From the heart where innovation, money and power Collie in Silicon Valley and beyond. This is Bloomberg Technology with Caroline Hyde and Ed Ludlow.
Welcome to Bloomberg Technology. I'm Ed Ludlow in San Francisco. We're standing by for a special conversation with the coinbas CEO Brian Armstrong.
Have a listen.
Interesting you did and how far do you think you're going to have to go here?
Yeah, well, this was not unexpected. You know, we've been in discussion with the SEC for a long long time, even going back.
To before we were a public company.
We started sharing with them how we operate our business, how we list assets on the platform, how we think about our staking program, and through a large number of allogs back and forth, they allowed us to become a public company. You know, we had many discussions with them in the last year when their tones started to change and they started to come to us with more questions about the business.
So we were very forthcoming.
We met with them probably thirty times over the last year, and we started to kind of ask them for feedback and we said, you know, we would like there to be a robust market in the US to trade crypto securities. Of the thousand plus assets we've reviewed today, we've rejected ninety percent of them, the ones we we believer our commodities. What feedback do you have for this for us? How can we come in and register? How can we work together? And unfortunately we were met with silence. We really got
no feedback in those thirty meetings. The first meeting where they were scheduled to come and give us feedback, they canceled it a few days before that, and then we got a wells notice a few days after that.
So it's really unfortunate.
We work with regulators all over the world, other regulators here in the US. I think I'm a reasonable person to get along with. But unfortunately the SEC and you know, this chair has taken a regulation by enforcement approach instead of creating a clear rule book in the US that can allow this industry to be built in a safe and trusted way.
You know, when was the last time you personally met with Gary Gensler and what did you say?
Right?
So, when he first came in as the chair, I flew out to New York. I reached out to him. Our team has reached out. I tried to make an effort to connect with him in person, because that's what I try to do whenever a new regulator kind of comes in. Unfortunately, we were not able to connect at that time. I'm not sure why we couldn't get on his calendar, and we followed up a few times in the year after that. We eventually got a meeting that
was virtual. You know, it may have been COVID related or something like that, but we were able to get a virtual meeting. But unfortunately, it was frankly like a pretty icy reception. I would say, you know, we sort of came in hat in hand and said, hey, Chair Gensler, you know you've asked people to come in and register respectfully, we're here to register. What would you like us to do? What process would you like us to go through? And his response was, you know, talk to your lawyer. I'm
not here to advise you. And that was kind of how the conversation started.
And so and at that point, you know, we realized there was a gap.
You know, we felt like this was an important technology that we felt needed to be built in a safe and trusted way here in the US, in a way that consumers were protected, and I don't know what his motivations or you know, his personal views were, but it didn't seem like he was on the same page.
So what does this mean for you if the government cracks down so hard on crypto on coinbase SEC? Does coinbase exist in five years?
Absolutely? We do.
And I want to make an important point, which is that the SEC chair may have a certain point of view, but that's not representative of the whole US government.
In fact, quite the opposite.
I would say the SEC chair is as a bit of a really an outlier here kind of in the US government. So when I meet with members of Congress, I think the broad consensus probably amongst eighty percent of people I talked to both sides of the aisle, it's a pretty it's a pretty reasonable view they have, which is, we don't know exactly what this technology is going to become, but we're seeing every other major financial hub in the
world move towards clear legislation. We need to make sure that this innovation happens in the US in a way that again, let's just protect consumers. Let's apply some basic good ideas around AMLKYC and audited financial statements and make sure there's no wash trading let's create a clear market structure where you know, businesses can understand which is CFTC, SEC, who should they talk to about which types of assets? So Congress is recognizing this, and the White House is as well.
Actually, the Biden.
Administration put out in an executive order about a year ago kind of asking all the branches of government to sort of say, get your act together on crypto. We don't there's some risks, but there's some real important opportunities with this technology.
Let's create a clear regulatory framework.
Will you fight this all the way to the Supreme Court? Do you think you'll have to? And do you have the financial resources to do that?
Yeah? So, even if this takes some time, you know, that's okay.
We've so in Q one we were adjusted a bit of positive as a company, even in the depth of this crypto bear market, if you want to call it that. We have over five billion dollars a balance on the balance sheet, right So, and frankly, even though that this complaint came in from the SEC, it's really business as usual today.
Right.
We're continuing to trade the assets that we have on our platform.
You know, we trade over two hundred assets on our platform.
The sec complaint mentioned just thirteen of them, so a relatively small percentage of the assets we trade. We also have business overseas in other countries. We arrive a lot of revenue from other sources that are not related to trading feed So you know, coinbase is well capitalized and adjusted a bit a positive and Q one, I think we're going to be fine going to court. In fact, it's a relatively small portion of our company that you know, we have a great legal team, policy team, et cetera
that's working on this. And what I really want, you know, ninety ninety five percent of the company to be focused on is just building great products for our customers and making sure we don't lose.
