Keynote Q&A Discussion with Paul Grewal

Thank you for having me, Bruce.

Thank you for having me.

Let's do it.

No. What's the next question? Look, no, not at all. You describe me and my company as sitting in the bullseye. Peter, of course, connotes a certain prize at the end of the process. I would perhaps pick a different word: crosshairs. That's certainly what it felt like even days or weeks into joining Coinbase in the summer of 2020 and certainly by the time we got to the fall of 2024 it was quite a fraught and even perilous time for the company. Recall that we were at that point in time several years into a pretty sustained campaign on the part of not just the SEC, which I think has captured the lion's share of the attention, but many regulators all around the world, whose aim was nothing short of driving digital assets and cryptocurrency at least underground, if not entirely out of existence. We were, as you alluded to, in the middle of a very uncertain presidential and congressional campaign and certainly a large part of the strategy for Coinbase and I think for the broader crypto industry was to think about and approach our issues with governments and especially the US government, not only through the lens of lawsuits and litigation, but also through engagement in a number of different campaigns, particularly for the House and Senate to change the dynamics on the hill.

Well, make it. I knew we would make it. I knew we would survive in some form or fashion because we had really built the entire company on a foundation of adaptation and engagement with governments regardless of how friendly or hostile they might be. So survive I never had any worries about that. Thrive, absolutely. The reality was that I think that if the last four years were any indication and the past would be prologue, we would be looking at unprecedented headwinds in terms of being able to fundamentally operate our exchange here in the United States. And as the United States goes, still to a large degree, so goes the rest of the world. And much of our topline revenue outside the United States I think would have also been at some great risk. So for many years at this conference there were panels on digital asset enforcement. That's not a panel this year. Right. So, one lasting memory for me in particular from the prior administration, which is actually suddenly starting to feel like a long time ago, and I wonder whether it feels like a long time ago for you too, is the video response to the SEC's Wells notice that you and Brian Armstrong recorded, two of you just sort of standing there quite stoically, defiantly. And now today the discussion is all about policy and legislation, future rule making, market structure, really very different discourse obviously. So what is it like for you, as a very public-facing CLO of a public company in this space where you're working really collaboratively now with people in Washington rather than kind of against them?

Feels a little better if I'm being quite honest. You brought up the video that Brian and I recorded not long after we received the Wells notice from the SEC in 2023. I will say when I attended CLO school, I don't recall a lecture on YouTube as a channel for advocacy, but we took a very different approach with that response. I think it has now been adopted or accepted much more widely than it ever had been before that in large part because we understood that our audience included a number of different elements that I think go far beyond just judge, jury, or even enforcement attorney at the SEC.

I was going to get to that. That was certainly something that was going to follow had things not gone as quite as well as they had. But I will just say that even as we were very much in wartime at that point, the ground had been laid for a much more collaborative, positive, productive, engaging relationship with not just the commission but other agencies well before that. In 2021, we put out the first serious proposal for how digital assets, I think, could be regulated across the United States. In 2022, we petitioned the SEC for rules that would finally provide for some framework for crypto that would meaningfully permit companies like ours to register in the way that we had invited to do for some time. Not long after that, we brought our own offensive litigation against the SEC when they sat on our application for months, even years saying nothing in response. And so, all of that was in anticipation of a better day coming, Peter, that once we were able to move past this very adversarial and even hostile posture would allow us to talk about what is the right way to regulate this market, what is the right way to think about market structure and ultimately write rules for assets that range from Bitcoin to Ethereum to stable coins that could be meaningfully applied and adopted in ways that would promote the development of the industry and at the same time protect investors.

Fascinating is one word I suppose. Yeah.

Yeah. So, the politics of legislation at least in crypto I think are worth paying some attention to. And while we are exceptionally pleased with the progress we made even last week with the Senate Banking Committee, finally marking up a market structure bill that we think lays the groundwork for legislation passing in the next few months.

Not only viable, I am predicting it will happen.

Yeah. Choose to do with that information what you will on whatever app you may choose or prefer. But look, again I come back to this common theme of laying foundation in wartime for the peace that ultimately will come. The market structure bill, the clarity act as you point out, went through the house last year and passed the house last year on a massively bipartisan basis. She had 70-some Democrats joining almost every Republican to finally enact rules for crypto that would define standards for issuance, token classification, market structure more generally in ways that would be nothing less than historic. And so while the Senate was not able to move on that same piece of legislation last year, we were very eager to reinvigorate that progress in the new session that began earlier this year. And were able to move it through the Senate Ag committee as well as the Senate Banking Committee in I don't want to say record time, but near record time certainly in my living and professional memory. So all of that's to say there is a certain doggedness you have to have in this line of work particularly when it comes to crypto that allows you to continue to keep at it and try to move things forward even when political winds can shift or other political priorities can take over. That's what we're seeing here with clarity and that's why I am willing to say on the record and in public we're going to get this thing passed this year.

