Robinhood vs. Coinbase: Who Wins the Future of Finance? | David Rodriguez & Omar Kanji
TRANSCRIPT:
David Hoffman:
[0:03] We got a pretty timely debate on the podcast today coinbase versus robin hood two competitor companies that are going head to head into the crypto world coinbase of course the incumbent the established crypto native company but robin hood coming right into crypto with pretty big announcements right on the heels of this uh right on the heels of this podcast maybe to kind of just set the
David Hoffman:
[0:27] table before I introduce our two contestants here. We got Robinhood with the ticker hood at $81 billion at the time of recording. It is up 135% year to date. Hood went public in July of 2021, which is not too far off from when Coinbase went public in April of that same year. Coinbase compared to Robinhood's $81 billion is currently coming in at $85 billion and it is up just 30% year to date. But all of that 30% increase year to date has just come within the last 30 days. So while these two competitors, these two financial aspiring super apps are about the same valuation, there has been a little bit of trajectory difference in order to get here.
Omar Kanji:
[1:11] Taking the side of Coinbase,
David Hoffman:
[1:14] We have David from Blockworks. David, welcome to the pod.
David Rodriguez:
[1:17] David, thanks for having me.
David Hoffman:
[1:19] And then taking the side of Robinhood, we have Omar from Dragonfly. Omar, also welcome to the pod.
Omar Kanji:
[1:24] Thank you very much for having me.
David Hoffman:
[1:26] Okay, so Omar, I have been informed that you are the most bullish person on Robinhood that a few people on my timeline know. And then David also respectively, same thing to you with Coinbase. So we're framing this as a debate because I think you guys all have your domain knowledge in the respective companies. I'm sure your knowledge overlaps. We're not counting points here. We're not actually trying to go for a winner. We're trying to build a productive conversation. So we, as myself, because I'm curious about this answer, but then also the listeners as well, can kind of just get a download on the nature of these two businesses. Because I think who wins, or how they win, or really just what the future lies for both of these companies will shape what our industry looks like. Like I said, just two days ago, Robinhood announced their layer two, they launched tokenized stocks.
David Hoffman:
[2:15] And, you know, really, for the first time, putting pressure on Coinbase,
David Hoffman:
[2:19] at least, you know, preliminarily, in order to kind of shape what the future of crypto can look like. My take is that it's nice to have two very strong competitors come into this market. And we'll kind of like suss out what the differences between these companies look like as any advantages that each one has. David, I want to throw it to you first. We'll start with Coinbase. Maybe you could just start us off by giving us a sort of like lay of the land of the Coinbase company. If you popped up in the hood and you looked at where Coinbase makes its money, where the coin valuation comes from and future drivers. Just kind of give us the 101 download that we need to start off with in order to understand Coinbase as a business.
David Rodriguez:
[2:59] Yeah, for sure. Coinbase has been around for at least this point, 13 plus years. Obviously, it started out as a Bitcoin fiat on-ramp in the United States. Over the past few years, as it's evolved to a full-stack, I would say, on-chain brokerage with various financial services, really the premier US-based exchange in the United States. Obviously, it's expanding globally today with Coinbase International, Coinbase Derivatives.
David Rodriguez:
[3:26] Today, the business generates a majority of its revenue from transaction revenue or transaction fees or trading fees on its Coinbase platform, on its Coinbase exchange. But it increasingly has leaned into subscriptions and services through Coinbase One and also StablePoint rewards with its partnership through Circle, which is the second largest StablePoint in the on-chain economy today.
David Rodriguez:
[3:51] Coinbase has done a really good job, I think in the depths of the bear last cycle, of diversifying its revenue stream. It was heavily weighted towards trading volume and trading fees in general. So in bear markets, like we've seen in this very cyclical industry, it can have peaked the trombs of 80% revenue declines. But I think it's done a very good job as of the past few years through its USDC partnership, I'd say increasing the floor of how much revenue it can generate throughout bear and bull cycles. But now it's taking on a new life. It is not just the premier exchange in the United States. It does not just have its relationship with Circle. It is now becoming, I would say, a full stack infrastructure provider for moving the entire world's economy on chain. Over the past year or so, they've launched Wallet as a Service. They've launched more recently over the past two, three weeks during their product announcement, they launched Crypto as a Service and Coinbase Business. What I see Coinbase today becoming is instead of just a front end or like a thin front end for
David Rodriguez:
[4:57] The economy coming on chain, it's now becoming like the back end. It's more trying to become like the AWS. They will not win the distribution game compared to TradFi incumbents or even a Robinhood coming on chain. What they're trying to be is a B2B platform is where I think the company is going forward looking to offer services to help other players come on chain. And they already have pretty mainstream adoption as custody providers for major ETFs. And they already have over 200 institutions leveraging its crypto as a service platform to tap into Coinbase's backend infrastructure to offer digital asset
David Rodriguez:
[5:32] services to their customer base.
David Hoffman:
[5:34] Omar, before we get into that same kind of prompt with Robinhood, what comes to mind when you're listening to David give his kind of like lay of the land for Coinbase? He talked about not really actually going toe to toe with distribution. He talked about kind of being a backend. What stood out to you?
Omar Kanji:
[5:48] Yeah, I think from all David's comments and everything I know about the company. I think what they have managed to do, so much to his point, is build a best-in-class crypto infrastructure platform that offers a fully end-to-end service for retail customers and institutions. And if that is the framework for the business, I think it is a great point to leverage all of their institutional know-how and all of their tech that they've built into this next leg of growth for the company, which is going to look materially different than it has the last 10 years. And so I think he encapsulated it really well. And I think they come from a really strong place with a lot of things and a lot of pieces of the puzzle already in place. And now it's just like, what does that go to market look like over the next 10, 15 years?
David Hoffman:
[6:33] From the crypto side of things, Coinbase has always had the golden goose of distribution inside of crypto. And I'm hearing both of you kind of agree that Coinbase is more, It's going to keep its, you know, retail trading base. It's going to keep its like front end on ramps. You know, that's how I get my money into crypto when I need to do that. But it sounds like you guys are both aligned in the nature that Coinbase is going to refocus itself towards less distribution and more towards just kind of, you know, back-end logic, business management, services towards companies, services towards corporations, and kind of being like the on-chain service provider to whatever that means in a variety of different contexts for the pre-existing institutions out there. Would you guys agree with that kind of encapsulation? What would you change? David, I'll throw it to you.
David Rodriguez:
[7:20] Yeah, I would directionally agree. I think they're going to try to walk and chew gum at the same time. I think they're still going to try to grow their distribution. They already made a buy for launching tokenized stocks. I believe I saw something a couple weeks ago talking to CFTC or the SEC about getting illegalized in the US. I think they're going to try to grow their distribution platform or grow their distribution as a centralized exchange and a brokerage or an on-chain brokerage firm. I do think though that the revenue composition of the business forward-looking though is largely going to come from the backend infrastructure service that they're going to provide for businesses. But I think I'd be bearish if they didn't continue to try to grow their distribution. I just think that it might be an uphill battle compared to the likes of Robinhood or the JP Morgan's Bank of America's of the world that are inevitably going to come on chain.
David Hoffman:
[8:09] Maybe you could shine a little bit more light on that part of the business, David. What does that look like, that B2B service?
Omar Kanji:
[8:16] What are some
David Hoffman:
[8:16] Of the products there? What can you say about the margins? What can you say about the growth? What can you say about really just the aspirations that Coinbase has in that sector?
David Rodriguez:
[8:24] Yeah, I think it's very early still to know what the margins are going to look like. They just launched Crypto as a Service through Scarlett at least publicly announced it. They came with 200 plus institutions that are using it.
