Ready. Ready.
All right. We're going to go ahead and get started here. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. Note that taking of photographs and the use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. All right. With that out of the way, good afternoon, everyone. Thanks for staying with us here on day one of Morgan Stanley's financials conference. I'm Mike Cyprys, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. And for our next session, it's my pleasure to welcome Greg Tusar, Vice President of Product Management at Coinbase. With $330 billion of assets on the platform as of the first quarter, Coinbase is a crypto platform that facilitates trading, staking, and custody of crypto tokens, as well as provides broader services across the crypto ecosystem. Welcome.
Thank you, Greg.
Thanks for having me.
Today, Greg. I know you guys have asked me to read this disclaimer here, safe harbor statement. Please bear with me. Before we get started, I'd like to remind you that during today's chat, Greg may make forward-looking statements. Actual results may vary materially from today's statements due to risks, uncertainties, and other factors as described in the SEC filings. Our discussion today may include references to non-GAAP financial measures and a reconciliation of non-GAAP financial measures as available on the company's latest shareholder letter. All right, m outhful.
With that out of the way.
With that out of the way, now we can actually start talking about things. As we were sort of talking about, just as we were walking up here on stage, just around the regulatory environment, you were mentioning you're spending a bunch of time in D.C. Maybe just setting the stage here with the regulatory backdrop, arguably doing business as a crypto firm has not been easy over the past couple of years, but seemingly we're moving into a more favorable backdrop today with supportive new administration. From your perspective, how are the conversations with regulators today versus a year ago? Maybe you can share with us some of the color, anything you might be able to provide on those conversations.
Sure. Yeah, happy to. Thanks again for having me.
Welcome back, I should say.
Thank you. At the agency level, from a regulatory perspective, it's really been night and day different, especially at the SEC, as we were saying. The advent of the Crypto Task Force has meant there's a lot of engagement now with industry. I'm actually quite excited about what's possible in the world of tokenization of securities and a lot of changes that could be brought to traditional financial infrastructure and plumbing, and even rethinking the things like what is a transfer agent, what's the role of DeFi in exchanges, and so forth. We have had several meetings with the Crypto Task Force. We've engaged at the staff level. While this will take time to play through, the dialogue has been terrific. I think that tone from the top, from the White House, certainly has had an impact.
It was nice to hear Chairman Atkins yesterday even talking about DeFi and the right to self-custody and the importance of that in the crypto ecosystem, et cetera. That is on the SEC side. On the CFTC side, there had been engagement before, but now I would say it is accelerating. As you might have seen, we announced 24/7 trading for US-listed futures, which was the first time in the history of futures in the country that we have had a product that trades 24/7. That happened with a lot of staff level and commissioner level engagement, but it was able to go much faster under the new administration, I would say.
I think that will also enable something on the future side we're excited about, which is the idea of bringing a perpetual futures contract into the U.S., which we think we'll be launching sometime in the second half of this year.
Great. That is something we will come back and talk a little bit about. Maybe just continue on the regulatory theme. The question here is, what is the unlock that is anticipated from regulatory clarity on the horizon here? How would you sort of characterize the short versus medium-term wins versus any sort of longer-term aspirations that you have?
I think on the SEC side, it's clearly around the idea of tokenizing the securities world. And that will manifest in a lot of different ways: tokenizing traditional assets, new ways for existing asset managers to distribute tokenized funds directly to retail clients, the idea of mobilizing collateral and being able to settle OTC transactions and all of those sorts of things. I think those are relatively near-term opportunities. And what's become clear is that the Crypto Task Force would really like to begin experimenting and granting no action relief potentially long before the two bills, as you know, are making their way through Congress, the GENIUS Act for stablecoins and the Clarity Act for market structure. Even in advance of that, I think the SEC would like to see some forward movement on these things. I think those are the sort of near to medium-term opportunities.
When you mentioned sort of the task force open to no action relief experimentation, anything you could sort of share around how you anticipate that playing out?
I think that it will manifest in a bunch of different ways. Number one, the role of blockchains themselves as storing the source of truth for books and records, who owns what. Now, this is a major change, I think, for the SEC to recognize potentially the chain as effectively the role of the transfer agent. That would be one thing that could happen. The role of DEXs in a forward market structure, the role of self-custody in holding and transferring securities, these are things where I expect to see some guidance at a minimum, if not no action.
Okay. Having more regulatory clarity could bring a lot more people to the party.
Yes.
How do you win with additional competition potentially entering the space? How are you thinking through sort of the pros and cons and moving pieces around that?