Sight of that.
And so this is a very serious matter that I'm going to work on with a couple of our executives, But really the vast majority of the company needs to keep building because that's how this technology is going to ultimately benefit a billion people hopefully.
How long does the regulatory overhang last? The reality is this could take many, many months. And do you think that your investors might lose some faith or even your customers while you go through this?
Yeah?
Well, I mean, look This is not a new concept, right, There's been lots of discussion. The SEC has had rhetoric around this for several years that I think has influenced the market. And so the investors in coinbase are comfortable with that if they're because it's all public, right and it's not like some secret thing that's being revealed, and I think they're taking a long term view that Coinbase is a very different company.
We're kind of an end of one, right.
We're really the only company that was based here in the US that went public that has audited financial statements that's taken a compliance first approach. You know, even in this recent SEC complaint by the way that came out yesterday, it was unfortunate they sort of did it back to back with another complaint that went out there, and you know that may have been intentional to try to conflate the two, but I think people are smarter than that
and they recognize that. You know, this complaint against Coinbase, there were no allegations, no allegations of misappropriation of customer funds, There was no allegations of wash trading. You know, myself and the executive team were not named personally. It's really debating this more technical legal question of are some of
these assets commodities or are they securities? And I think that's something the court will have to decide to sort of get some legal press, some case law out there which will ultimately benefit us, because that's what we've been asking the sec for for a long time, is how do we get more clarity? So if we need to go to the courts to do it, it's not our first choice. We'd rather the regular had just published a
clear rule book. But if they're not going to do that, the courts are there in the US to available ourselves of So part.
Of this was about securities being registered or not in terms of how they're listed on your exchange, But part of this was about staking also, So staking obviously is becoming a more important part of the crypto ecosystem. Do you plan, based on how the regulators are treating staking to wind down your staking service?
No, we're not going to wind down our staking service. Again, as these court cases play out, it's really business as usual.
We're going to continue to operate that.
You know, snake staking only represents about three percent of our net revenue, but it is a it's a very important function in the crypto community, and it serves an important part of these decentralized blockchains. And I guess I should mention also that you know, coin basis staking product is architected and built in a way to be compliant, and we've actually think it's materially different than some of the other ones out there which have been called staking.
And so yeah, we're going to continue to operate our staking business.
So if users wanted their funds back in the staking service at this point in time, does coinbase have the ability to service that at scale in case that there is a larger run on the staking business.
Yeah, So you know, staking is really something that's a decentralized part part of these decentralized protocols. So Coinbase is really just you know, it's a pass through mechanism. We're helping people access these decentralized protocols. So some of the decentralized protocols have, for instance, like a lock up period of you know, some number of days when you initiate the withdrawal request, and so we're just making that kind
of information available to the customer. But it's yeah, you know, all the the funds are there back to one to one that when you're when you're staking something, it's being pledged into these these decentralized protocols, and we actually don't even have the ability to you know, move it somewhere else at that point. It's we're just giving people access to these decentralized protocols.
So the business face withdrawals, does that have a material impact on Ethereum's price? And how does cliinbase prepare for something like that? What do you mean is there kind of a broader run that you have to be prepared for.
Oh well, okay, so in our business, we're we're not a bank, right, we don't do fraction reserve, and so there's not really this concept of a run, right, all the all the funds are there back to one to one, and you don't have to take our word for it. You know, are as a public company, we have auditors Deloitte in this case, who's gone in and verified all of that. You can kind of confirm it in our
financial statement. So you know, if people want to withdraw funds, they one hundred percent of it is there.
There's no such thing as a run.
Really, So how do you answer the question of you know, on one hand, there is sec that is, you know, causing a big overhand in terms of both you guys and the industry. On the other hand, just financially, you know, rates are higher in the United States, people are more inclined to keep their money in a bank. Why should they keep their money with you?
Well, what's interesting in crypto there's been the evolution of something called stable coins, right, and so we're actually in consort with another company in Circle in the space. We've we've created a USD coin, which is the second largest
stable coin out there. And as you've mentioned, interest rates in this environment, that's been both a good source of revenue for US, but it's also something that we've passed along to customers, so customers can actually earn rewards on USDC and get access to some of these higher interestrate environments.
Brought a question not just about coinbase, but about the industry. As you know, more regulatory enforcement actions come to the forefront, how much of an overhang do you think that will have on crypto pricing.
You know, it's hard for me to say.
It was actually kind of surprising yesterday with this complaint that came out, crypto was up, which I would not have expected.
So I don't know what to make of that.
I don't know if it means that people knew something was coming but they expected it to be worse than it actually was, or if they just felt that, you know, they're they're still a believer in it or something. But you know, I don't try to predict what's going to happen in these markets. You know, we don't operate ahead fund or anything like that. We just want to provide a good service to our customers around the exchange and all the products we offer.
Before I let you go, I want to ask about not crypto, I want to ask about artificial intelligence. Even talking about it all day as a crypto entrepreneur, how do.