David Hoffman:
[8:35] What's Crypto as a Service? What is that?
David Rodriguez:
[8:37] Yeah, so they're going to be offering the ability for fintechs and financial institutions to offer digital asset trading, custody services, and maybe potential other financial services that they're already messing around with. Let's say like the Morpho integration with taking out mortgages or taking out loans through Morpho in the back end. TBD on exactly what that looks like. But at a high level, they're going to be offering digital asset custody trading solutions. So what I imagine is Coinbase is like the back-end exchange. And then JP Morgan wants to offer digital asset trading for their customers or Morgan Stanley does. And what you don't know is like you're trading and you're buying and selling or even custodying your Bitcoin or whatever asset on Morgan Stanley or on that front end. But in the back-end, it's actually Coinbase's exchange infrastructure, custody infrastructure, even payments infrastructure. So they launched Coinbase Business, which I think is more of like a mom and pop or proof of sale or POS offering for merchants. They obviously launched their announcement with Shopify. One of the more interesting things that I think that they launched two weeks ago that I think was under discussed is I think it's called the Coinbase Commerce Protocol.
David Rodriguez:
[9:46] Effectively, what it is, it's like a generalized payment solution that's launched on base. And getting into the more technical details of it, it actually looks like it has the opportunity to just intermediate Visa and MasterCard, where it's going to allow large big box retailers, the Amazons, Walmarts of the world that have these huge ecosystems to effectively become their own credit card issuer. And they're going to be able to tailor their own logic to know how their user base is going to be allowed to use chargebacks or different reward systems for users that are inside their economy or their ecosystem. But TLDR, it's still very early to know exactly what this looks like. But I think that they have the distribution with businesses, the brand, and also the know-how to know where they need to grow their business lines as an infrastructure player.
David Hoffman:
[10:33] Omar, I'm seeing you nod your head. What did you like about that? What did you agree with? Give us a little bit more color.
Omar Kanji:
[10:38] I think it was all very well said. I would say just going back to one of the earlier parts with respect to is it purely going to be an institutional platform? I think to some of the stuff that David spoke about, they're still very much leaning into base as the ecosystem for retail going forward. I do not think that's going away anytime soon. I think they fully intend on building that out based on everything that they've said, all the product launches that they have planned, all the protocols and things that they're incubating over there. It is certainly a big part of their business going forward. And then the other thing I would add is on the stablecoin front, USDC distribution is something that is obviously bootstrapped with Coinbase Commerce, what David
Omar Kanji:
[11:20] Getting USDC into the pockets of a number of people around the world, leveraging base, leveraging the Coinbase wallet, all of these different pieces of infrastructure that they've built over time is a big part of their strategy as well. And I think similar to what David said earlier, it's not truly going to be transaction revenue as the primary monetization vector for the business over time. There will be this B2B component. There will also be this happy consumer payments angle. There will also be business payments that go along with it. And then if you tack on base and the whole consumer ecosystem, it starts to give you a better sense of what the business looks like five years out. And then the last piece I would add would be they're still trying to integrate the whole on-chain economy into the Coinbase platform as well. And you see that with the DEX integrations that they have or that they're working on to integrate all the range of DEX tokens. And I think their view is just to make everything that you can trade on-chain tradable on Coinbase, the platform. And like, that's what the business ends up looking like, in addition to all the B2B stuff over time.
David Rodriguez:
[12:23] The last thing that's a kind of the call option on Coinbase is like also Coinbase Ventures, right? They're like one of the largest VC firms in the entire industry. You know, that's very much not discussed today. And like, we already see how well Circle did when it IPO'd the industry or, you know, Wall Street clearly wants crypto equity exposure. I have to imagine a lot of their VC portfolio is based in tokens, but I'm sure a good amount of it is also in crypto companies that plan on IPO-ing in the other competitors don't have, is worth a lot of money over the next five to 10 years.
David Hoffman:
[13:02] Yeah, I guess it's hard to ask you to give a valuation on what is fundamentally a VC portfolio. It's like, really, you can't really do that. But if you had to do that to compare that to Coinbase's revenue, how do you compare apples to oranges here, if we're trying to compare sizes?
David Rodriguez:
[13:17] Yeah, I mean, I would not. Actually, I don't know, Omar, you might be more versed in that subject but i i
Omar Kanji:
[13:24] No to your point there hasn't been enough disclosure around like the size of their holdings and what they're marked at to like really have a good sense like we we all have a good idea on the names that are in there but we have no idea the amount of money and so so it's really hard we don't know how
David Hoffman:
[13:39] Much they raised.
Omar Kanji:
[13:40] I my understanding is that it's all balance sheet capital but i don't know if there's any external lps i'm not sure so i
David Rodriguez:
[13:46] Don't believe there is but i don't think they're even publicly
Omar Kanji:
[13:49] Disclosed okay
David Hoffman:
[13:50] So it's a true dark horse so maybe we could just like fairly guess somewhere in $100 million of like total investment into this thing. I think we're just kind of like blindly throwing darts here. It seems maybe around there. And then, you know, in the optimistic scenario, you know, you get a 10x, 15x, 20x over the longest of terms, it starts to come in at like 1 to 2 billion. These are just my rough napkin maths. Maybe Omar, you would disagree. But if it's a 1 to 2 billion dollar valuation, I don't think that's moving the needle too much on what is a currently an $85 billion valuation on coin stock. That's my logic. Omar, check me on that.
Omar Kanji:
[14:25] Yeah, no, I think that sounds like reasonable. I'm sure if we dug around the financials, we could see like what they haven't booked out in like some of the disclosure there. So, but you know, off the top of my head saying that it's between like worth one to five billion somewhere in that wheelhouse, depending, that's probably high to be quite honest, like It probably skews closer to a billion, but yeah, I mean, it sounds reasonable.
David Rodriguez:
[14:49] Yeah, unclear to me, to be honest.
David Hoffman:
[14:52] I'm not sure. We'll treat that as a cherry on top. Let me go back to kind of the backend infrastructure angle, and then we'll turn to Omar to lead the Robinhood section. It sounds to me that like Coinbase is packaging up their, their strategy is to package up their software, package up their exchange, package up their, you know, I don't know if it's, if it's right, but USDC on base as a Visa competitor, along with some of that, that logic and really, you know, start duplicating some of the efforts that they have already made building Coinbase in the first place. And then, you know, allowing Fidelity to like slot that right into the back end of their brokerage or really any sort of, you know, entity who's like, oh, you know, crypto is real. We are, we now need to serve crypto to our clients. Do we need to build an exchange or can we just like hook in some, I don't know, SDK, I don't know if that's the right technical term, but just like allow some sort of integration of what is effectively the Coinbase backend, but it's whitelisted for Fidelity customers or TD Ameritrade customers. And that's a very good distribution strategy, as I understand it, rather than going in the trenches, going individual customer by individual customer, they're just going to brokerages and getting all of their customers in at once. I would imagine they're charging those customers lower fees in order to make that work. But on an aggregate basis, when you add everything together, then if you just acquire all of the trading demand of every single brokerage that the greatest Coinbase in the backend on their software products. Sounds like a pretty strong arena of growth to me. David, check me on that.