That's a good question. We're excited and advocated in many ways for competition opening up. I think about SAB 121, for example. We were strong advocates for repealing that. It's our point of view that if banks can participate in the custody of crypto, that will be good for the overall ecosystem in the space. Coinbase continues strategically to differentiate itself by being exclusively focused on crypto and really, really, really understanding every chain and every asset at a very molecular level. Our goal, therefore, is to empower other firms that want to come into the space by providing them the sort of infrastructure that we've built ourselves.
Something we call Crypto as a Service, which we now provide to over 200 banks and brokers and fintechs who use the things I talk about when we get to talking about Coinbase Prime, that's trading, that's custody, that's staking, et cetera. Providing those as an infrastructure play to other banks and brokers is how I think we'll participate in the broadening of the services to other firms. We announced recently a deal with Webull, for example. We think of our partnership with BlackRock's Aladdin platform as an example of this. Revolut, those kinds of firms are our partners in that way.
Great. Maybe just diving into the institutional business that you oversee, maybe just give us a bit of an overview of your offerings today for institutional clients and how the business has evolved over the years and what are some of the key pillars of growth as you look forward.
Sure. There are two main parts to the institutional business. There is what we call Coinbase Prime, which is, think of it as the brokerage parts of the business. It is trading, so multi-venue, smart routing, the same sorts of algorithms and things you would use to buy securities we have in crypto. That is what has enabled us to participate in some of the largest purchases of Bitcoin, for example. Married together with custody, sort of the largest custodian in the space. We are a DFS-regulated custodian and have been at it for 12 years. Together with custodial staking, financing, we will talk about it in a minute, where we built a prime brokerage offering. We have also built a trade financing offering together with an on-chain wallet solution.
As funds move from trading sort of in a centralized way to being able to trade on-chain or transact on-chain or participate in DeFi pools and so forth, you can do all of those things from one platform. We think that's one of the most unique things about Coinbase is we find we have competitors in custody or we have a competitor who's good at trading, but having brought those all together in one place so that when a fund buys an asset, rather than having to copy destinations and things like that to transfer it into custody, it's all integrated. That's better from an operational perspective. That's all on the Coinbase Prime side. We also have what we call markets where we operate our spot market. We have a U.S. futures market. We have the perpetual futures market for non-U.S. customers.
We announced the acquisition of Deribit to add options initially for non-U.S. customers as well. We think of running Prime, whose job it is to find the best price across markets and markets where we build sort of the exchange inside, if you will, that is both for the institutional business and for the retail business as well.
Great. We'll come back on some of those different product areas you mentioned. Over the past couple of years, the markets have digested a number of bad actors, some regulatory developments, crypto winter, and now a bull run along with the introduction of ETFs along the way. What's different this time around versus the last big run-up that we had? To that end, what are you observing in terms of institutional behavior and use cases this time?
That's a good question. I think the presence of some of the largest asset managers in the space now with ETF products, as you mentioned, that have IBIT that have gathered well north of $120 billion of assets in a very short period of time is one of the biggest differences. I think now the pace at which banks are engaging in the world of tokenization, for example, is here to stay. I think that on the asset management side, the idea of tokenizing funds and distributing them through new channels and so forth, I sense that these are not the sorts of things that come and go with cycles. These are a real sea change. I think there's a tremendous amount of interest in banks in tokenizing collateral and making the settlement of OTC transactions and things like that much more straightforward.
I think the presence of that community gives this a longer staying power than the cycles we've seen in the past.
Great. Maybe just turning to your most recent announcement, the acquisition of Deribit last month, a non-U.S. derivative exchange. Can you just give us a little bit of the backstory here on the transaction? What attracted you to this platform? Why did they pursue a sale? Why did they sell at this moment? Talk about your vision and roadmap here.
Sure. Yeah, we're very excited about Deribit. They are the largest options provider in crypto. They have north of $35 billion in open interest, which actually makes them the largest in open interest across all derivative platforms in crypto. They had been a founder-led company, and I think founders had decided they wanted to sell and exit. For us, it was quite opportunistic for a number of reasons. Number one, options rounds out the product portfolio nicely. I mentioned different futures and spot that we have. Options was a gap for us. It is part of an international expansion for us. They have large presences in Europe and in Dubai. For us, this gives a real presence for building product outside the U.S. for the active trader, which we think helps our institutional business quite a bit. It is also a very profitable business.