You see AI?
Do you see it as a competing factor in terms of dollars going towards technology? Do you see dovetailing with your industry at all?
Well?
AI is certainly one of those couple really important technology trends that the US needs to get right, along with crypto, and I think we're seeing a similar question start to happen in Congress along with crypto is like, hey, how should this be regulated so it can be done in a safe, trusted way? I do think there's a couple
interesting intersections between AI and crypto. One of them is that, you know, in the world of AI, there you know, it's so easy to mass generate things, whether it's a news article or images, and so the provenance of those and the authenticity of it can be a little bit hard to figure out.
And in a world of crypto.
One of the great things about crypto, you know, with NFTs and whatnot, you can actually have a digital signature that proves, you know, this was issued by Bloomberg or by Brian Armstrong or whoever. So I think it could be useful to track the provenance of creative works, whether that's text, audio, video, et cetera. The other thing that might be interesting is that a lot of these these you know, bots or autonomous agents in the AI sphere, they're going to need to go get things done in
the world. Right people are already using them to sort of say, hey, order my groceries, or you know, maybe build this website and spin up this server. And so
they're going to need financial money. They're gonna need money to go do things in the world, these these AI agents, and so I think that actually in the future you're probably gonna see a lot of cryptotransaction happening between AI agents or AI and various businesses around the world because crypto is kind of the native money of the Internet.
The Internet.
Internet is global, it's decentralized, every country, everybody in the world can participate in it, and so it wouldn't really make sense to use you know, the dollar or the euro in a truly global context. If you you know what you want to be country agnostic. So I think AI will use crypto more.
How much are you actually working on that future?
So our we're not trying to build something that is allowing bots to like transact in crypto at the moment, but what we are doing is we're building good infrastructure, you know, picks and shovels, if you will. So with coinbased cloud, for instance, we're making our APIs around how crypto is stored and transacted and commerce happens, and we're just exposing those kind of like Amazon Web services, but
to any business that wants to integrate it. So I suspect more businesses will integrate that over time, and some of those may use AI. We're also using AI in our business in a.
Few other ways.
I mean, we use it a lot for fraud prevention, you know, and unfortunately we get people signing up putting in stolen credentials and things like that, and so we've developed a lot of really good machine learning to detect that, and you know, we're occasionally we're testling it in a few other areas too, just like around Actually, like you know, our design teams they'll sometimes look at mid Journey or Dolly and sort of generate an interface using ANI at least, like,
you know, show me five ideas for what an interface might look like to do remittances in crypto or for content creators to have a direct relationship with their audience, and what with the interface for that. And AI is just like a great assistant, you know, it doesn't. I don't think AI really is taking people's jobs. It's taking tasks off their plates, largely to make their jobs more efficient.
And so having like a you know, a research assistant or someone like that, you know, a tutor or a mentor or a therapist whatever, everybody can have one of these paired with them, and I think it'll just make humans more productive.
Ran We're out of time, but thank you so much for your time. As for taking our questions.
Thank you you are watching Bloomberg Technology. That was a conversation with the coinbased CEO, Brian Armstrong at Bloomberg Invests in New York. Let's bring in Bloomberg Katie Greifeld out in New York. It's kind of app some of the headlines coming out of that conversation.
Katie, What were the key takeaways for you?
It was really interesting to hear a little bit more color, a little bit more insight on what Coinbase's sort of communication, what the relationship with the SEC has been. It was really interesting to hear from Armstrong saying that basically the SEC's tone has changed in the past year, that Coinbase went to the agency multiple times, was met with silence, and as a result, here we are today and we knew that they've been critical of.
The SEC's approach.
Obviously, we got that statement yesterday basically criticizing what they call this reliance on enforcement, regulation by enforcement, and we heard more of that today from Armstrong himself.
As a reminder to our audience.
The SEC sued both Coinbase and binances US operations this week, essentially accusing them of peddling on registered securities.
What was interesting, Katie.
On stage, Brian Armstrong referenced that other suit away from Coinbase without naming it, and said that to his mind, perhaps the sec was trying to conflate the two and what did you make of that?
Yeah, he really tried to draw that line between these two cases. Obviously, we've been talking about them in the same bread since I think it was what less than twenty four hours that separated those lawsuits. But Armstrong said that in Coinbase's case, there were no allegations of misappropriation of funds, no wash trading, There weren't any executives named. And I think that's important because when you think about Binance, it's a lawsuit against Binance and also against Chang ben
Jao of course, the CEO of Binance. That's not the case when it comes to coinbas. As Armstrong described it, this is really about sort of a legal sort of definition of securities. That's the common thread between these two lawsuits, basically what is a security? But in terms of the Binance allegations, they go.
Much deeper, some more headlines crossing the Bloomberg terminal in wide ranging conversation, really Bloomberg, Nali bassecle also asking about AI and Armstrong saying that Coinbase is using AI in the field of fraud prevention.
