraid of this? Um...
That I, true. True. Um, yeah. Okay. So, um, question for you. You were obviously Chief Legal Officer. Um, how do you handicap the odds of GENIUS, CLARITY, and then this, I guess we can also, the CBDC surveillance act?
Uh, well, look, GENIUS is going to happen. Um, I don't think there's any doubt we're going to see a bill presented for the president to sign in short order, whether that's a week or two or perhaps a bit longer. Um, it's going to happen. Um, and I don't think that that can really seriously be questioned. CLARITY, market structure bill, um, does have some more work to do for sure. I think we're going to see a House vote on that in short order. Um, the fact of the matter is though that you do need to see, um, a...
Reconciliation between the House version of that bill and what the Senate would find acceptable. The curious thing about market structure is it implicates not just the financial services committees of each of the houses, but also agriculture because it does address the division of responsibility between the SEC on the one hand and the CFTC on the other. And the agriculture committee has historically had oversight over that. And there's still work to be done, particularly in the Senate, a committee to move things along and catch up to where some of the other committees are. I'm feeling very good about that happening, if not this month, then next month or perhaps slipping into the fall.
As for the anti-CBDC bill, look, if that's what it takes in order to keep certain members of Congress happy and assure them that the Federal Reserve is not plotting some secret government-issued digital dollar, I don't think that would be problematic. But I think the fact that we're even talking about are we going to see one, two, or three bills pass the Congress in the next one, two or three months is remarkable. Absolutely remarkable. Unimaginable a year ago, even six months ago. And so, you know, that's progress.
Okay. But so on the, I think everybody's roughly in agreement. Basically the stable coin bill is baked into the bread. It's going to happen. Clarity Act, I've been hearing from people that they think it's 10% chance that Clarity Act is going to happen.
Skeptics every time. You know, there were people who said there was only a 10% chance on the genius bill not that long ago.
True. Okay, give us your odds.
If you're betting on Polymarket, what are you putting this at?
For all kinds of reasons, I'm not going to go Polymarket. As I say, here in the United States...
Maybe a cousin, a cousin, correct, legal us is going to do that.
But I think we've got a 75% chance of seeing market structure.
Let's get it to 100. What can you do, Paul, to get it to 100?
What will I do? Yeah, look, as soon as we're done talking here, I'm going to be engaged in that very topic. Look, we all have, by the way, we all can help move clarity over the line by reaching out to our elected officials and making clear we want to see the bill passed. The will is there. There's no question about it. I think the challenge with clarity is it is more complicated. Washington DC has a few other complex topics to work through and so that's also proving to be a challenge is getting mind share and floor time for those types of debates to happen. But yeah, three out of four. I'm going three out of four.
There's 500 people here. 500 emails and phone calls to your House and Senate members actually moves the needle. So like go home tonight. That's your homework. Paul assigned it. I assigned it. Go home tonight and get clarity passed.
Nice. Tarun, as chief regulator of the podcast, what's your take?
Honestly, I have no real opinions because I don't know enough about the process by which amendments get added last minute and stuff like that. I feel like there's so much secretive knowledge that you would only know if you're writing the bills that I'm not privy to. So unfortunately, I relinquish my role as chief regulator.
Unfortunate. Unfortunate. Okay. Well...
But Clarity Act is the important one. You know, stable coins are important, but Clarity Act really makes Coinbase successful for 100 years.
Okay. Fair enough. Well...
Robert is like the number one Coinbase booster here. Like that was a...
Okay, 100 years, you're like trying to outlast the Bitcoin inflation curve.
As long as we can ban a CBDC and pass clarity act.
But I will say to your point, Robert, like it's critically important that we get the market structure legislation passed immediately. And I say that not just because I do think it will set Coinbase up for success as well as the industry as a whole, it's because financial legislative reform only generally takes place once every, I don't know, 20 years, 30 years.
Century. Okay. I mean, look at when the 33 and 34 acts...
And so, you know, there are these windows you have to hit. And if you don't hit them, the window closes and you have to go another 20 years before you get real reform. So, the urgency is real and that's why, you know, you're seeing so much industry effort to get this thing done.
Sure. Okay. So, Paul, I know you don't want to contemplate this, but let's say that clarity doesn't pass. Okay. It just gets stuck in committees. There's too much infighting, too many degrees of freedom. In a post-clarity world, let's say Congress just has no appetite or midterms come and whatever, everything's scrambled and there's no ability to get anything passed. What do you think we can get in a purely rulemaking world? What do you think that universe looks like where CFTC, SEC just have to divide up the baby and figure out the rules, how we're going to get some kind of sensible market?
There's still a lot that can and should be done by the regulators with or without clarity in place. The problem is absent Congress passing laws saying this belongs to the SEC, this belongs to the CFTC, here's how we're going to define what tokens qualify as securities, as subjects of securities transactions or not. Without that being written, hardwired, if you will, into the framework, a new regulator can come in two or four or six or eight years time and essentially rewrite the rules entirely. That's what we're trying to avoid. I have a ton of confidence in the task force that is chaired by Commissioner Peirce. I think Chair Atkins has done an excellent job of giving them room to run on all these issues, but I don't want to see a world where we're all dependent upon the whims and personal preferences of one commissioner or one chair. I think we need much more durability than that.
Well, I think it's pretty clear the perception from the industry is that right now there are no rules. And so we just saw the announcement today of one of the largest ICOs we have seen in a very long time, which is the Pump.fun ICO. So Pump.fun, if you've been living under a rock, Pump.fun is the largest memecoin launchpad on chain, lives on Solana. And they're raising $1 billion in their ICO. $1 billion. So they're using a bunch of exchange partners that are going to be distributing the token, selling it for cash, raising at a $4 billion FDV. The rumor is that 25% of the revenue from Pump.fun is going to be burned in this token. It's going to be fully unlocked on launch. So, it's kind of a just crazy moment that's happening right now in terms of the on-chain activity. I think there's like three days during which you can actually engage in the sale. Funny enough, it was leaked by Gate. Gate was one of the partners and they put up the page when they weren't supposed to and they later got taken down. And so a little bit of a snafu, but at the same time that this is happening there's the rise of, Pump.fun was predominantly just overwhelmingly the market leader in memecoin launchpads but just within the last couple weeks we've seen the rise of Bonk's launchpad which has actually started to really rival the volumes that we're seeing from Pump.fun. Let's Bonk, I think their revenue recently just superseded Pump's by a significant margin. That being said, you know, they're offering a lot of incentives, so it's not clear that that's an apples-to-apples comparison quite yet, but Pump.fun since inception has had over $700 million in protocol revenue on chain, making them one of the most profitable protocols to ever be created in crypto. So, Pump.fun ICO, is this the return of ICOs? Are we, what's old is new? Like, are we regressing as an industry? How do we interpret this moment?
One billion is a lot. That's the first thing. I mean like I immediately in my head went to like, 'Wow, EOS is back.'