What we find is that the options trading has a sort of lower beta, if you will, to overall volumes than many of our other transactional businesses. It really helps the profile of our revenue on the institutional side. Maybe lastly, but most importantly, as we assemble that whole portfolio together, futures, spot, I mentioned prime financing, et cetera, what Deribit has is the ability to cross-margin across all of those things. That is going to be a real game changer, I think. The ability to trade in each of those different pools in a very capital-efficient way, I think, is going to set us apart. That is probably what I am most excited about.
Cross-margin across your futures and the options, but you probably need to bring it all together.
Correct.
Can you just talk about how you sort of envision that playing out?
We're in the midst of coming up with our integration plans, but the North Star is a cohesive single set of matching engines and a single cross-margin ability amongst them.
Okay. On the back of that acquisition, maybe talk about your expansion efforts there, sort of plans to bring Deribit to the U.S., leverage the platform as you think about scaling internationally, and what might make sense here as you approach that?
Yeah, good question. I think initially our plan is to scale internationally primarily. This was built for outside the U.S. I do think coming to the U.S. represents a big opportunity and one that we'll need to work with the CFTC to navigate. There are a variety of different ways that could happen over time. We're at the very beginning stages of that conversation, I would say.
Great. With derivatives in focus, could we talk about your product set today of derivative offerings that you have? What's available to each customer set? How does the sort of consumer demand compare to what you're seeing on the institutional side in terms of demand for these derivative products?
I'll start in the U.S. Today, we operate a derivatives exchange, a DCM- designated contract market called Coinbase Derivatives Exchange. It lists crypto futures as well as some non-crypto futures. We're also an FCM. We're both the broker and the exchange. We clear our products at Nodal Clear. Our focus today has really been on the retail trader, the active trader, who I think have enjoyed for the first time the ability to have margin products together with spot in the active trading application inside of our retail product and the ability to short, for example. This is something you haven't been able to do historically. Our nano products have been incredibly popular. We have over 100,000 onboarded users, and that's been our focus today.
I think in the coming year, we're going to focus on our larger contracts that would compete more directly with the CME 5 Bitcoin contract. That's going to be a focus for us in the U.S. going forward. We have something we call the international exchange, which is perpetual futures, which today is based in Bermuda. We're somewhere between 5% and 10% market share on any given day. We just crossed $1 billion in open interest. That's growing fast. That's available to our retail users outside the U.S. and to our institutional users outside the U.S. That's been one of our biggest focuses, derivatives overall, both U.S. and non-U.S. That's the offering today.
Great. With that, why do not we talk about the ecosystem, the competitive landscape for derivatives today? Just curious to get your take on futures, options, ETFs. How do you see the derivative complex evolving from here? What are some of the biggest opportunities as you look out?
It really is a good question. It really is a U.S. and a non-U.S. world. In the U.S., it's primarily CME. They've garnered a lot of activity on the back of IBIT and basis trading in IBIT. I think now that we have 24/7 and we're building cross-margin functionality, which we'll be launching in Q3, we think our ability to compete for some of that basis trading and therefore gain in the larger contracts later this year, that's something we're excited about. Outside the U.S., the big three or four that we focus on are Binance, Bybit, OKX, et cetera. As I mentioned, we've gained a lot of share over the course of the last year. There, it's about adding more products. It's about adding more financing options. This is where the options piece really comes to play.
The one thing that I would add about Deribit, today they're about 75-80% share in options trading. The thing about options, as you may already know, is it's very sticky and it's hard to unpack your options portfolio once it's in one place. I think that's what's led to their ability to build and retain that level of market share over the course of time. We now have the ability to take that and use it in a variety of ways to build more perpetuals volume, leveraging what we have with Deribit as an asset, for example. When you're trading options and you need to hedge your Greeks and that sort of thing, our ability to bring all of that volume together is in one place, our biggest opportunity there, I think.
You don't have futures or sorry, you don't have options today.
We don't have options today.
Where is that on the roadmap now with Deribit? You get it internationally. How easy is it to sort of, say, to bring that liquidity pool over to the U.S.?
That is a work in progress for us, I do tell you. We'll have to engage the CFTC, who would be the gatekeeper for that. I'll have more to share later this year.
Sure. With multiple crypto ETFs now starting up over the past year or so, you guys have taken on a custodial role here for a vast majority of these assets. What is Coinbase doing to support the ETF world and the ecosystem and the players there?
Yeah, we were proud to be the primary partner for most of the ETF issuers, I think almost the vast majority, with the exception of one that self-custodies. I think that goes back to what I said before, the ability to trade, finance, and custody all in one place was what set us apart and I think won us a lot of those mandates. In particular, the financing opportunity is because you're trading on a day and settling the next day. There is the opportunity to provide bridge trade financing over the settlement cycle. The biggest focus now is in helping those asset managers broaden their portfolio. Adding staking, for example, to the Ethereum ETFs is probably the next big unlock there in addition to moving down and introducing new assets. Those are some of the things around the corner.
