Name: Balancing the Ledger: Coinbase Custody Acquires Xapo's Institutional Business
Uploaded: 2019-05-13
Duration: 6 min 50 s
Description: Coinbase Custody CEO Sam McIngvale stops by to talk about Coinbase's biggest acquisition yet.

[ MUSIC ] So MConvale, CEO of Coinbase customer, thanks so much for stopping by. Thanks, Jeff. My pleasure, guys. You're having a pretty big week. You've got a made some pretty major news to you and tell us about that. Yeah, I would love to. So today we're announcing that Coinbase custody is acquiring Zappos institutional business. It's a really big day for us. Zappo has built probably the preeminent krypto, we're really bitcoin specifically custody business in our space. They've been a role model for coin base custody, and really been a stalwart in our industry. We're very excited to sort of take over a lot of the foundation that they've started if you will, and carry that forward. Yeah. From my recall of Zappos. They were very big in 2013, 2014 and their CEO made a name by putting people's BitCoin under a mountain they said. And so you give us a little background but what they did or why they a player. Yeah, I would be happy to. And they actually have a really cool vault in the Swiss mountains among other places. So there actually is something under a mountain. There is a bunker in the Swiss mountains that they've used for a long time. To secure a lot of [ INAUDIBLE ] .>> And you guys bough that bunker? It's unclear at this point if the bunker is gonna come over as part of the aquisation but it is something wer'e looking at so you're exactly right cuz Apple was formed in 2013 and 2014 Really as a result of when Ceazarus, the CEO, looking around and saying there's needs to be a secure place store Bitcoin, in particular. Simultaneous to that founding, there were a bunch of, who today are some of the most preeminent names in crypto that started investing, started needing a Bitcoin custodian. So they sort of all came together with really great timing in 2013 2014 and since then Zappa has been able to provide really just fantastic Bitcoin custody services to those groups of clients for the past 4- 5 years. if the early customers that there are whales for their early hardware. Yeah. So if you think of folks that we're really doing large investing. Into the space in 2013, 2014 and have continue to invest since then. That's a lot of the client base that they've built up. So it really are folks that have been heavy in this space for five years. So we're talking about potentially millions or billions of assets under management. Absolutely. Zap one. Coinbase are two of the biggest names and crypto. This is presuming one of the largest acquisitions. The crypto market is seen right. We think so is certainly the largest acquisition Coinbase has undertaken Custody Wise had a big thing like it's basically equivalent to a safety deposit box. I think that's the right analogy for wind Zappos started in 2013 2014 really. The primary concern was always securing bitcoin so making it as secure as possible as off line as possible. That's why there's a bunker in the Swiss mountains that no one can get to. Moving forward, I think the next phase of crypto custody is one about, it's a much broader suite of services, servicing a much broader set of crypto assets. So it's no longer going to be just secure offline storage, it's going to be the right regulatory licenses, obviously the right Insurance. As well as the right mechanisms for people using that service to actively participate in [ UNKNOWN ] ecosystem. Things like staking things like governance, etc. So really moving beyond just the early first movers of Bitcoin into crypto more generally I think it's where we're going to see crypto custody going in the next few years. Yeah. I don't know your Coinbase CEO Brian Armstrong this tournament has been making the case that custody no longer means he's kind of putting it in a vault under the ground it means actually being able to use your assets for You know what, you tell me a little bit about how do you take this sort of stuff out of the vault and use them? What would can you do with it these days? Yeah the primary things that our clients want to do are stakes, they want to actively secure block change. They want to actually and they want to vote as well. They want to participate in on chain governance How you do that is actually bespoke to each block chain and protocol. So it's still a lot of work to go into each one and figure out what is the right way to do that securely and how can we do that while maintaining the safety of our clients assets. So we're still we're still figuring that out sort of chain by chain today where life is taking for Tasos and we're launching governance. For [ INAUDIBLE ] shortly, but that's absolutely the goal. Client's don't want to just hold these assets, they want to actively participate. We call them activist investors. They want to be out front with how they're engaging with Crypto Networks. That might hold true for projects like [ INAUDIBLE ] where there is a voting mechanism. BitCoin there's not though, as store value, that everyone calls it now. And what I'm curious about, is the customer from what I understand, for Zappo is you paid Zappo like 25 basis points to hold your horde and keep it safe. But if you think about it, that's almost like