Yeah. So the I mean probably the most prominent issue that I think has achieved the most received the most attention with respect to the negotiations was a debate I'll use a neutral term to help you out Peter over whether or not intermediaries like Coinbase but including many others could issue rewards for stable coins. Now, you might ask yourself hearing that, I thought we just passed a stable coin bill last year. And if you ask that question, at least to yourself, you would be right. We believed and continue to believe that Congress resolved the question of rewards, who could issue rewards to whom, by whom, and all of that when they passed Genius in 2025. Unfortunately, our friends in the banking sector disagreed with that and pushed hard to reopen that issue as part of this market structure bill. The long and the short of it is that over the course of a number of weeks, the White House brought everybody together literally in a room at the Eisenhower building. They didn't quite lock the door, but they took away our phones and made it clear we would not be able to use the restroom whenever we wanted in an effort to really force a conversation between the lobbyists representing the banks on the one hand and a number of us from crypto on the other. And over the course of those discussions, it became clear frankly and from my perspective that many of the banking trades were much more focused on killing rewards entirely than reaching some sort of accommodation that would allow us to pay out for activity on the platform involving stable coins on the one hand while addressing whatever concerns they had about deposit flight on the other. Fast forward to the Senate. Even though the White House talks were largely unsuccessful, Senator Tillis, Senator Alsobrooks, two members of the Senate Banking Committee really grabbed hold of this issue and took responsibility for forging a consensus around this as part of the bill markup process and we were successful in getting to what we think was a reasonable accommodation of the concerns that the banks raised while preserving the rights of intermediaries to issue these rewards. And so on that basis, we were able to take that one but important issue off the table and address those issues that remained all in the leadup to last Thursday's vote in the banking committee.

Yeah. And it's not what they teach you in civics class or when we all watched Schoolhouse Rock. But it is in fact how legislation often does get done.

Securities lawyers will not go for want. There will be plenty of work for us all to do in the months and even years to come for sure.

Absolutely. And I know Bruce has a very important line he draws for this conversation between securities law and derivatives law. The challenge is of course crypto probably more than any other technology or asset class scrambles that egg. And so I do think the derivatives are also going to be quite busy.

So we talked about the rewards debate and the resolution of that in the legislation. There will be important rule making that follows on that question. For example, whether or not a reward by an intermediary is the economic or functional equivalent to a bank deposit. Well, that's going to require substantial engagement in rulemaking. And so, I think that's one to watch just from a process perspective because I think it will be very interesting to see how the agencies take the legislative record on this and attempt to implement it. But we're going to have to write rules on basically everything in clarity. I mean from ranging from for example what do these issuer disclosures have to look like for so-called ancillary assets which are the subjects of investment contracts that may not be securities in and of themselves but could be part of a securities offering. Well, the bill will impose obligations even on those ancillary assets which plainly are not securities but nevertheless will require some disclosure to investors in order to make sure that they have the ability to make good informed solid decisions about whether or not to make an investment. I think those issuer disclosures and those obligations are going to be really really intense. And then the last thing I'll just call out among all the issues that are going to be required to be addressed in rulemaking, there are important questions about the structure of exchanges and brokerages under this bill and as applied to the standards for crypto or digital assets that are almost entirely unaddressed in the actual bill itself. And so this is why as I said I think many of us in this room are going to continue to be very very busy for a very very long time.

Yeah. So Peter, you're referring to the generic concept of a super app, but I think in the particular context of financial services, what we're seeing is a mass convergence happening in real time, right? Coinbase is certainly part of that. What was once a simple wallet to hold Bitcoin now is a place where you can not only buy hundreds or even thousands or tens of thousands of digital assets but you can also do everything from stake those assets to purchase equities, you can trade in prediction markets. All of these different products are available in a single user interface and Coinbase is not alone in this. Robin Hood is attempting to do the same thing. Many traditional financial institutions are going to race in because everyone is seeing that in the eyes of much of the public, even if not the entire public, these asset classes are now largely interchangeable with one another. The market's going to sort out whether we're right or wrong on that. But I think it's important that rule making flesh out the details of the legislation that's going to be necessary even and even critical for those products to flourish. So I do think all of this is in service of that vision. At the same time I think it's also important to recognize that none of us really know what the consumer or investor demand will be for these products until we actually build them which is one of the reasons why we're eager to get on with the work.

Sure.