With banks now being able to hold crypto assets on the balance sheet, I guess, how does Coinbase stay competitive as a custodian to these assets? What sort of challenges or opportunities do you see from the institutional standpoint?
Yeah, it's a good question. We have our eye on lots of competitors that are coming into the space. I mentioned Crypto as a Service before. That's probably the primary way is actually empowering them and turning it into an opportunity for us to build infrastructure. The other way I would say is many are coming into the space to custody one or two assets. Coinbase today really is a broad-based crypto company. That's really what sets us apart for the venture firm or for the firm that wants to custody just about anything. There aren't that many custodians that have that breadth. We do see banks sort of focusing on the top two or three assets, for example. There again, that's an opportunity for us to provide the balance of those as a service to those banks.
Okay. Why don't we shift and talk about USDC for you guys on the institutional side? Talk about what you're seeing from the institutional client set in terms of the usage of USDC, particularly as they are looking to gain rewards for holding that. What are you seeing on this part of the business?
I think the two biggest opportunities over the last year have been, one, some of the exchanges that have derivatives that want to have derivatives listed against USDC in addition to Tether, which they have today in order to be able to garner some of the rewards and the economics that we share. That has led to some of the market cap growth that we've seen over the last 12 months. The second is some of the DeFi pools that use USDC as collateral have become some of our largest on-chain wallet customers. Today we hold over $8 billion in assets in our on-chain wallet. Most of that, I would say, is USDC, and most of it is in smart contracts from borrowing and lending platforms that need a place on-chain to be able to participate in DeFi, but also to be able to garner rewards.
Those two things have been the biggest opportunities for us.
Great. I think we'll have some time to take some audience questions in just a moment. Maybe just shifting to a little bit more about your perspective on things over time, right, through the arc of your career, right? You've seen equities, you've seen other asset classes go through a lot of different transitions, transformations, just given your varied roles over the years. With that perspective, I guess, how does the relative maturity of crypto as an asset class compare to what you have seen in other more traditional asset classes? How do you see the crypto market structure evolving from here? What lessons should we take away?
Yeah, that's a good question. Yeah, I grew up in the world of equities over 30 years ago and had the good fortune of watching that transform into a highly efficient electronic marketplace. I think crypto is actually quite efficient today. In fact, if you looked at Bitcoin and how Bitcoin trades, it's just as efficient as any of the top S&P stocks in terms of market impact, liquidity, so on and so forth. In some ways, the crypto market is already quite mature in that way. In other ways, I would say there's still room for, and part of the reason that motivated our desire to bring all of these markets together under one roof is the lesson is that scale always wins.
Scale with a single matching engine that's fast, with all the liquidity in one place, and importantly, the ability to sort of finance these things, the scale player wins. Our goal is to be the scale player in crypto.
I wanted to come back on the derivatives side. You did mention perpetuals. I wanted to ask around how that product looks overseas and compares versus the derivatives that we see in the U.S. As you think about ultimately trying to bring perpetuals to the U.S., what might that look like?
Yeah, that's a good question. Perpetuals, as you likely know, are one of the most popular products in crypto. They're similar in some ways to contract for differences. They don't settle physically into the underlier. They reset interest rates every day in order to keep the price of the derivative and the price of spot close to one another. They don't have an expiry. As a user of them, you don't have to worry about rolling them. You don't have to worry about some of the things you do with dated futures. We've worked with the CFTC to replicate a lot of the features of that and think that we have a product design that we're now close to implementing. We'll have a date to share shortly, but it'll be in the second part of the year.
We think that product, particularly for the retail side of our business, will be very popular for exactly the same reasons it's popular outside the U.S. It'll be a long-dated future that has daily interest rate resets that mimic the perp offshore.
By long-dated, would it be more than a year, I take it?
Maybe five to ten years.
Five to ten. Okay. Quite long duration. Okay. Interesting. We'll stay tuned on that.
Yes.
Super. Any questions in the room? Yep, right over here. Oh, there we go.
I'm curious your reaction to the Circle IPO. I think it's like a $30 billion market cap now. Obviously, you guys are inextricably linked. What do you think the market's getting excited about from a stablecoin perspective? How do you think you're kind of best positioned to capitalize on that?