For example.
He put a lot of emphasis on this idea that Coinbase is a public company and therefore it is audited, and so the SEC if it wanted to, could go and look under the hood, so to speak.
That's the interesting thing I mean with Binance. Of course, Binance doesn't have headquarters.
It's a much.
Different case than Coinbase, which is a US public company. It listed in twenty twenty one, again a public company, and the fact that we're seeing this lawsuit come against them after it was allowed to go public has definitely raised a few eyebrows among my sources. But wrapping it into the Aicon conversation, very interesting to hear that you know, they do see opportunity there. I would imagine that Coinbase is a little big busy with this legal fight, but sees opportunity there as well.
I don't want to draw a causal link, but interesting to look at the shares. We're off session highs, but tick by tick we kind of pushed higher throughout that conversation. I notice on the Bloomberg there are buyers out there for this name right, Kathy Wood being one of them.
The usual suspects.
Yeah, Kathy would adding to her coin based stick across ARC's fund. The biggest stake, of course, was added to in the Arc Innovation ETF. That's her largest ETF.
And this is sort of.
Hermo you know, by her favorite names when they're dipping, and that's what she's been doing in coinbase over the past year. So unsurprising to see that trading update overnight that they also added yesterday on what was what a twenty percent draw down. It makes sense when you follow her strategy, I.
Want to go broader for a moment.
Interestingly, Mike Novograts, of course, the Galaxy Digital talking about the SEC is going to take some time. The legal overhang remains, but three quarters of the crypto market is still for play in the US. He's saying, Look, the SEC is not mentioning Bitcoin eighth stable coins.
What are flows like? What ultimately is this doing to sentiment?
Well, the question I keep getting is why isn't bitcoin reacting more? I mean, Bitcoin is still hanging around levels that it's been hanging around for the past several weeks, even though again the two largest exchanges have been sued at this point, but it really comes down to I mean, who's left. We know that retail sort of the marginal retail player was flushed out a while ago. You're left with sort of these true believers who have been holding it for a long time, and that continues to be
the case. I mean, I track ETFs very closely, both globally and in the US, and globally when you look at sort of these ETPs that can actually physically hold Bitcoin, there's not too much movement in or out because again, that marginal player has already been flushed out.
And I like that you say global, because this ends up becoming a global arbitrage story in a way, in terms of where you base companies, where talent flows. Are you hearing about basically a loss of time in the US to the Middle East, Dubai getting its regulatory act together, Hong Kong for example, even the UK A little.
Well, that's the thing. I mean, you listen to US crypto advocates in the US, and that's sort of the argument that they make that basically the agencies are scaring away talent, they're scaring away innovation two overseas, and we know that certain regions, certain countries have been trying to attract that talent. Dubai in particular. Whether that actually happens remains to be seen, or maybe some of the people who were in crypto pivot maybe to AI, maybe to
web three. But that's an open question and it's definitely a big question.
In the industry.
Katie Greifeld, great to have you with instant analysis. We thank her for expertise across crypto. Meanwhile, when I was check in on the market, it's another key area of expertise at Katie. Of course she's across asset reporter. We want to go across asset for you for a moment, because well, overall we've seen a little bit of sentiment shift once again, tech ticking down, we're off by seven tens of percent. We're more worried about interest rates. We're
more worried about where the Fed goes. Canada a surprise rate hike over there. We see the dollar lower versus the Canadian dollar, the loonies that's known down three tenths of a percent, but notable that Still, we've got to look to the Fed the ECB next week. What will they do in terms of trying to do this awkward balancing act growth on the one hand and inflation on the other.
The two year yield goes up eleven basis points.
Is basically the market prices in that the rate hikes are not done yet.
Sure, there might be a pause in June d but what about July.
And just quickly looking what's happening in terms of bitcoin, because you know it is our risk asset of choice when it comes to the tech world, and we're currently off by some two percentage points as well, even though overall the dollar hadn't been showing so much strength today twenty six thousand.
As we're at right, there are other news items in the world of technology that are the making moves in markets. Keeping a close eye on Tesla, up for a ninth straight session, longest streak of gain since February twenty twenty one. The news being the US Treasury Department is saying that all Model three variants are eligible for the full seventy five hundred dollars tax credit. Netflix off session highs, but
have been up as much as five percent. Two names at least raising price targets on the store Wells Fargo and JP Morgan that stopped touching its highest level since February twenty twenty two, and Warner Brothers Discovery tackling the debt issue by offering a five hundred million dollar tender that stock up five percent. Take a look at Coinbase.
Shares of Coinbase have been hired. That conversation between Shnalie Bassak and the CEO, Brian Armstrong one of many interviews he's done out inforced responding to the sec suit against them. Hired by two point seven percent, but off session high is interesting the kind of pushback that he gave during that interview, and we will recap later in the hour.