David Rodriguez:
[16:21] Yeah, I agree. I mean, I think maybe not one-to-one parallel, but looking at AWS as a business, it's extremely high margin. Amazon built AWS largely for their internal purposes in the early 2000s. And they realized, look, every startup in the world, every business in the world is not going to want to have their own on-prem server or on-prem compute. And why not try white label it or why not try to offer that as a service? And I think the same can be said for you know, back in infrastructure for crypto. Yeah, some firms will want to bring that in-house. I imagine maybe Robinhood might be one of those folks that want to do that because they have the chops to do it. Maybe some fintech and tradified firms might want to bring that in-house as well. But I think a large majority of businesses that want to come on chain will not. They will outsource that because it's cheaper. They don't have the technical experience. And the reality is like, cussing crypto is extremely risky, right? Like even the larger centralized exchanges in the world have gotten hacked before, a la like Bybit and other centralized exchanges and other major protocols before. Coinbase has proven that they have a trusted and secure brand.
David Rodriguez:
[17:22] Security as a crypto business has been operating for 12, 13 plus years. And they know what the friction points are because they have themselves been moving more on-chain as a business over the past decade. And I think they know exactly what the innate pain points are to offer a really nice package service to other companies in the future. So I have to imagine long term, it's going to be a very high margin of business. But yeah, I think it's akin to AWS, maybe not exact parallels, but that's how I have my mental framework for. So Coinbase to me, like the thesis for Coinbase, if I can sum it up in one sentence, is the entire world moving on chain. Like it is the pure play of the on chain economy growing.
David Hoffman:
[18:05] Yeah, I also enjoy the notion of if Coinbase is integrating things like Morpho or Dex aggregation directly in their front end, well, that too can also get packaged up, put in a piece of software, integrated into TDMA trade. And if it's providing a value to Coinbase's customers, then it can also provide a value to any generalized brokerage that integrates Coinbase. And then Coinbase just becomes the conduit for TradFi customers and assets and logic to touch the chain pretty seamlessly with that Coinbase brand. Okay, so I feel like this conversation is pretty young in the Coinbase world. There's starting to be some brewing conversations about it, but there's a lot of work to be done. It's a big sector of growth that Coinbase is just at the starting line for. I feel like we've covered that pretty well. There's other parts of Coinbase growth there. Go ahead, Arma, what do you want to say? No, the only thing I would add.
Omar Kanji:
[18:55] To the Coinbase infrastructure play is like similar to what we discussed, there's always this option, which is like buy versus build. And a lot of the time companies don't want to build this stuff internally because they don't have the expertise. You end up having to hire, you end up having to go outside the organization, bring the talent in-house, and then ultimately you end up trying to build a product. You have to test that product. And that's like a whole time lag, especially when crypto is relatively time sensitive today.
Omar Kanji:
[19:24] And so a lot of companies do want to outsource this and use an infrastructure provider. That being said, I think one of the big challenges for Coinbase with this play, and not to push back on it, but I do think that there is an inherent tension between Coinbase's retail business and this exchange infrastructure as a service business, because ultimately, the profits that they do make from the exchange as a service business end up going back to funding their operations, which then they use to fund incentives to then try and bring customers into the retail side of their business and get them onto base and the whole range of transaction activity. And so, you know, some potential customers of Coinbase or even Kraken's institutional offering, they definitely think twice, I would say, about who they're going to give their business to. And we've kind of seen some of the infrastructure providers, whether it's on the staking side or the custody side, go and pitch directly, as opposed to getting the bundle from an exchange itself, who they're going to compete with for those same customers. So that's the only thing I'd say in, unlike the things to just think about for anyone that's looking at that side of the business, because there is a tension and Coinbase does compete with all of these platforms. Like they rightfully should. It's the one of the highest margin parts of their business for those customers.
David Hoffman:
[20:43] So David, there's, we could talk about USDC income into Coinbase. We could talk about base on-chain revenues in terms of just like kind of understanding the future growth of Coinbase. I feel like we've laid down the, you know, back end to TradFi thesis pretty well. What's worth adding to that list of growth venues for Coinbase before we wrap up the Coinbase out of this conversation?
David Rodriguez:
[21:04] I mean, they're making 60% of Circle's revenue, right? And like, it's still very early. It's very early days for stablecoins.
David Hoffman:
[21:12] How locked in is that? Is that just a permanent part of the circle deal? Is that going anywhere?
David Rodriguez:
[21:17] I believe, and I might be misspeaking slightly, but I believe that it is subject, it is up for renewal at the end of 2026. But Coinbase pretty much has say in any material changes to the contract. So for example, that partnership circle did with Binance to hold, I think they had to hold like 1 billion USDC on Binance's dollar sheet and then they have a revenue share agreement with Binance. Circle had to go to Coinbase to get their approval in order to allow that to happen. Obviously, that's in the terms of this current contract. But my understanding is it's effectively a perpetual contract, but
David Rodriguez:
[21:57] There is room for negotiation at the end of 2026. Again, might be misspeaking there slightly, but I think the power is definitely in Coinbase's hands. So look, it's very early days for stable coins. That is not to say the stable coins of today are going to be the stable coins of tomorrow. Obviously, we probably talk about Global USD, which is Robinhood's consortium stable coin. We talk about PayPal USD and even JP Morgan trying to tokenize deposits on base and what have you. It's like every fintech company or every bank that is anyone will try to get into the stablecoin game. And over time, that will be a low margin, very highly competitive business. But Circle is the largest regulated USDC stablecoin in the US economy today. And I don't see that changing anytime soon. And if anything, stablecoin and USDC market cap is probably going to 10x over the next two to three years, I'd be surprised if it didn't. And even with future rate cuts, that is going to be a large material revenue driver for Coinbase. So that's also, I think, like a major thing that I think everyone has already baked into, you know, maybe not into their valuation today, but everyone is already cognizant of that revenue share agreement. And it just like, it's a really stable, I think, income stream for them to continue to, you know, build out base, build out their trading infrastructure, build out their Coinbase, their crypto as a service offering.
David Hoffman:
[23:14] As I understand it, Circle pays the operating expenses after Coinbase takes their 50% cut. So like Coinbase feels like they got a really sweet deal taking a lot of it's all profit for coinbase they don't have to pay for any of the employees or any of the anything else that's my that's my understanding is that correct i.
David Rodriguez:
[23:32] Believe that's correct i mean they definitely they max extracted on that one for
Omar Kanji:
[23:36] Sure yeah yeah like the broth the rough calculation is coinbase gets all the interest income of usdc held on their platform and then it's a 50 50 split on the rest
David Hoffman:
[23:46] Like on the rest.
Omar Kanji:
[23:47] And get 100
David Hoffman:
[23:48] Of everything that's on their platform and 50 of the rest that is a sweet deal yeah.
Omar Kanji:
[23:53] That's like the rough calculus there's nuances to like where usdc's held and circle has a portion that they retain on their own but it's relatively small but uh that's that's the mental model for how to think about it and it was funny because at one point circle had flipped coinbase last week which is kind of counterintuitive when one company makes more off a product than the other does all
David Hoffman:
[24:12] Right that is but the market is correct, Right, right, right. David, there's a base revenue from transaction fees. Coinbase is a Bitcoin custodian. Any last subjects that are worth touching on for sources of future Coinbase revenue? Yeah.
David Rodriguez:
[24:28] I mean, I think there's so many different revenue streams that are non-material today that I think will be in the future, base revenue obviously being one of them. But I think the listeners today were going to take away something. I think it's, look, they have a high stable revenue stream come from stable coin rewards with their partnership with Circle. They make a material amount of their revenue from trading fees. I don't see those two changing for the foreseeable future. But there's all these other things, largely their infrastructure as a service offering for the on-chain economy growing or bringing on fintechs and traditional banks into the on-chain economy. That, I think, is going to be just a more material portion of their revenue over the next three to five years. And I think will, over time, become the majority of their revenue, if my thesis is correct. So that's a yes. But yeah, there's a bunch of other service lines that are not, you know, staking rewards, right? Like they're the largest institutional staker in the entire industry at this point. Couldn't even tell you how many tens of billions of dollars they have under their management.
