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- [00:01]
A
Hi everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host Laura Shin. Thanks for joining this live stream. Today's guest is Alex Wesley, institutional data lead at Artemis Analytics. Welcome Alex.
- [00:15]
B
Hi Laura, Happy to be here. Been a fan for many years. So excited to be here and fanboying a little bit.
- [00:24]
A
Well thanks, thanks for listening. So yesterday I reached out to Artemis about coming on the show to discuss a number of different market related things and in the kind of like pre show conversation you said you wanted to discuss coinbase and I said I wanted to discuss hyperliquid. And then this morning we woke up to this news that Coinbase is acquiring and sunsetting the Hyper Liquid Native Stablecoin USDH's brand, USDH the brand and it's going to become the official treasury deployer of USDC and hyperliquid. So this is so interesting because this is less than a year after there was this intense competition between various teams to become hyperliquid's native stablecoin and native markets is the team that was behind USDH that won that. So what do you make of this new development?
- [01:16]
B
Yeah, I mean lots to unpack here. I remember going back to, I think it was September, October last year where the PayPal, Paxos, Athena, sky, everybody was throwing in, you know, bids to claim the USDH ticker on hyperliquid and become sort of the aligned stablecoin and native markets ultimately won with a little bit of controversy I recall and they went live a few months ago and it's grow to about 100 million in supply on Hyper Liquid. And yeah, today's news that they sold the brand assets to Coinbase and now Coinbase will be the treasury deployer. It's definitely feels like a big shift. I think it goes to show the power of distribution for stable coins. If you look at sprinkles agreement with coinbase they pay 100% of yield generated by USCC that is you know, on platform like Coinbase to Coinbase and 50% of off platform USCC yield. So they're really willing to give up a significant portion of their economics just to get distribution. And you know, seeing how they've now sort of taken over USCH and USCC will now become an aligned quote asset on Hyper Liquid. So just to take a step back, what is an aligned quote asset? They recently came out with V2 of the set of asset essentially means that 90% of the yield after costs will have to be distributed to Hyperloop to The Assistance Fund and in that way sort of be aligned with the Hyper Liquid ecosystem. So this is like significantly better than USDH. It did a 50, 50 split with the Assistance Fund and the ecosystem growth. So yeah, I guess like a lot to go into there. Laura. We'll to get your, your quick take on anything you want to dive into.
- [03:43]
A
Yeah, well, so the market reacted quite positively to this. We saw a 9% jump in hype or at least like an hour or two ago when I checked that. And you know, the reason ostensibly is because the deal gives a really nice boost to Hyper Liquids revenues. You know previously as you just mentioned there, you know, like the, the interest that was being earned by the USDC on Hyperliquid was not going to Hyper Liquid. The, you know, so there's $5 billion worth of USDC and Hyperliquid. So that's like a significant amount. And now you know, as you mentioned, 90% of it will be going to Hyper liquid. So you know, when you kind of look at that like do, do you feel like it makes sense that hype jumped so much and then what do you feel was in it for Coinbase to do this deal?
- [04:39]
B
Yeah, so let's start with I guess the hyper, hyper price being up 10% maybe let's do some quick napkin math. Is about 5 billion in USDC sitting in Hyper liquidity on the bridge, natively minted. Just do this quickly here on my computer. But you know, 5 billion times about 3 and a half percent, call it in yield and about 90% of that going to hyperliquid. It's another 150 million in annual revenue roughly going to Hyper liquid. So on today's base of about 600 million in annualized revenue that Hyper Liquid generates via its exchange, that's a 25% increase in annualized revenue. And it kind of starts to look a little more similar to you know, Coinbase's model where you know, today I think about half of Coinbase's revenue comes from transaction revenue and half becomes from subscription and services. So seeing Hyper Liquid diversify the revenue away from purely trading based revenue. It's, it's interesting and you know, we're seeing these business models sort of align in a way I think you could. It's a lot more easy to possibly underwrite a recurring revenue stream like stablecoin yield versus you know, cyclical trading revenues. I think from that perspective it makes sense that hype would be up 8, 9, 10% on these more stable revenues. And you know what, what's in it for, for Circle. What's in it for Coinbase? That's a great question. So I think both of, I think what underlies everything for both of these firms is getting USCC to be the number one stable coin across finance payments broadly and being able to get USDC to be obviously Coinbase was very favorable terms in this USDC agreement with Circle. So getting USDC to become sort of the ubiquitous stablecoin across onchain finance as well as, you know, maybe like offchain exchanges like, like Coinbase, I think it ultimately I think it comes down to like liquidity begetting liquidity. So of course every dollar that Circle pays hyperliquid from this yield comes out of Circle's top line and bottom line and it comes out of Coinbases too, right, because Coinbase in the agreement gets 50% of off off platform yield. So it's clear that they weighed, weighed the options Coinbase included in this. And you know, I think that it has to be sort of a bilateral agreement to, between Circle and Coinbase to be able to come come to an agreement with Hyper Liquid on this yield sharing. You can't just be unilateral on Circle side. So clearly they both see the benefits in having USCC be the native asset, the native stable coin for hyper liquids, you know, perpetual exchange, but also, you know, the outcome markets, prediction markets that are, that were just so recently deployed on hyperliquid. So maybe I'll, I'll take a pause there.