Carric Well and meanwhile, we got so much more coming up and well still the private world of technology, Reddit reducing its workforce as part of its planstory structural operations and promote growth. Will have the details when we return. Listen Bloomberg. It's time now for talking tech. First up at Lisa mal CEO of Michael Dell's Family Office, says
she's looking to diversify her portfolio. The FIRMDFO Management, set to absorb an influx of cash and stop once Broadcom does eventually close on its purchase of VM where it's still with regulators in Europe. I sat down with while at the Bloomberg U Voices event, where she shared her thought process behind her investments.
What I have been grappling with is we have this impending major liquidity event, and so how should we be committing capital today? How do we size our investments today?
Dell, VMware's largest shareholder, has a thirty six perstake stake in.
The shares, of course.
Meanwhile, European chipmaker stem Micro and China's son An are planning a three point two billion dollar joint venture to build chips fabrication plants in southwest, China's most popular city.
Now.
It's part of an effort to tap into China's growing market for electric vehicles, but look counters the EUS pushed to localize chip production.
Production is expected to begin in the fourth quarter of twenty twenty five. Plus let's talk.
About a private company now, Reddit planning to cut five percent of its workforce, or roughly ninety positions. This is according to staff memo from the CEO, Steve Huffman, and it was seen by Bloomberg. The online discussion platform is also scaling back it's hiring plans. Granite now joins a slew of technology companies that have turned to layoffs in order to cut costs boof profitability and and of course this is an important one to think about, as this
was a darling that was expected to go public. Maybe I helped reopen what has been a frozen IPO market, but they've got to show well profitability over just growth at all costs.
Yeah, we reported this story out twenty four hours ago, and when I was reading the memo from Steve Huffman, the CEO, to staff, it jumps out that this isn't an action taken because of hardship in their business environment, but because they basically looked at it and said, you know, we can achieve break even next year. Of course they fared for an IPO in late twenty twenty one, Carro,
We haven't heard much about that since then. I would point out one thing, smaller company two thousand people, so five percent is about ninety jobs, which is never pleasant to talk about layoffs in the technology industry.
It's not, but it does, as you say, sort of feel small when we think of the one hundreds of thousands of people who lost their jobs thus far from big tech from some of the other companies. Ultimately, though, it's about the way in which you manage and way in which you tell people that this is one and done or not sprinkling on a continued basis, because otherwise it hits morale, right.
Yeah, it hits morale.
And you know, Huffman addressed that in the memo that we saw, basically saying that this will impact many people who have been at that company for a very long time, but one that seems to be weathering the storm. And as we write in the Bloomberg story, they were a holdout. You know, it's taken them until this point of twenty twenty three to an act layoffs when many others had done the depth of them at the end of last year.
Well, we've got a lot to talk about when it comes to companies having to think about profitability over growth and indeed perhaps doing some tie ups to inject more growth when it comes to AI at least.
Welcome back to Bloomberg Technology. I met Ludlow in San Francisco.
And I'm Karlyine Hyed in New York.
Let's check in on these markets once again, end because look, we are seeing more risk aversion when it comes to big tech remember this has been the album former on the year. Today we'll pull back almost a percentage point in the MASTAC, so we're hitting further low as it feels across the main benchmark or reasoning. It's about where the Federal Reserve goes next. It's about tackling inflation. It's about whether or not we have another hyke come July.
That's what the market is pricing in on the bond market at least.
Two year, five year.
That belly of the curve as well, moving thirteen fourteen basis points higher as we start to price in what the Fed could do. And indeed this is a global perspective. We've seen a surprise move from Canada today, the Canadian looney going higher versus the US dollar as we get that hike to tackle inflation, we look to the ECB next week, and of course the Fed. I'm looking at Bitcoin currently under pressure, off by two point four percent.
A lot of regulatory overhang here at the moment.
Ed, let's get to our next story.
Carry Twilio and Google Cloud just announce an expansion of their partnership to bring google Cloud Generative AI to Twilio's customer engagement products. The idea to improve experiences for millions of venues. Is Twilio CEO Jeff Lawson joins us. Now, Jeff, this is interesting because I think over the history of
your company, you've worked with Google Cloud closely. Just explain in real terms what any of that actually means if you're a Twilio customer, what do you get access to with this generative AI tool.
Well, specifically, this Google partnership is a new partnership to help bring generative AI and predictive AI into the contact center. So by combining Twilio's Flex Contact center product with Google's CCAI, we can now automate a wide variety of interactions in over thirty languages to prove real time, intelligent automated interactions to customers. So, for example, Toyota Connected is one of
our customers. There are millions of Toyota and Lexus vehicles on the road where if you hit the button and say, you know, I want to ask for directions for example, that's a completely automated experience power by Tulio Flex and
Google CCAI integrated together to provide that complete automation. And this is just part of Tulio's newly announced customer AI initiative that we announced yesterday, and customer AI is really the intersection of all these new capabilities of generative and predictive AI in combining that with the customer journey, and every company has this journey as a customer progresses through sales marketing service inside the product that companies are trying
to connect together to create a cohesive and relevant experience for those customers. And what Tuilio can do is bring generative and predictive AI to the table to help connect each one of those experiences on the segment profiles that we have living inside of Tilo about each one of those customers. And so we're really excited to get this out there into the market this week.