David Hoffman:
[25:32] But yeah, as I really understand all of this revenue sources, it doesn't seem that competitive with Robinhood. It seems pretty differentiated as a product line. Now I think we can kind of extrapolate into the future and be like, yeah, eventually these two giants will like butt up against each other. As it stands today, it feels like the product lines and where they get their revenue are pretty like at harmony, at peace with each other and not actually going toe to toe. That's my understanding. Omar, check me on that take.
Omar Kanji:
[25:58] Yeah, you're right. But happy to go into it whenever or when we talk about Robinhood. Yeah, let's do it.
David Hoffman:
[26:03] Yeah. So give us give us that same kind of lay of the land. What's the current state of Robinhood? Where do they get their money from? And then we'll touch on vehicles for growth.
Omar Kanji:
[26:10] Yeah, maybe just like going back in time to kick it off. Sure. So Robinhood was founded at a similar point in time to Coinbase back in 2013.
Omar Kanji:
[26:19] And it was founded by Vlad Tenev and Bajubai. And they both had met at Stanford. And initially, they were working on HFT software that they were selling institutions over time that ended up pivoting and they ended up building a retail first platform. And they had like two key insights that had driven a lot of their decision making at that time. They were of the view that the world was going to be mobile and that retail users didn't want to pay fees. And that was the core premise of the business at the time, which was we are going to build a really slick, intuitive user interface that people can use to trade on their phones. They can get all the relevant information and they don't need to pay fees. And the world's youngest generation, which is like a big part of the Robinhood story, this is going to be the way they live. Everything will be mobile first and native. And that is what they want to do. And so the Robinhood story started back then. And over time, it has just been a compounding growth story in terms of users. And so if you rewind the clock a little bit, if you go back to 2017, they had 2 million users. If you go up to 2020, they had 12.5 million funded accounts. And then if you go to today, it's a business that has 26 million users. And for context, the US population is roughly 340 million people. And so they're just under 10% of the US.
Omar Kanji:
[27:41] But it has been like a story that has been built on the back of like, what does the next generation of investing products look like? And that's the way they started. And that's the way they built their business over time. And as Robinhood today, so the way to think about it is there's $256 billion of assets on the platform across these 26 million roughly funded accounts, which means there's roughly $10,000 balance per account on the platform is a very simple way to think about it. The platform itself does like $3 billion of revenue. And the bulk of that, so like half of it comes from transaction-based revenue. And then the vast majority of the rest comes from interest income. Now, interest income isn't to be construed the exact same way as it is with USDC, but it tends to be the large chunk of that is margin-based interest. Then there's some CashSweep. There's a range of other interest products, but largely Robinhood operates off of a trading fee-based model, which they, similar to Coinbase, are trying to diversify over time.
Omar Kanji:
[28:48] And I think for the listeners that aren't that familiar with this story, the big thing that they did to have no trading fees directly was a concept called payment for order flow. And what payment for order flow is, is market makers will pay you for price insensitive flow effectively, which is I'm a retail order. I put in an order to buy one Bitcoin. They give me a quote and they will pay me for that quote. They'll go execute it and they'll execute it across a range of different venues. And there tends to be a spread in there, which is why they're paying you for that flow. And Robinhood gets a portion of that. Robinhood gets what they are paid for that flow. And so like, that's kind of how the business model works, which is payment forward flow. And that's how they make the revenue. So unlike Coinbase, which is direct fee, then it gets executed on the back end. It's just slightly different, but there's still a revenue model associated with it.
Omar Kanji:
[29:41] And so that's like roughly what like the business looks like today. And if you were to just like, kind of break out, okay, like, of the of their transaction brace revenues, like where does crypto fit into this whole piece of the pie? Today, the half of their business effectively is options with, you know, if you look back to 2024, it's like 760 million, I think is the number. And then if you look at crypto, crypto $630 million roughly. And then if you look at traditional equities, just like buying NVIDIA or SpaceX or Tesla, that's $177 million. And so that's the way to kind of think about the business. Historically, crypto has been relatively small. If you go back to 2019, I believe they made $10 million off of crypto. And so the crypto story has been a relatively new in the broader Robinhood story vector for growth. And it's been something that they've leaned into really, really heavily in recent years. But the Robinhood story for most people out there has been one of traditional financial products. And I think that's probably the easiest way to think about Robinhood's revenues and broad business today. But there's a huge other component, which is part of my whole thesis on the
Omar Kanji:
[31:02] business, which I'm happy to get into. But I'll just pause there and talk about it.
David Hoffman:
[31:05] And I think that was great. I want to talk about the two big events that Robinhood has had this year. The one just happened to catch a token that was a crypto event. And then maybe three months ago, they did more of like a traditional finance event where they introduced Robinhood banking, the Robinhood credit card. So that's kind of like they're more, you know, more, you know, trad fi, not crypto, but, you know, retail forward, you know, retail banking and trying to, it looks like to become a full stack financial company. I'm guessing if we're going to talk about venues for growth in Robinhood, they're going to come from these two announcements, which is like very convenient that we have these two like announcements to talk about. So I'll throw it back to you and give us a broad thesis. And then we'll go into those individual announcements.
Omar Kanji:
[31:46] Yeah. So like my thesis on it is Robinhood is building the multi-generational financial super app for our generation. And they were brilliant in the sense that they went after the youngest cohort of customers with their initial product back in 2013. And if you like, just think about it, 10 years ago or 12 years ago, all of us were much younger.
Omar Kanji:
[32:10] And, you know, we probably had a lot less money and, you know, we were probably starting out our careers.
Omar Kanji:
[32:16] And they went right after this cohort of customers that was young, didn't want to pay fees, but was on their phone.
Omar Kanji:
[32:22] And over the last 12 years, they've managed to grow with them. And at the same time, they've added cohorts sequentially of younger and younger and younger customers. And if you look at the population of Robinhood's customer base, 75% is under the age of 44, roughly. And so you have this platform that skews really young, that's really active on their phones, and that trades luck. And what does this generation want to do? They want to do everything off their phones. I don't want to go into a bank branch. I don't want to go deposit checks at the teller. I don't want to go to an ATM to pull out cash. I want to literally do everything from my phone. And so Vlad, what he's trying to build is like stage one of Robinhood was like, I'm going to build like this great active trading platform, which they continue to do and we can talk about. But like the next arc for Robinhood is like the all-in-one super app for your everyday needs. And similar to what David mentioned earlier, it's like, this is where Robinhood Gold comes in. And for people that aren't familiar, that's their subscription program. And through Robinhood Gold, and they have a Robinhood Gold card, what this allows you to do is use Robinhood for your day-to-day spending. And that comes with a 3% cash back, which can be redeemed in the app. It allows you to get matches on retirement accounts. It allows you to get a cash sweep in your Robinhood account. It allows you to have margin interest production fees, all kinds of different benefits that they are enveloping into a full stack financial services platform that covers your day-to-day needs.