- [08:42]
A
So in a moment we'll talk a little bit more about what Coinbase might be getting out of this and why it's poised for growth. But first we'll take a quick word from the sponsors who make this show possible. Who in the group chat has the absolute worst sports takes you guys? It's gotta be me. I don't even watch sports unless it's a global event. But Coinbase is giving me a chance to out predict a pro basketball coach for a share of 5 bitcoin. And honestly, I'm built for this. I have beginner's luck, energy and absolutely nothing to lose. Coinbase is bringing in pro basketball coach Lethal Shooter to see if you can actually out predict a pro for a share of 5 bitcoin, get more correct than lethal shooter, split 5 bitcoin and get a chance at a private coaching session in LA to perfect your jump shot. Coinbase one is the ultimate membership to make the most of your money and has been amazing for me. Zero trading fees on thousands of crypto assets. 3.5% APY on USDC boosted staking and lending rewards and up to 4% Bitcoin back with the Coinbase OneCard. If you trade crypto regularly, the basic annual membership can pay for itself. Plus the $1 million Streakk prize pool is still live. You can also get 20% off the first year of Coinbase One annual plans and a $50 Bitcoin bonus when you spend $100 on a new Coinbase Onecard in the first 30 days through May 31st. Make your predictions and split five Bitcoin. Get started at coinbase.com Unchained that's coinbase.com Unchained join today at coinbase.com Unchained to start your predictions. No purchase necessary. See rules and other ways to enter terms apply to other offers. Futures swaps via Coinbase Financial markets risk of 100% loss payouts event based not investment advice not available in Nevada. Coinbase OneCard is offered through Coinbase Inc. And Cardless Inc. Cards issued by First Electronic Bank. Bitcoin back rates are based on cardholders assets on Coinbase. Back to my conversation with Alex, Coinbase also said that it significantly increased its position of staked hype and that was interesting to me because I view Hyperliquid in some ways as a competitor to Coinbase. So I was wondering what it said to you that Coinbase is you know, through, through this gesture aligning more closely with Hyperliquid and if that you know, kind of move there to increase its position of staked hype even shed any further light on the stablecoin deal.
- [11:22]
B
Yeah Laura, I was thinking the same thing. It feels like in, in many ways Hypod and Coinbase are both going after this sort of everything exchange. You have spot trading, perpetuals trading, equities, prediction markets. And it's true like you know they have to acquire a significant amount of I even stake it to be able to offer this, you know, AQA and so this shows significant alignment between the two businesses even though there's so much competition. To me what this shows is that Coinbase is very certain in its your growth isn't as a US based or primarily US based sort of compliant institution. Whereas hyper liquid, you know I think they see as more of this. Outside of US jurisdiction no KYC platform which I think Coinbase can't really compete as much in but they can leverage the usage of Hyperliquid globally to grow distribution of uscc. But I think ultimately in the long term will positively affect their bottom line.