How are you ensuring that people feel comfortable as and when they're being serviced with so much more well effect people worrying about their data, wondering about how companies are owning it. How are you ensuring that this isn't going to yes, bring productivity but also a lot of pushback at the same time.
Absolutely, and people should be concerned about privacy and data security as well as the effect of large language models and AI on many of our experiences and That's why we have first of all, only partnered with data or partnered with AI companies, so language model companies that are going to preserve the privacy and integrity of our customer's data and their customers privacy. Second is using that data only in the context of that one customer in order
to make that experience better. Now we are all accustomed to this as a net positive as customers and companies who do it well. Think about Amazon or Google. Amazon homepage are very different because Amazon uses all the data they have about us, like what we clicked on, what we scrolled past, what we bought, what we didn't buy,
in order to make that product better. And what we're seeing is now every company out there, because of privacy, needs to actually take their own first party data, so that stream of data about what do people click on, what do they buy, what do they not buy, and turn it into insights about that customer that then can make them smarter and provide a better product and customer experience. And that's what TOIL is providing to companies.
What's interesting ED is, of course, amid what is a macro environment that is cloudy to say the least, a lot of companies are out there talking about AI effectiveness and actually feels like quite a busy space. It's got to be about the actual underlying technology here.
Ed, That's the question I have, Jeff, Like I get the Google Cloud relationship, it's long standing. When you build the product into your existing platform, where does the underlying technology come from? Is the foundation model from Google itself and what they've been working on the broad company was their at temptation to go to open AI and build something on top of GPT three point five or four.
Well, Google is the first of several partners that we are working with, and we'll be announcing more over time. And I think that, look, there are going to be the right models for the right use cases. The one common thread among every vendor that we are working with is the fact that we are only going to work with vendors and models where we can control the flow of data and where we can ensure that data remains belonging to our customers, which is the most important thing.
And look, I think every large language model vendor, I think every AI vendor out there realizes that businesses are going to want to control this. They need safety and security around these models, and they need a human in the loop for most of these use cases to make sure that as the AI is doing greater and greater workloads, we've got great checks and balances on the work that
they're doing. And so that's what Twilio and I think many other software and service companies are doing to go create viable products out of the raw capabilities of a language model.
I reference that, Jeff, that in amongst all of these innovations, new product launches, partnerships, is a macro environment that is tougher. It's been tough to your company in terms of market cap, in terms of share price. I'm sure you got push back and say I don't look at the share price,
but ultimately your investors do. And I know that there's someone thinking about activist investors at the moment, as perhaps some of the control that you've had ultimately in voting rights seeps away a little.
How are you tackling that at the moment, Jeff.
Well, Look, we've always been a company that is looking at the interests of our shareholders and operating the company in the interest of our shareholders by talking to the shareholders and understanding what they want. So during the era of low cost of capital, for the last decade, we ran the company to grow the top line, to build our market share, and I'm really proud of the company that we've built in terms of a four billion dollar revenue run rate company during that period of time. Now
we're in a different environment. Now we're an environment where we take that market leadership position that we're in, that large customer base that we're in, and turn it into a profit generating machine. And that's exactly what we've been doing.
And I'm really proud of the fact that of the last two quarters we have taken a company that has never historically generated a consistent profit because that wasn't the goal, to now generating more than ten percent non gap operating margin in Q one, And so I think we are listening to those investors and taking substantive actions to respond to the changing needs of investors based on the changing needs of the macro environment and interest rate.
Jeff, specifically, the information reported that you're talking to Legion partners.
What is the update on that?
And I notice in the proxy materials published yesterday, the first four slides outlined the structure effectiveness track record of the management. That's an unusual thing to do. Why did you do that well.
We talked to all of our investors frequently and right. We get a lot of opinions, we get a lot of points of view, and so it's just a regular part of talking to our investors understanding their points of view. Regarding the disclosures we made yesterday, we just wanted to fight a little bit of I think, you know, misinformation or lack of one standing of some of our decisions about how our compensation model has worked as we head into the proxy modeing season.
We want to thank you so much for spending some time with us talking us all through business model, new applications.
And focus on AI.
The TWITTERO CEO Jeff Wilson, thanks, and let's just return to what's happening over a Bluebug invest today because billinais Stan Drachimiller says he expects that AI guess what it's here to stay, and then he interspates owning in video shares for a little while longer. He spoke with our very own Shanali Bassak at the summit in New York earlier today.
The ais have sort of dominated the long portfolio for five or six months.
If it's as big as I think it is.
In Vidio is something we're going to want to own for at least two or three years, not for ten months and maybe longer.