Omar Kanji:
[33:50] And so whether you want to spend day-to-day at Chipotle, whether you want to deposit money in the bank, which you'll be able to do over time through their bank partners, whether you want to trade equities like Tesla or NVIDIA or what have you, you can do that directly on the platform. Whether you want to buy crypto, you can do that directly through the platform as well. If you want to punt on options, you can do that. Now they've obviously integrated contract markets. And so if you want to have Robinhood prediction market offerings, you can do that directly through Robinhood as well. And so you can kind of see the whole Robinhood story, which is, I'm going to grow with this cohort of customers. They're going to get richer and wealthier over time. And I'm going to sandwich them with the full range of financial products so that they don't need to go anywhere else. They can use me for literally everything. And I think that is like the part of the product that I, or the part of the business that I'm like the most bullish on, because like, I see it with everyone my age. I see it with people under a younger me and even some of the people that are older. It's just, everyone wants consolidation. I don't want to use a credit card from Amex. I don't want to bank with Chase. I don't want to do all of these things across all of these different places and have 10 different accounts. I want everything to be mobile first and tailored and optimized to the way I conduct my day-to-day life with like extremely limited friction.
Omar Kanji:
[35:09] And Robinhood is certainly going in that direction. And I think when you think
Omar Kanji:
[35:13] about the crypto part of the business, that's where it fits in. It's like our generation is younger. We recognize the importance of crypto, how big of a role it's going to play in society. And it's a great way for them to continue to sandwich these users with the full stack of financial service offerings. But I will pause there. I've gone on for a little bit, but yeah, we can talk about anything.
David Hoffman:
[35:32] I think that was beautifully articulated. I re-downloaded Robinhood. I initially got into investing, like I think many people here, through Robinhood, even before crypto, like right out of college for me. It was like two years before I got into crypto and I was owning like semiconductors. I was owning like 2x long semiconductors because I really like risk. Then I left Robinhood because I got into crypto and so I didn't touch Robinhood for years. But then it was sometime during like the last bear market in 2022, 2023, and we were all looking at coin at like $30. And I was like, well, you know what, I'm going to buy some coin. And so I redownloaded Robinhood for the first time. And that's where I got my first coin shares. And in that process, I was thinking, oh, where do I even go to buy equities? Oh, yeah, I can download Robinhood. And I was thinking in that moment, if it wasn't Robinhood, where else would I go? And I thought, yeah, I guess I could do a TD Ameritrade. I could do a Fidelity. But that just... Doesn't feel right at all. That just feels so boomer. So Omar, the question is, who is Robin Hood's competition? I know there's pre-established brokerages that already have their base, but I couldn't think of a single alternative that was interesting to me as a millennial who just wanted a basic exposure to spot stocks.
Omar Kanji:
[36:48] Yeah. I mean, it looks like all of the people that you know, which is the Fidelities of the world, the E-Trades of the world, the Ameritrades of the world. And IBKRs of the world, like every traditional broker is kind of who they're competing against. But our generation kind of has this tech first approach, I would say. It's like, we want something that's super simple, easy, not hard to onboard onto, which Robinhood abstracts so much of the pain away. And then once you're on there, you want it to be super simple and like relatively few clicks before you're buying an equity. And so like, all of the traditional brokers is who they are competing against is the way I think about it, especially in the US. And you know they compete against the banks more directly on like where they're going with the business today but uh all of the boomer products that you can think of is who they compete with
David Hoffman:
[37:36] Right and i can't imagine any of them are innovating or growing nearly at the rate of speed that robin hood is.
Omar Kanji:
[37:41] Yeah this plays into the other into david's thesis which it which is the exchange infrastructure as a service play i'm going to this which is like everyone recognizes is what's going on. And they're like, okay, I need to provide these customers with the full range of financial services offerings. Crypto is certainly one of them. And so like, how do I get that into my platform so I don't lose them to Robinhood? And it's exactly the reason we've seen Robinhood's accounts grow from 2 million in 2017 to 26 million today. It's just like people are looking for somewhere to do everything in one place. And Robinhood is arguably one of the best places to do that.
David Hoffman:
[38:17] David, when you hear Omar's thesis about Robinhood, what do you like? Anything you disagree with? Anything that you think Coinbase can actually push up against Robinhood with their future aspirations?
David Rodriguez:
[38:28] I love Robinhood. I'm a user. I'm a power user. I know I'm supposed to be a coin bullet here, but Robinhood is a great company. It is a masterclass on product strategy.
David Rodriguez:
[38:39] Whoever their product team is, every single Web2, Web3 company should be trying to post them because it's a beautiful app. It's so easy to use. It's simple. My first foray into investing very much like yourself, David, and I'm sure Omar as well, maybe was downloading Robinhood back in mid-2014, 2015, right out of college and just messing around with options. It was just so simple. As someone that did not do any prior investing prior to that, in my college days, it was investing for dummies. And they made it so simple. But they have obviously large aspirations. And they've done a killer job with their product. They've done a great job with Robinhood Gold. I think what Coinbase can learn from is product first.
David Rodriguez:
[39:28] I don't love Coinbase's main app. It is clunky. I would argue that maybe it's gotten a little better over the past year or so. But it does not have a cohesive... It doesn't feel like a mobile-first app, even though it probably is. But it doesn't feel like it. I can't easily buy and sell assets in the same user interface that I'm used to or accustomed to with Robinhood. I think Coinbase is going to learn a lot from the product and user experience side. But I mean, I largely agree with everything Omar said. They are the millennial, Gen Z, and future generational, JPMorgan, Bank of America, Morgan Stanley.
David Rodriguez:
[40:13] They're killing it. And I think what Coinbase I don't know if Coinbase has the product chops, candidly, to be able to compete with Robinhood in that arena. But I think they do have the chops to do and the expertise on is everything in the back end. Don't get me wrong, they should absolutely still go toe-to-toe with Robinhood becoming a financial super app. And I think they're obviously trying to make strides in that. They see obviously the future of subscriptions. Gen Z's millennials love paying for subscriptions. So they launched Coinbase One, where you get pretty much free training on the app. You obviously can now get the Coinbase credit card, which is very similar to a Robinhood that would have a Robinhood gold. So they're definitely converging on the same offering for retail and B2C strategy. But I think where Coinbase is differentiating is obviously more on the B2B side.
Omar Kanji:
[41:00] Yeah, maybe just one of the things I want to add for the listeners is on the Robinhood side, in 21, there was an existential crisis for the business. And I'm sure many people that are listening probably remember it. But the whole GameStop saga. And I think one of the things, and to draw a parallel back to crypto maybe, is the Maple and Euler stories of this year, which have been like two incredible comeback stories. Robinhood just had like its own version of that in 2021. People hated Robinhood. And if you went on to WallStreetBets on Reddit and you went and like checked out any of the comments, people were seething at that. They despised it. And I think there is certainly something to be said for the businesses that can survive existential crises.
Omar Kanji:
[41:50] Rebuild, and come back stronger than ever. And at the same time, have their customers be some of their loudest supporters and sources of referrals. And if we look back in the history of time, I do think Robinhood's 21 crash will be looked back at as one of the defining moments in its history, which is it survived what could have been the end of the business. And it came back stronger than ever with a reinvigorated product strategy that changed the arc of like what this business is going to look like for the next 10, 15 years. And so I think it's like worth noting that just because like resilient management teams as an indicator for good businesses, you don't necessarily see that too often. And so I think it's worth just noting.
David Hoffman:
[42:36] Yeah, I'd actually like to learn a little bit more about that because to this day, Robinhood's brand still has echoes of that GameStop event. Like when I posted the recent interview with Vlad I did. I had like a, I mean, you get reply guys on Twitter of all shapes and sizes, so there shouldn't be any sort of a particular surprise to anyone. But like somebody was like, oh, Vlad's corrupt because they yoinked the sell button on GameStop. And so, you know, there's some leftover notes left from that PR crisis back in 2021. Now that we have like four years of hindsight behind us, I don't really know the true details of what happened. The accusation towards Robin Hood was that they yoinked the sell button because the guy from Citadel called them up and it was like, hey, or no, there's the buy button. They yoinked the buy button because the guy from Citadel called them up and it was corruption. And then there was like rebuttal from Robin Hood that I don't really remember the nuances, but there was like a seemingly just like perfectly valid explanation for this that no one really wanted to hear. That's my understanding.