- [12:49]
A
Yeah, I think what you said there really calls it. And also it's sort of like even a couple years ago you could not imagine a public company that would have done this level of deal with a no KYC decentralized exchange that does not serve US customers. But clearly it's almost like Coinbase recognizes, well, okay, this world of on chain finance is growing quickly. The regulations for how this is going to shake out aren't, they're not codified, at least here in the US but because it's growing so fast, Coinbase has to get some part of the pie in some fashion. And the best way that they could probably do it at this point in time is usdc. And yeah, it's just interesting because like, yeah, I guess BAS isn't directly competitive, but you could see in some fashion where they could grow to be competitive. But it's sort of like for now let's just do this deal and get a piece of that pie which is growing very quickly. We'll circle back to how hyper liquid is going quickly in a moment. But first let's talk about Coinbase, because you wrote this piece last week called why Coinbase Wins in an AI Native Finance World. And in it you projected that Coinbase could become a $300 billion company. And that's about 6x from today. And you gave 2031 as the deadline for when that would happen. And you also projected that at that time Coinbase would earn over $4 billion annually in agentic revenue. So go ahead and like outline your, your full thesis and how you are getting to the numbers that you posited there.
- [14:42]
B
Yeah, yeah. So we didn't publish this piece. Was it last week projecting, painting Coinbase sort of in this world where it's a $300 billion company, you know, what would it take to, to get there? And you know, we sort of anchored some of our values, some of our numbers in, you know, public projections. You think McKinsey projecting about 5 trillion in agentic commerce by 2030, 2031. Scott Bassett Bain Co. Projecting about 3 trillion in stablecoin supply by 2030. So we think CoinB Coinbase is primarily valued as an exchange. Of course they have, you know, some subscription and services lines, most importantly their stablecoin revenue line, their agreement with, with Circle and I guess the, the TLDR is, you know, we've seen USDC on Coinbase continue to grow even through this bear market. It kind of sits at like this regulated spot within the US and so we could continue to see USDC market share of total USDC growing as well as you know on platform USDC growing for Coinbase which would all you know, benefit Coinbase's top, top and bottom lines. But then there's sort of the agent, the commerce side and this is of course the most nascent I think part of this thesis. I think most people you talk to, a lot of people would agree that within five, maybe 10 years there'll be more agents transacting on the Internet than there will be humans. And there's this sort of belief that stablecoins are the superior way for agents to transactions. They are you know, programmable sort of Internet native dollars, you know, just currency whereas your traditional card, ach et cetera Rails are you know, maybe not set up in structurally to support these agentic agent native payments. So at that point Coinbase has developed X402 which is a payments protocol or they incubated it, they have built their own base and they've built plenty of developer tooling around agentic payments and just general agent building. And what we're seeing today is x402 dominates in terms of market share of agentic transaction volume on chain but high 19%, high 90s percent that wise the main competitor is MPP which is Stripe's machine payments protocol. Again not only launched in March, very early nascent space, but Even a month, two months into MPPs launch export to still dominate base is the primary settlement chain for agentic payments today ultimately around 90%. And though our belief is that these early leads will compound over time, basis of the primary settlement layer today or through a lot Of USDC SITS x2 is the primary protocol used. You know these standards will sort of proliferate through, through the growth of agent commerce. And we see Coinbase benefiting from this because agent commerce will be a vector for growth for stablecoins primarily USDC which is also like 90, 95, 99% of agentic commerce volume today based being the settlement layer that we think they can monetize across the stack as well as have value added services tools and things that they can monetize sort of more the developer layer, services layer.
- [19:14]
A
And I wanted to just ask you a little bit more about the competition. You mentioned how Stripe slash Tempo, you know they're, they're competing Google as well has AP2, so stripe has MPP as you mentioned stripe, Google has AP2. And so it is true obviously at this point that X402 is dominating. And so for that reason you know Coinbase definitely has this advantage right now. But because Stripe has just like a Very different type of advantage, you know, just with like the merchant network and they already have kind of like inroads there and, you know, presumably agents will also be buying from stores or transacting with stores or existing merchants. And then Google has an advantage with like the operating system of Android. And so it sort of feels to me like it's so early that just so many things could happen. So why is it that your, you know, kind of like base case is that the, the early lead that comp that Coinbase has will compound over time?