Meanwhile, we've got a little bit of breaking news, Amazon planning an AD tier for prime video streaming service. So as we've seen with the likes of Disney, as you've seen in Netflix, now Amazon two.
That's all according to the Wall Street Journals.
So more to come on Amazon, also more to come on Generator AI and indeed investing. We've got so much more with Saffi Ventures, Kathy Gao, that's next. This is Bloomberg. Guess what we're talking about next, Generator of AI. Of course, we are what everyone wants to discuss, and many feel that this is truly a platform shift or well maybe
take the other side of the coin. You think it's hype A's dissected or with VC Spotlight Now Kathy Gow's with us partner at Saffi a Ventures, and I can only imagine how many inbounds you have at the moment suggesting that they.
Are AI or from their ury root in their cause.
How are you diciphering which company is truly artificial intelligence amplified or those.
That are kind of getting on the bandwagon.
Kathy, Well, thanks so much for having me back, and great question, Caroline. This is a question that we think about constantly. I would say the fundamental principles of investing haven't really changed. Right at the core, We're still looking for companies that are solving a very specific problem and have a point of view on their right to win. So that could mean owning a very specific and valuable workflow for the end user. It could also mean having
access to and interacting with proprietary and valuable data. But a company should have a point of view. And there are companies out there that have a thin layer of application on top of commoditized infrastructure. For us, those would not be companies that we'd be excited to invest in. I think another very interesting thing that we have to think about as investors is in what situations does it make sense for an existing company to add in AI
features into their product and platform. So a great exam sample of this is, you know many of us use Gmail or Outlook. We can pop up in our email and use auto complete or auto generate to help us respond to emails. So that's an example of an existing platform integrating folding an aim.
That's tangible, right, Like I was at Google Io. I saw the demo, but Google already owns that, right. And so you have all these startups out there in the field, and the thing that I want to ask you is how confident are you that any of them will ever make money? You know one example character AI. We had Normaghazier on the show a few weeks ago, and it kind of seems like an afterthought. That's alarm bells for a VC, isn't it?
Absolutely well, I would say this.
I think.
At Sapphire Adventures, we are building our prepared mind to be ready to invest in AI, and I think it's going to be a tremendous opportunity for vcs in the next three to five years. That being said, it's very very new today, right. We want to take some time to see how this plays out. If you think back to previous technological fundamental platform shifts, the ultimate winners may not have been the companies that came out of the
first wave. And I think of Google right that came after Alta Vista and Yahoo, and I think of Facebook who came after MySpace and Friends to So for us, it's all about learning about the current environment and the market and watching what's going to happen and being prepared to invest when the timing fields right.
Earlier in your career, you were looking at China. I know it's an air you've thought about, how face is the competition between the entrepreneurs here in the United States and what entrepreneurs in China are doing. You know, as a VC, how do you navigate that field?
I would say AI is certainly a very very competitive field, but I think it's a mistake to only look at it as US versus China. It's really a global dynamic. The reason companies all over the world are investing in AI is because the tremendous potential for AI to transform
possibly every industry out there. Right, And maybe this is me putting on my optimistic hat, but I do think that global solutions, global collaboration is what is needed, because ultimately AI does have the potential to solve problems in healthcare, in climate change. These are problems that transcend national borders, you.
Know, Caroline.
The story of the week in this industry was Sequoia splitting into three, right, and one of the rationales being that they can have a unit focused on China because there is opportunity in China, there's entrepreneurs, and there's support from the government.
Yeah, but they can't seemingly manage to do that from a globally coordinated manner with the back office that serves all three. And to that point, Kathy, how how global can you be as a venture fund right now? How much you able to navigate these geopolitical headwinds.
That's a great question, Caroline, And I gotta tell you, I'm closely watching what is happening with Sequoia. You know, the news is relatively new, so I can't speculate on what is happening in Sequoia, but the moves they have made will for sure impact the venture capital industry. And what Sequoia has publicly said already, which is managing a global organization is difficult, right. You have to consider portfolio conflict, portfolio conflicts not just in the US, but multiple geographies.
It is, in fact, very very difficult to handle. And sequoia solution to break the firm up into three separate entities is just one solution. But I'm very curious to see if other large global venture capital firms who are also investing in other countries follow suit or come up with other creative strategies.
Saphar Adventures, Kafi Gowa is so good to have you back on the program after all these months.
Thank you so much for your time.
I do believe, unlike crypto, I think AI is real. It's probably it could be as transformative as the Internet. It's a huge thing.
Stanley Druckamiler earlier at Bloomberg invest Let's get more on crypto send it over to Bloomberg. Shnali Bassek and Coinbase CEO Brian Armstrong.
Shnali, thank you, Ed.
And Brian, thank you for joining us. You've had a very intense twenty four hours. When you look at what the charges the SEC has brought forth against Coinbase, how long do you think it will take to fight it, especially when you have your chief legal officer telling me last night that you would go all the way to the Supreme Court if you have to if necessary.