David Hoffman:
[43:36] I'm probably I think listeners are about probably where I am. Omar, do you have any more clarity about what happened and if Robin Hood was vindicated or not, or maybe there was corruption? I don't really know the details. What can you say?
Omar Kanji:
[43:48] Yeah, you're pushing the limits of my recall. But I would say that My understanding still is with all of the GameStop volatility, Robinhood had to come up with tens of billions of dollars, if I'm not mistaken, to post with the DTCC, if I'm not mistaken. And they did not have access to that amount of money at the time. And so what they ultimately end up having to do was just restrict trading. And it was largely a function of the regulators requiring them to post capital as opposed to anything like nefarious on their end and obviously like that impacted retail the most and a lot of people that were bidding on the run-up didn't have the ability to sell the stock because of like these crazy capital capital requirements that Robinhood had to come up with and so just turned into a PR nightmare which right ultimately ended up being like oh Robinhood is going after me and their hands were tied and there wasn't really anything they could do. I think the messaging could have been much better and they could have been much clearer at the time if I'm, you know, recalling everything perfectly. But yeah, it was a function of capital requirements as opposed to anything nefarious.
David Hoffman:
[45:01] Right. Right. Yeah. That's my loose understanding as well. One thing I want to touch on, because this will start to bring up some pretty good comparing and contrasting between Robinhood and Coinbase is Robinhood's announced banking platform that is coming, I think, in like Q3 or Q4 of this year, they are just announcing the fact that they can become a bank. And so retail customers can just deposit money in the Robinhood banking platform, which you would think has a very thin wall between their brokerage equity stock platform, something that Coinbase does not have because Coinbase still has banking partners that it needs to bank with. Robinhood itself is a bank. What kind of advantages does Robinhood being a bank give Robinhood over Coinbase, or is that not really much of one?
Omar Kanji:
[45:45] My understanding is that they're not actually going to become a bank. They're going to use banking partners. I could be mistaken, but even if you look at their credit card, they're using Coastal. If they become a bank, there's just a lot, first off, it takes a lot of time. And second, there's a lot more regulation from a capital perspective. Now you have various amounts of capital that you have to post across different tiers to maintain your status with the OCC. And all of the different bank regulators that there are in the U.S. And so Robita doesn't want to do that, but they want to become a financial technology company. And I'm sure at some point down the road, they will arguably try and become a bank. But today, from my understanding, their strategy is to become a bank service provider. And the way you can kind of see it, even on the mortgage side, they're not the one providing the mortgage directly. They're sourcing mortgage rates for you to then switch your mortgage over, which then they get paid for versus underwriting every single new mortgage application on the platform.
David Hoffman:
[46:41] Okay, so they're still more operating as a portal. They're a front end for a different bank that they are just managing for users. Okay, that makes more sense. Let's
David Hoffman:
[46:50] get into some of the things that are definitely running up head to head. So Robinhood just announced the Robinhood chain. They also announced tokenized stocks, which I think is one of the more exciting things that we've seen in crypto, perhaps since the Bitcoin ETF. I can't really think of another thing that was more exciting, more new for crypto since that. Coinbase, maybe two or three weeks ago, filed some requests with the SEC for a regulatory sandbox for tokenized stocks. So you know Coinbase is eyeing this as well. Robinhood, I mean, it's just an announcement, but you can kind of see Robinhood beating Coinbase to the punch in tokenized stocks. And then also the tokenized private equities like SpaceX and OpenAI, I think is extremely exciting to people, only available for EU citizens because of compliance. But nonetheless, you are now seeing Robinhood chain being announced, which of course goes up toe to toe against base. Both Coinbase and Robinhood want to produce tokenized stocks for the crypto world. And so we are now seeing at least some of the spheres of influence butt up right against each other. Omar, when you saw this announcement from Robinhood just earlier this week, what were your first initial thoughts?
Omar Kanji:
[47:59] Yeah, I think, you know, Vlad's kind of teased the announcement over the last, I'd say, six, 12 months. And so you had a decent sense that it was coming. No one had any particularly great insight into what it was actually going to look like. But when it was announced, it made perfect sense. I'd say like, the important thing to understand or think about with respect to Robinhood, and it's slightly different relative to Coinbase, but Robinhood wants to be this place that allows our generation to trade everything. And so...
Omar Kanji:
[48:31] If you like think about it through that lens, like having an on-chain strategy is like critically important, right? Because like now you can have this liquid playground for a bunch of people to trade a range of different stocks, securities, non-securities,
Omar Kanji:
[48:48] Everything that you can kind of imagine under the sun. And like what better way for them to do that than have their own chain? And like in the traditional financial world, trades get routed to the range of traditional venues or liquidity providers. But here, this now allows them to be their own venue. And it's kind of an alternative take on what the world looks like. Whereas Robinhood was facilitating access to the traditional financial world, they're almost building the infrastructure for the new world. And I think it's important to understand when you think about the business as a whole, because if you look at their long-term arc and you go and you read and you listen to them speak about it, phase one of the business is be this active trader platform. Phase two is like the all-in-one neobank platform, which is like all of your financial services needs. And phase three is like the world's financial infrastructure. And so if you think about it through that lens, this is like a perfect piece to add into their product strategy, which allows them to offer like tokenized equities. It allows them to like use that as an infrastructure for the range of foreign markets that they're going to enter into over time. It allows them to offer a range of things like private stocks, again, which people can't trade, it'll allow them to do private real estate over time, like a whole bunch of different products. Now you have the flexibility to do in an environment which you control. As opposed to going and trying to back into the traditional financial system and working with the range of players. David, from the
David Hoffman:
[50:16] Coinbase side of things, what do you think was going through Coinbase's head when they saw this announcement? I'm sure that they thought that this was inevitable, but now they have a moat to defend, right? Base, pre-existing ecosystem, Robinhood, just Robinhood chain just an announcement. And so it already has a huge head start, but you can see Coinbase's biggest rival in this space start to appear. So what does coinbase need to do to defend its mo what do you think its next steps need to be yeah.
David Rodriguez:
[50:43] I mean i think that coinbase is still largely like the premier u.s based crypto exchange and like they're obviously trying to expand internationally obviously robinhood is starting largely with international you know largely eu markets for its crypto strategy which makes sense given the regulatory environment there i think that i think they're thinking like we have to be first mover advantage to all US-based crypto products in order to continue on if they're going to try to tackle Robinhood against the B2C vertical. They're launching US perps in, I think, July 21st, so two and a half, three weeks from now. Their hope, I'm guessing, is similar to what Robinhood did for options. They made options easy for our generation for high beta chasing risk on customers and like perps of the next evolution of, you know, pretty much options for crypto natives. And they're trying to introduce perps to the US capital markets, you know, the retail base for them. So I don't know if Rob, I don't know why Robinson hasn't announced US perps yet. Obviously, it's not a regulatory thing. Maybe it's because the acquisition of Deribit for Coinbase effectively allowed them to do this. And they're not effectively perpetual futures. They're actually There's long-dated options to have a five-year expiry, but who really holds perps for five years straight?