- [20:24]
B
Yeah, it's a great point. You know, Stripe has massive existing distribution into, you know, potentially some of the exact merchants that would be, you know, leveraging agentic payments protocols and Android phones are in the hands of millions, billions of people around the world. Yeah, I guess our base case for Coinbase being winners here is just coming from the compounding of these existing early lead. Yeah, I think Stripe also has Tempo Circle launched their agent stack, so I think competition will be increasingly heated. I think maybe more the bull case for Coinbase is this agent commerce scenario where they're able to monetize 4 billion of revenue by 2031 versus the base case. I think a few things you have to go. Right. I think they can't just have an early lead and hope to win off of that. So, yeah, I'm not sure if that answered the question, but.
- [21:47]
A
Okay, yeah, yeah, it's just really hard to know what's going to happen. Like, like even if I look at just more the pure AI side then it sort of feels like, yeah, there's just a lot of competition there, literally, with things changing almost seemingly week to week. But okay, so I did want to ask about one other piece on Coinbase, because here we are at this moment where the odds that the Clarity act will actually pass are sort of increasing day by day. It actually feels like we have another show where three lawyers gave their odds on passage and it was funny because it ranged from 35% to 90%. So clearly there's not a lot of agreement on how significant each of these little milestones are. But because things are in a positive trajectory at the moment, and the Clarity act is about the, you know, market structure piece of the industry, which, you know, obviously is dominated by Coinbase, at least at this moment, or at least as it's. It's Coinbase's domain, I was curious to hear, you know, your thoughts on how Clarity could, if it passes, how it could affect Coinbase's business.
- [23:12]
B
Yeah, I'm looking at the call she odds right now they're creeping up. I think right now the, the Senate is in markup so maybe people know things that are buying it up a little bit. Yeah, I mean clarity is very comprehensive. You know, the most important component of the Clarity act is probably the also Brooks compromise on stablecoin yield. So of course the banking lobby works very hard against stablecoin issuers and also distributors like Coinbase and their ability to just offer passive yield on stable coins. So I think it's still TBD what the exact final language will be. It's likely that it stays as is today. Coinbase will be able to provide you know, interest or interest like payments on USDC that are activity based. So maybe if you're a Coinbase one holder you transact or you trade, you can earn on your sort of idle USDC contingent on your activity. You know, it's, it's tricky because I think this interest on passing USCC is like a, it's a nice thing to have as a customer. You know, it's from like a customer acquisition perspective. So you know, I think that they definitely take a bit of a hit there in their ability to maybe acquire and retain certain customer set that maybe isn't quite as active, whereas maybe a Robinhood does offer, you know, passive yield on, on your cash. So I think it'll, it'll benefit, you know, their, their more active and engaged customers, probably the Coinbase subscribers, the active traders, maybe the, the base users in some capacity. So I, I think it's overall a net positive that, you know, there wasn't like a, a complete ban on, on stablecoin yield. I think there's you know, probably room for this to maybe be amended in, in, in. But yeah, I think primarily what it, what it does is it probably hurts their, the customer acquisition a little bit, but generally like a positive thing to be able to offer even activity based rewards, you know, when you're coming up against the banking lobby.
- [26:13]
A
Yeah, yeah. And you just mean like from a scenario where. Yeah which I guess is now where they are able to just offer yields on an idle balance. So one other thing that's really interesting that I think a lot of people are noticing on the horizon is that it looks like Coinbase and Circle are becoming more competitive rather than collaborative in a number of areas. And Omar of Dragonfly recently tweeted how long until the Circle Coinbase marriage gets messy? And he noted that because Circle's now public, it basically needs to pitch investors with a broader growth story. And that he said will be that they'll be the infrastructure layer for global payments, which means Ark, and that also they need to own their own customers more. But he pointed out that it puts, that put Circle head to head with Coinbase's base and his conclusion was that he thought the relationship will ultimately end in divorce. So I was curious if you agreed with that and generally how you thought the relationship between the two would play out.