Yeah.
I mean, look, we don't know exactly how long this court case will take, but I do think it's a really important opportunity for us, as you know, the leader in the US, to go get some clarity for this industry and for America so that we make sure that this techlogy is built here and it doesn't get pushed off shore where.
Customers can get harmed.
I think if you just if you go back in time a little bit, you know, back to twenty twenty one. We had a number of discussions with the SEC about becoming a public company and they allowed us to become a public company with full knowledge of how we list assets and how we operate our staking program. And it really, you know, wasn't until a year later or so that they started to have more questions.
We very thoughtfully engage with them.
I think we met with them thirty times over the last year, explaining every aspect of our business. We came in hat in hand and said, how do we register? We want to register. You know, we even acquired a broker dealer license which is still dormant.
We haven't found a way to activate it.
We formally petitioned them for more clarity around the rules, and we frankly were met with silence. And so unfortunately they decided to pursue this policy of regulation by enforcement. We've got the Wells notice and now the complaint is officially here, and so this is a difficult moment for not only the industry, but also for America. We need to make sure we get a clear book so this this technology can be built here.
There a point at what you call it quits in the United States, given how hard regulators are coming down on the industry.
No, we're not going anywhere.
I mean, I started this company in the US because not only is it a big market, there's there's rule of law here, right, you know, we have to follow the rule of law. So does the SEC and everybody. And so luckily, if we're not getting a clear rule book from the SEC, we have the opportunity to avail ourselves of the court and we'll start to get some case law created, regardless of what the outcome of the
case is. Honestly, it's a step towards more clarity. The other big opportunity we have is really for Congress to step in here and act. And I think there's a lot of interest in Congress. We saw a bill come out last week from you know, mckenry and Thompson sort of clarifying Okay, this is the role of the CFTC and the SEC, and let's have some good consumer protections
and what about stable coins? And so I think there's a broad recognition within Congress that the US is going to get left behind if they don't start to create some regulatory clarity because the UK, you know, Hong Kong, Singapore, the UAE, these are all saying we want.
To be crypto and Web three hubs.
We have clear rule books, Come here and build your business, and the US is at risk of being left behind.
What happens while things are so unclear? Is there a chance here that you start to lose customers or even banking partners? Here you have JP Morgan, Cross River, all these other more traditional financial institutions that.
You've worked with.
Do they start to freeze up when the government does not have clear rules?
Well, so far, we haven't seen any risk of that happening. I think all of our partners have been very thoughtful working with us.
We've been very.
Transparent with them, and I think they're frankly waiting to see what the outcome of some of these cases are too and how does the US get to a path of more clarity, Whether that's with the CFTC stepping in in some role, Congress, the court case, you know, maybe the elections in twenty twenty four change this as well. So Our partners have been really great to work with, and you know, we're a leading company in the US.
We're not going anywhere.
Elections in twenty twenty four. Do some of these pressures on the industry potentially go away with a potential changing in administration.
It's possible, yes, I mean I do think that, you know, the chair in the SEC here is a bit of an outlier frankly in the US government. You know, as I mentioned previously, Congress has seems very interested in crafting legislation here. The Biden administration actually put out in an executive order a year ago or so saying, you know, we recognize the potential of this technology, and we want to make sure the risks are mitigated. You know, they
asked the branches of government to go introduce this. We're also seeing some of the presidential candidates already for next year kind of start to talk about their stances on crypto and how they want to accept crypto as you know, for donations, and how it should be regulated. So I actually think there's a good chance this becomes, you know, a relevant issue in the twenty twenty four elections.
You know, with that said, this could be an overhaul overhang for a while here when we look at how long that this could play out, not just for you, but the whole industry. What does this mean for crypto prices overall? Do you think that it's spooking some investors away in your conversations with the big institutions.
Well, you know, yesterday this news came out and surprised me.
You know, crypto was up that day.
I you know, I think what's what I interpret from this is that the SEC's rhetoric on this has been clear for a year or two now, and they've been making lots of statements, and so I think if there is an overhang, it's probably already been there for a while. And I don't think anybody was surprised by this news that came out of because the Wells notice came before it, and the rhetoric was there before that. So our investors are they're long term believers in this technology. I think
they're looking at it as an opportunity. Frankly, you know, if others are fearful, it's probably an.
Interesting buying opportunity for them.
But they're excited about this as one of the three or four major technology trends happening in the world, and I think they, you know, smart investors recognize that the US is not going to sit on the sidelines.
This is too important with technology.
Ran, thank you so much for your time and for joining us on the back of such important news for the industry.
Add back to you the EMOTIONALI Bassett with Brian Armstrong, CEO of coinbas Thank you so much.
Caroline, Well times run out.
That does it for this edition of Bloembag Technology.
What a well win tet.
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From SF from New York. This is Bloomberg