an negative interest, right? Now, with the macro interest rate environment rising And new companies coming along that promise to provide you interest. Is Custody still a viable business in that way? Yeah, I think, absolutely. Investors, and really institutional investors, needs are maturing, they're expanding. So just keeping Bitcoin safe is not enough. You need the right regulatory licenses to service your business. You need the right insurance to Make sure your investors feel like that stuff is safe even with all the safety precautions you guys do. But I think your absolutely right that fundamentally we have to help our investors our clients with their return on both their assets. Both before BitCoin and other assets that we can stake. So for BitCoin we can imagine Something like lending, lending out folks BitCoin and earning an interest rate on that. That won't be for every client. Not everyone will want to engage in that practice but that's a service we're considering we might offer in the future. Would if I'm a Bitcoin holder and you have my bitcoin custody and I want to work with those other companies out there that let me lend or gain interest. Will that be possible to kind of plug in with. Yeah absolutely. Our view and Coinbase custody view specifically I should say is that we're gonna be agnostic to the ecosystem. So we will plug into other liquidity providers we will plug into other service providers. Really we're here to be a secure and trusted bridge. End of the crypto economy for our clients .>> But which assets can you put into custody with you guys? And also with Xapo, it's presumably a big part of bitcoin they're holding. Was there anything else there ?>> Yeah, I know so Xapo was only Bitcoin. We support well over 30 maybe 40 different crypto assets in coinbase custody. The full list is on our website but certainly All of the big ones you would expect as well as the long tail, pretty much whatever our investors need, our clients need I should say is what we're gonna support on client- based custody. Another big item in the news recently was the Binance hack. There hasn't been one of these for a while that was significant. All right, so it's easy if Binance give you guys a shoutout, which I thought was kinda cool cuz you guys are normally kinda You know, competitors So what exactly did you do? So our security team reached out right after the incident, went public and just said, Hey, whatever we can do sort of our resources are standing by securing these assets is really, really hard. We go through just a ton of time, effort resources to secure our clients crypto, we understand the depth to which binance does as well, if we can be helpful to them in a tough time. We absolutely want to do that. We would expect they would do the same to us. I think one more sort of conclusion at least for Coinbase custody here is this continues to reinforce the notion that offline storage is really the only tried and true method to secure crypto assets long term. That's the stance that Coinbase custody takes today. And while we are looking for ways to. Enable our clients to participate in the cryptoeconomy we're gonna prioritize the safety of their assets first. You mentioned insurance earlier. Is that, presumably nothing's absolutely impenetrable. Suppose the smartest crooks in the world somehow get their hands on some of the stuff you're holding in custody. It's insured, you're saying? It is insured. We have a pretty massive insurance policy. We've written extensively about it. It covers both our hot assets as well as our cold assets. And we manage our business such that we never have more crypto at risk, than the cap in our insurance policy. Right. Right. Are you able to tell us at all about who the insurers are? Is it through the big names that are ensuring you know other stuff in the country ?>> Yeah, it is the big names. So it's a syndicate of insurers because of the amount of insurance is so big there's not one single underwriter that's going to take that risk. But that syndicate is assembled by Lloyd's of London. You guys are making a big play with stable Quinn seems everyone's doing stuff with stable coins. But what's what's the latest on you guys? Yeah, we're really excited to announce that we've now rolled out us DC to over 60 countries. So there are trading pairs where you can trade against us DC and all of those countries. And in particular, we've been able to get this out into a lot of developing economies. We're really excited about USDC as an alternative. It's in the monitory systems in those countries. Hopefully a more stable store value for those [ UNKNOWN ] In which countries in particular [ UNKNOWN ] We're seeing pickup actually all across South America as well as Eastern Europe as well. We're really excited but generally I'd say The USD see trends that we've seen we've seen a lot of inflows in wake of the terror news a couple of weeks ago. A lot of that still driven by our primary trading countries. We're excited about this rollout which is really just starting to a lot of these newer countries. Okay Sam thanks so much for coming by. Yeah. Thanks Jeff. Enjoy the conversation. [ MUSIC ]

Balancing the Ledger: Coinbase Custody Acquires Xapo's Institutional Business

Finance

Coinbase Custody CEO Sam McIngvale stops by to talk about Coinbase's biggest acquisition yet.