That's a good question. I think there's a tremendous amount of excitement about stablecoins writ large. I think the idea of having a pure play on stablecoins clearly has been well received. Circle have been great partners to Coinbase. From our point of view, nothing really changes materially. We're quite excited about USDC, as well as a number of other stablecoins. We have support for quite a few on our platform. We see it overall as just another sign that, along with others coming to market, crypto is sort of coming to its own. We're quite excited about it for that reason.
There was a question up here.
Can you talk a little about the evolution of the safety of custody? Now that we're moving to banks, you guys are preeminent, obviously, but it behooves you to share your technology. There are no other accidents, I guess, or whatever you want to frame it. I am just sort of curious, as we do scale into these numbers, how do you think about the custody, the security around it, both physical and, I guess, the digital custody or whatever?
Great question.
Just how does that evolve too? Thanks.
Excellent question. Coinbase, at the end of the day, first and foremost, is a cryptographic security company. We are now on our eighth generation of key management for cold storage for our custodial products. It is a never-ending thing. We actually open-sourced the actual multi-party computation library that we use, and we wrote ourselves for precisely the reason that you said. We believe that the principles are pretty straightforward, but need to be really well executed: geographic diversity, people diversity. When thinking about how and where to store private key material in a truly air-gapped and offline way, which we do today, which is the safest form of storing private key material, but then also being able to do it. We have invested a lot.
What we heard from customers is cold storage is great, but when I want my assets back, I want them back in very short order. I want to be able to send it someplace within 15 or 20 minutes. We have now gotten to the point where we can have the best of true cold storage custody, which is where the vast majority of institutional assets are stored, and the ability to send and receive assets in near real time. It is a constant investment, I would say.
Other questions in the room? If not, I'm going to keep going, but I'll come back to you guys. Maybe you can give us a little bit of a flavor of the types of institutional customers that you have today. How penetrated would you say you are relative to the opportunity set? Where are you having some of the most traction versus least?
That's a good question. I think sometimes in crypto, when people say institutional, you have to really sort of drill down a little bit because for some in crypto, institutional means market maker, proprietary trading group, etc. At Coinbase, institutional means that and corporate clients that are holding crypto on balance sheet, asset managers that are issuing ETFs, hedge funds that are actively trading a variety of different strategies, family offices, banks, and brokers. It is a very diverse set of customers in a broad surface area. I would say of those, probably the most nascent still is the allocator, the pension and the endowment space, which is coming into crypto, but still early days, I would say.
You said the most nascent was endowment and pension?
Yeah. Just generally asset allocators.
Got it. Okay. I want to come back on the derivatives side. We were talking about perpetuals, bringing that to the U.S. You have some futures already here. You mentioned CME as a competitor. Just curious how you view your products differing from others, whether it's in the others or in the marketplace.
That's a good question. I think first and foremost now, the fact that they're 24/7 and you can trade on Saturday and Sunday because spot is moving around on those days. That's one of the first differences. Having both the FCM and the DCM means we're also able to cross margin between spot and those futures products as well, which I think will be quite a differentiator for us over time. I think that we're beginning to really broaden the number and nature of contracts that we're listing as well. I also think our perpetual contract itself will be quite differentiated. Perpetuals plus 24/7, I think, will be the biggest point of differentiation amongst all of those.
Okay. Any questions in the room? One in the back.
The development of stablecoin, how does that impact your prospects going forward or your business strategy?
That's a good question. Stablecoins, I think, have been one of the biggest enablers. For example, on our international exchange today, USDC is the only form of collateral that we currently accept. It has really sort of empowered a lot of things. It has meant that you can move collateral around in real time in the derivative space. I think stablecoins for the trading use cases are critical. One thing I think you're really going to hear Coinbase start to talk a lot about is how we're participating in the payments ecosystem over the course of the next few months and quarters. Growing payments is a huge focus for the company. Stablecoins are sort of critical to that.
Great. Final question. Just wrapping up here. What would you say are some of the biggest priorities for the institutional business at Coinbase this year in 2025? And as you're thinking about operating the business through cycles as well.
Yeah, good question. Derivatives has been and remains probably our biggest focus. Closing and integrating Deribit is a big focus for us. Getting these perpetual contracts over the line and winning listed CME share is important for us. Those are probably the biggest derivatives focuses. Continuing to grow our custodial products, we're the largest by far today. The third, I would say, is this crypto as a service. The idea that as more people enter the space, that we're building the infrastructure play to be able to empower them is probably the third biggest opportunity for us.
Great. I'm afraid I have to leave it there. Thank you very much.
Thank you. Thanks for having me.