- [27:27]
B
Yeah, it's a really interesting relationship. You know, Coinbase and sort of sort of incubated USDC with the center consortium many years ago and eventually Circle sort of took full control over USDC but had this sort of business agreement with Coinbase. And what we're seeing happen now is Circle is becoming increasingly competitive with Coinbase. Coinbase this has the base chain and Circle's launching Arc and Circle launched Circle btc where Coinbase has, you know, cbbtc, there's Circle's new agent Stack. So they're, they're competing on, on many fronts. And yeah, I think Omar's point that this marriage might end in a divorce, I think there's like some truth to it. What's interesting about the agreement between Circle and Coinbase is it has to be like a strong sort of bilateral agreement to terminate it or change the terms. It's very favorable to Coinbase. But surely I think these competing business interests could eventually lead to, you know, like an annulment or non renewal or change of the terms to that USDC agreement. That really I think is sort of like where Coinbase and Circle are married sort of at the hip in some sense. So I don't think we'll see this happen for another many years. I believe, you know, now in August or September when the renewal comes up for the USCC yield agreement, I strongly believe that they will renew it and that'll extend it for another three years. But the space is so rapidly evolving that in three years time I'm not sure that I'll have the same confidence in the renewal of that contract with the same terms. So you know, one other point to make here is Coinbase by not owning USCC completely does have some optionality in what, you know, stablecoins they ultimately support on their platform. And you know, with the passage of Genius, I think we'll see the growth of other regulated Genius compliance stablecoins that companies could potentially support or partner with similarly to how they have done with Circle and uscc.
- [30:22]
A
All right, so before we go, I just want to Circle back to hyperliquid and I didn't mean to use the Word circle but I just did. Okay, so hyperliquid's in a very, very interesting spot right now. I mean we have just seen it's just like this juggernaut that cannot be stopped. So first of all just on you know, the perps front, it's beaten back a number of competitors. It has real traction. Arthur Hayes was just in the show, he talked about how you know, for a lot of these exchanges he may not be able to know how much of the volume is real. But you know, when he uses a certain ratio which is the volume divided by the open interest, he can kind of get like a number that tells him just how you know or it gives him some level of confidence in how real that volume is. And by that metric he says yeah, it's clearly out competing. It's implemented HIP3, HIP4, both of these have been successful. We've seen with the war that real world assets are now just a huge part of or have been a huge part of the trading volume. And yet it's in this interesting space that we talked about with the no KYC cannot serve us customers all these things. So you know, I'm just so curious to hear like what you're looking at when you look at its trajectory forward. You know, what kind of either milestones are you looking for or what questions do you still see hanging over it and yeah, just generally where do you think it's headed?
- [31:58]
B
Yeah, I mean I think in mid to late last year we had this sort of explosion of I guess like the purpose if you will and you know I think a lot of people probably questioning Hyper Liquid's ability to maintain its, its market share and its growth. You know there's lighter edgex Aster, a plethora of you know, exchange backed perp dexs that came onto the market and I think we, we did see hyper liquids market shares you sort of compress and there some questions as to the validity of some of the volumes of some of these other purple exchanges. But here we are in mid May and hyperlid commands like a very comfortable like 50% share of the purpose market. And even through this crypto downturn Hyperliquid has actually been able to see some growth from these HIP3 markets, trade XYZ, RWA, PERs, equity perps that are doing you know, billions in volume per day. So you know it's really been fascinating to see these 247 markets or people have been trading oil on weekends where no other exchange really offers that. So yeah, I mean I, I really do see, I believe it is like having proven itself through a, a period of where there's a barrage, you know, an attack on, on its, on its market share and it was able to hold up really strongly. In fact, I think it's got like one of the strongest communities and developer ecosystems in the space. Really almost nothing quite like it as far as, you know, what I see. I think some of the questions do come around to how will HIP4 play out? Prediction markets are another one of these ultra hyper competitive spaces. Robinhood is launching their own full stack prediction market with Coinbase bought a push markets clearinghouse as well. So everyone is trying to go for this everything exchange, but none of the, all of these are Robinhood, Coinbase, very regulated onshore businesses. I think hyperlink was niche in this sort of offshore market. They've really dominated. I really don't see anyone coming close to, you know, taking any of their share away anytime soon. But yeah, I think it'll just continue to be an exciting year just watching how these things play out.
- [35:10]
A
All right, well it has been such a pleasure chatting with you. Thank you so much for coming on Unchained.
- [35:16]
B
Thank you, Laura. It's a pleasure. Bye bye.
- [35:18]
A
And thanks to everyone for joining this live stream. We'll catch you next week. Nothing new here on Unchained is investment advice. This show is for informational and entertainment purposes only and my guests and I may hold assets discussed on the show. For more disclosures, visit unchained crypto.com/sam. It.