Yeah, there are boundaries and I think there should be boundaries. Now I think the more challenging and maybe even interesting question is who and how should those boundaries be set by right. And for example event contracts relating to war, assassination or other subjects I think have captured a lot of attention in recent months for good reason because I think it's clear not just here in the US but globally there is real discomfort with the idea that certain subjects could be within the limits of the products that are being offered. Now we have certainly taken the view that for example assassination contracts are I mean they're not just I'll say it this way they're awful. They should not be offered and I think any company that chooses to do so is doing so at their own peril in terms of reputation.

That's right.

Outside the US is a different story. And so even though we think it's fairly clear that the existing regime under the CFTC prohibits these things where the CFTC's jurisdiction ends, there is an outstanding question. Now, other countries, if anything, Peter, are even more upset about the availability of these contracts in their jurisdictions. And so, it's not as if the US is operating on its own here. But beyond subject matter which could or should not be offered as part of event contracts there are also basic questions regarding we've talked about this this morning what should the rules for insider trading look like around this right. And at the same time what agencies are best positioned under either existing law or under potentially new legislation to enforce these standards should they be violated right. I do think for what it's worth, the rush of state gaming regulators to attempt to maintain their stranglehold on enforcement and regulating in these markets has distracted from what I think are much more important questions of what is the appropriate subject matter and how do we make sure that the market the integrity of these markets is preserved through rules. But we still have to resolve the most basic question of all, which is does a state gaming regulator even have the authority to oversee and regulate event contracts on CFTC regulated DCMs. So, I think the answer is no, but courts are going to have to sort all that out.

It's very much the former and not the latter. The data is fairly clear that these markets are growing collectively. They are not simply shifting or taking share from existing venues. And I think regardless of one's interest or even appetite for these particular types of transactions the fact of the matter is there is strong market demand for them and that market demand will be serviced one way or the other whether these types of contracts are permitted in the United States or not. And so certainly my own view is that it is much better to have strong oversight and strong regulatory authority in place for these contracts that are available in the United States than to push and encourage that demand to seek opportunities and offerings outside the US where the oversight is much more lax.

It's a tale as old as time and yet we seem committed to relearning it over and over again as new technologies and new markets emerge.

Yeah, absolutely. I mean, look, and to me, it's less about what's in our self-interest, although I do think our self-interest is served. It's more about what will ultimately lead to a stronger framework, a stronger regime that inspires confidence among our customers and in markets. And the fact of the matter is that a full commission we do think would be essential to getting not only the rules right, but making sure that they have the legitimacy and the endorsement of a much wider swath of the political spectrum. And then I do think I mentioned enforcement counsel and staffing. I think the CFTC I testified on this in front of the House Ag committee a couple of years ago. Those offices need to be fully staffed and appropriately staffed, particularly if the scale and size of the markets that are now going to be subject to CFTC jurisdiction is going to expand dramatically. You ask the question in the context of event contracts even before you get to prediction markets the fact of the matter is that if and when clarity passes you're now going to have spot market authority for digital assets at the CFTC for the very first time. That step function change alone will require much more resourcing and indeed headcount and I think you combine these things with other responsibilities that are going to come the CFTC's way they need to be properly resourced.

Well, I think it's important to distinguish between enforcement on the one hand and regulation by enforcement on the other. I'm very much of the view that we need to have strong enforcement for as long as we have markets subject to fraud and manipulation. I mean, it's not that much more complicated than that. At the same time, I think what we saw over the previous four years is that regulating by that enforcement mechanism is just it doesn't work. It's not only less than ideal, it ultimately deters innovation and it drives a lot of people doing the work of innovation to jurisdictions outside the United States that are not serving our national interest. I do think that overcoming the headwinds for the industry is important but I don't think that necessarily translates into any less significant need for people to offer expert advice and counsel on how to navigate this new legislation that's coming online. We've talked a lot about the rule making. There are new innovations that are going to challenge even the structures that the new laws provide because that's the nature of innovation. You're always going to have new circumstances, new challenges that require new counsel. So I think actually in a lot of ways this will continue to be and will remain a golden age, Peter, for people expert on these issues. I just think that the form in which that advice and counsel will take will just be a lot more productive than simply suing first and articulating standards second.

This where you're going to brag on Michigan more.

Tokenization of equities. I think you're going to see a massive revolution in how equities get distributed globally and I think the US is well positioned to lead on that. I'll just say one quick thing because I know our time is now up. The SEC is on the cusp of announcing an innovation exemption that will allow for the tokenization of equities here in the United States in a way that I think will be extremely powerful. We've been intimately involved in the discussions leading up to that. We still have some questions and concerns about whether the SEC is going far enough in order to promote equities from being tokenized in a way that puts the US right in the center of all that. But mark my words, we're going to be talking a lot about tokenized equities in 2027.