David Rodriguez:
[51:59] So I think Coinbase is thinking a few things. It's one, we have to grow US perps ASAP. That could be a material revenue driver for the business if they succeed. We already know how much Binance, for example, I think 90% of their entire trading volume is perps compared to Spot. And it's a large revenue driver for Binance and other offshore centralized exchanges.
David Rodriguez:
[52:22] I'm unsure how worried they are about Robinhood Chain. They should be worried. But if history repeats itself. Other centralized exchanges or with large distribution, large customer bases have not done that well launching their own L2 or their own L1. BNB may be the exception given they're the 900-pound gorilla in the room. They have a 100 million plus global US base. But if you look at every other centralized exchange so far, haven't done that well launching their own L2.
David Rodriguez:
[52:53] Bybit, I think they've reported they have a 60 million global user base. That is significantly larger than what robinette has has anyone used mantle i haven't they're now launching on solana with their own like you know decks has anyone used ink nothing against kraken i think they're a great exchange i am a customer of theirs as well but like i haven't used ink and now they're launching tokenized stocks on solana yeah world chain like i not the exact same thing but like world chain has also found a limited traction coinbase has a crypto first culture they have the brand and i think it's gonna be very hard to unseat coinbase as a l2 or as your own like execution environment but if any team is going to beat them it could be robinhood because of their operational excellence and their just their ability to execute but i i think obviously they're probably worried about their international expansion plans like robinhood going into the EU is obviously a risk for them.
David Rodriguez:
[53:56] Coinbase's international derivatives platform has grown a decent amount over the past six or so months. I think they recently hit over 10 billion OI. I could be mistaken there, but it has seen some really good growth over the past, I guess, the other date. I'm not personally familiar with how strong Robinhood's brand is in the EU. I think that'll be very interesting to see in the coming quarters on their earnings report, like how well is their international expansion plans growing.
David Rodriguez:
[54:24] Coinbase hasn't done exceptionally well on that front. And I don't know if that's an execution problem or the fact that like Binance and all these other offshore exchanges just have like such a moat and Binance themselves in their own right are trying to build their own super app. Right. And they have, again, a order of magnitude, maybe of more users than, than Robinhood does. And they have shown to their ability to execute over the past few years. If I'm Coinbase, the first thing I'm thinking about is make US perps the go-to venue for high beta chasing retail users. That should be the product that can potentially absorb or take users away from Robinhood. I'll stop for now and see what your guys' thoughts are.
David Hoffman:
[55:05] Omar, rebuttal, thoughts, arguments, what comes to mind?
Omar Kanji:
[55:09] No, I think like that is one of the Coinbase strengths, which is like it is a crypto first brand and a crypto native company. And because of that, they have like a range of different advantages that they can play in when Robinhood starts encroaching on their territory. I think, you know, if I was to articulate like the bull case for Robinhood is on the crypto side today anyways, I think like it's like a fee story largely, which is like Coinbase still charges like 1.4% roughly on retail trading volume. And HUD comes in at like 40 basis points. It's just like materially cheaper
Omar Kanji:
[55:44] to trade crypto on Robinhood. But at the same time, like I'm here in New York. And if I go to the Robinhood app and I try and buy crypto, there's like 22 tokens I can buy or roughly that number. Whereas if I go to Coinbase, I can buy 200 plus tokens. And I think like this crypto nativity and the willingness to take risk is like what really does allow Coinbase to build out its product offering, customer base, user base and like retain customers relative to, you know, a challenger that's entering into its space and trying to poach its customers on the retail side. And so like, I largely agree with everything David said, like, they do shouldn't lean into perps. It is a great product. Robynow doesn't offer them yet. I'm sure they will at some point.
Omar Kanji:
[56:31] Robynow is doing it out of Europe and like leverages capped at 3x. But it you know, it's still like a very nascent battleground, which Coinbase has a really, really good advantage in. And so they should just push on the gas if I were them.
David Rodriguez:
[56:47] Yeah, I think also a story for both companies, especially with Robinhood Launch and Robinhood Chain, is going to be what does that take rate look like over time? So Coinbase is obviously trying to, in a way, disintermediate its largest revenue driver, which is transaction revenue. I think its mixed take rate is approximately 30 bps between the retail and the institutional user. Obviously, retail gets absolutely fleeced, but it's the greatest business in the world.
David Rodriguez:
[57:13] But if you look at base, right, and they're obviously trying to, they're going to be enshrining, I guess, all the assets launched on base onto their front end on the Coinbase main app and eventually go after other assets on other ecosystems. The take rate, so if you look at like BASE's DEX volumes as a function of its sequencer revenue, it's an order magnitude less. So they have a 30 BIPs take rate on centralized exchange front end. BASE gets approximately a 3 BIPs take rate. And I think their thinking is we're going to move more on chain, the lower take rate, no other centralized exchange or no other traditional financial company can compete with us if we can offer a 3 BIPs take rate. But they're going to take maybe the Solana approach, which is low fees, high throughput equals more REV, more revenue, whatever you want to call it. And I'm curious to see what Robinhood's transaction revenue is going to be as more of its trading does move on chain. Is it going to be a similar take rate? Probably. Another thing that I think about when I think about Robinhood's business is you called out earlier, Omar, which is payment for order flow. The EU has banned payment for order flow as of the end of 2026. So what does that revenue model look like in the EU? And obviously, the US, it's still legal today. It will be legal tomorrow, probably. We have probably a more progressive regulatory environment in that sense.
David Rodriguez:
[58:37] But it will be interesting to see how well Robinhood does in international waters. Again, I don't know what the brand is internationally. I have a tough time believing that anyone that is using an offshore centralized exchange today will move to Robinhood. because Bybit, Binance, OKEx, you know, objectively offer great products for crypto users. But, you know, again, Robinhood is a behemoth and like really does have really strong execution and operational excellence. So maybe they can take users from those players.
Omar Kanji:
[59:08] Yeah, Mick, the only thing I'd add to this is like on the Robinhood side, if you like listen to Vlad talk about, you know, Robinhood chain, I think one of the things that he said recently is like he's going to focus on having an active developer ecosystem. And so that's Robinhood very much coming into Coinbase's territory. And obviously, Jesse's done a great job. And they have really built out that ecosystem. And so there are going to be challenges for Robinhood as they move on chain. And I know I'm the Robinhood bull here. I'm not trying to give too much of a fair case, but it will be a challenge for the business. And they have 10 different business lines that roughly do $100 million dollars plus each. And so they have a lot of shovels in the fire and lots of things that they are trying to do to build out that business across a range of vectors. And going to beat Coinbase on its own game is really, really hard. And so there are things to keep in mind and be careful of and just watch out for as Robinhood expands to this on-chain ecosystem. I'm sure a lot of people will build there, to be honest, just given the captive user base that Robinhood funnel but at the same time it's like if they have prided themselves on building great products and like they have to continue doing that and
David Rodriguez:
[1:00:18] I bet you robin hood's developers that launch on robin hood chain are going to be using coinbase developer platform to
Omar Kanji:
[1:00:23] Build their app yeah that's funny
David Hoffman:
[1:00:27] Guys, I've learned a lot so far in this conversation. So really, really glad you guys were able to come on and shed some of your knowledge. As we kind of wrap this up here, let's go back to the very beginning where I talked about the current valuations. Hood, the ticker is hood, $81 billion, coin $85 billion. So again, roughly neck and neck as it kind of stands today. Omar, when it comes to future hood aspirations, I know I can't ask you to ever predict the future of the market. it. You know, we have macro that we have to can be concerned about, but obviously your bullish hood, like what kind of numbers are you looking for? Are you looking for, you know, a 50% gain? Are you looking for a 500% gain? What kind of timelines are you thinking about? Just shed some light about your future, your future imaginations for where this could go.
Omar Kanji:
[1:01:10] Yeah, I haven't sold any hood and I've sold it for a while. And I think that one, the one aspect of this story that we like didn't talk about, which is like really important to think about when you look at hood's valuation is there is like our parents generation and our grandparents that unfortunately aren't going to be with us forever. And like the way Robin hood is building their business is to very much be the primary recipient of like this generational wealth transfer. And if you like, look at a range of different forecasts, like the numbers look something like 10 trillion dollars over the next decade plus. And so like,
Omar Kanji:
[1:01:46] If you were to just like truly think about what happens in that bear scenario where someone that you love or in your family passes away, where does that money flow? Does it end up sitting on like the traditional platforms that your parents are using? Does it end up coming to what you're using?
Omar Kanji:
[1:02:02] And I think like, I have a quite constructive view on that, which is, I think Robinhood is going to be one of the primary beneficiaries, especially if I do my banking, my payments, and all my investing. And if that number is anywhere in that wheelhouse, and they're able to capture, you know, 10% of that, which is like a trillion dollars, which is insane, you know, so 1%, you know, you are talking about a business that can more than double, triple, or quadruple, without like having to go too far out on the imagination spectrum. And so it's part of the reason why they bought a company called Trade PMR, which is, if I have money passed down, I want to do it in the most tax efficient and optimized way. And so that when that money does come, I have access to the right financial advisors. I have access to the right tax professionals. And I have right access to like the range of different investment alternatives to make sure my family's set up. And then when you think about it in the construct of their whole business, which is like, if I have a Robinhood gold card, and I have virtual cards for my kids, and like my wife is on it, and everything is encapsulated, Robinhood will be one of the primary beneficiaries of all of that in the future. And so I think when you look at $80 billion, it is expensive. There's no doubt about it. The stock, to your point, it's run up a lot recently. But I do think if the business is the primary beneficiary of this wealth transfer, and you don't really even need to believe anything else. You can almost discount the crypto stuff.
Omar Kanji:
[1:03:28] It's a business that should be worth a few hundred billion dollars over the coming decade. And I think it's probably underselling it relative to the opportunities set globally and the financial infrastructure globally, and the range of different ways they can monetize. Today, it's $150 million or $150 ARPU per user. And so I think they're... Yeah, I'm not going to put on a specific price target on it, but I do think it's expensive relative to the business today, but it's not relative and not expensive relative to what it can potentially grow into. And so for that reason, I continue to be bullish. And I am a big fan of Vlad and everything he has done. And I feel like it sits at the perfect intersection of changing technology, just global societal trends with populations, and the way we interact with technology. And so I love it for all of those reasons. They've done a great job. And so I think even if the valuation does seem expensive today, if you look at it on a reasonable time horizon, they can more than grow into that and exceed it by a large margin.
David Hoffman:
[1:04:31] I definitely really enjoy that thesis because this is also one of the same theses that make me bullish about crypto. This is something that the crypto industry has chanted. It's like when that wealth does come down from the boomers and the Gen Xs down into the millennials and Zoomers, those generations are going to buy assets that they relate to, which is Bitcoin and crypto assets, Ether. And so I've heard that same thesis, Omar, but I've also heard it in the crypto context, too, which definitely benefits Coinbase in a similar fashion. Maybe Robinhood has a bigger net, and I could totally take that argument. But nonetheless, I think that's generally bullish for crypto assets, which I'm going to take that same argument and give it a plus one to the Coinbase side as well. David, I want to throw the same kind of question to you. Again, $85 billion Coinbase is where it currently sits. Again, I don't want to pin you down to any sort of timeframes, but give me a similar kind of ending thesis to Coinbase and its future aspirations.
David Rodriguez:
[1:05:27] Yeah, I mean, I said something to Omar, I would say, yesterday or the day before. I think the target for both these companies is higher on a longer timeframe. The near term target is Bank of America, $300 billion plus market cap. The long term target is overtaking JP Morgan, $800 billion plus. I think both of them can do that in a decade, potentially by the end of this decade, depending on how large the shift is in terms of global wealth transfer
David Rodriguez:
[1:05:51] from demographics and also a technology shift from off chain to on chain. So I think Robinhood is the demographic wealth transfer play. I think Coinbase is the technology shift play to the global on-chain economy. Sorry, the global economy moving on-chain. Coinbase is the preeminent...
David Rodriguez:
[1:06:12] U.S.-based crypto company, the largest capital market in the entire world, $100 trillion plus on global economy. If you believe that the capital markets will move on chain, I think Coinbase is the clear play. It has $930 million of adjusted EBITDA in Q1 alone, compared to Robinhood sitting at about $430 to $450 million adjusted EBITDA. Yes, Robinhood does have a higher ARPU. I think it's like 30% to 40% higher, even though it's largely an estimate on Coinbase because they don't share their monthly transacting users anymore like they used to.
David Rodriguez:
[1:06:46] Robinhood does have a larger net today. But I think if you look at the overall growth rate of Coinbase year over year, even quarter over quarter, over year over year basis, it's growing about 25%. Obviously, maybe a little harder to discern because of the cyclicality nature of the crypto industry. But if you look at its subscription and services revenue, it's growing at about 35% to 36% year over year. Very much like what Omar said, I think both companies are expensive today. But I think that if you look at both businesses, they have a very clear line of sight to 10xing their revenue over the foreseeable future. I think Coinbase's revenue growth is largely going to come from maybe in the short to midterm, maybe it comes from US perps, if it is a hit, in addition to the growth of stable coins on chain and obviously getting the large revenue share from Circle. I think the long-term thesis on Coinbase is that it is a thin layer. It is a thin infrastructure layer for the economy moving on chain. And it's going to power every single front end, TradFi or fintech front end in the world, maybe outside of Robinhood. But every single developer that is building in the on-chain economy is going to be using some tool set that is developed through Coinbase. And they're going to figure out a really intricate or really elegant way to monetize that and have a high-margin, high-growth business for years to come.
David Rodriguez:
[1:08:10] Yeah, so very bullish both. I think Coinbase is just a bet on the industry growing.
David Rodriguez:
[1:08:18] Robinhood is a bet on Robinhood. And I think both will do extremely well.
David Hoffman:
[1:08:22] Well, I mean, I went into this episode thinking like it's going to be coin versus hood. But I think it's as we wrap this up, it's going to be coin and hood. I don't really see why they actually need to be there. They are doing very similar things, but in pretty different lanes that definitely do touch in certain arenas. But overall, I think it's just a story of two new companies bringing the world of finance into modernity in their own particular ways, in ways that are very necessary and meaningfully differentiated. And so this was a great discussion, guys. And I think my big takeaway is going to be Coin and Hood in the future.
Omar Kanji:
[1:08:59] Awesome. Thank you for having us. It was great.
David Hoffman:
[1:09:03] Great talk. Omar, we will get your Twitter into the show notes. You are from dragonfly and david we will also get your twitter from in from from twitter into the show notes as well you are from blockworks guys i learned a lot you guys were this is a phenomenal episode really appreciate you guys coming on and sharing your knowledge.
Omar Kanji:
[1:09:18] Thank you very much thank you again
David Hoffman:
[1:09:19] Bankless nation you guys know the deal crypto is risky equities they're risky too but you know what being sidelined also risky so you can lose what you put in but nonetheless we are headed west this frontier it's not for everyone but you're glad you are with us on the bankless journey thanks a lot.
Music:
[1:09:46] Music