Coinbase made it possible to borrow cash against your Apple or Nvidia shares without selling them — not in a bank, on a blockchain, 24 hours a day, 7 days a week. That is the capital efficiency story nobody is talking about. Joining me is John D’Agostino, Head of Strategy at Coinbase Institutional. John, welcome back to Capital Markets.
It is wonderful to be here.
Coinbase tokenised stocks can now be used as collateral to borrow cash on Aave. Walk us through what that actually unlocks.
I will try to keep this super simple. You can right now get a brokerage account anywhere, buy stocks, use them as collateral, and borrow money against them. So why is this different? It is different because Aave is a decentralised platform. What that means is you are able to access lenders who are all around the world — theoretically billions of new lenders. When you widen the market for something, the cost tends to go down — meaning better rates for the borrower. So the basic premise is going from a world where you have a limited number of counterparties to borrow from — your prime broker or your bank — to a world where you have in theory millions of participants competing to lend to you in a decentralised way.
Practically, how does it work?
Out of Abu Dhabi, we have a tokenised equities platform. You buy a share of stock on your behalf. That physical share in digital form is custodied in a traditional way under an ADGM FSA-registered custodian. Coinbase then mints a token that represents that equity one-to-one backed. That token is your ownership of that equity. You can take that token and stick it in your Coinbase wallet. If you wanted to do something with it, you could earn yield — but you could also use it as collateral to borrow through a decentralised platform. Aave has linked up with Coinbase to allow their lending platform to read our wallet. Their lending platform knows that token is sitting in your self-custodial Coinbase wallet — and it allows all the participants of Aave to recognise that collateral exists and loan USDC, our stablecoin backed by US treasuries, against it.
Most people think tokenisation is about owning an asset on a blockchain. You say the real story is what you can do with it afterward.
That is really important. If all we accomplish by tokenising things — whether equities, commodities, art — is just create a better ledger, it is marginally useful. It has to have better functionality. The very simplest functionality is 24/7 trading. HyperLiquid proved this year that 24/7 exposure to valuable assets was useful. When the conflict started, if something happened at 9 p.m. US time in the oil market, you had to wait until the next morning. Blockchains are proven to be very resilient ledgers that operate independently 24/7 365. We have had a couple of exchanges in the US say they are going to launch 24/7 trading and then cancel those plans — because legacy systems are not designed for 24/7 resiliency. Blockchains are. The second big functionality is composability — the ability for an instrument to exist on centralised exchanges but port over to decentralised platforms everywhere. And then there is the ability to encode functions through smart contracts — if you own more than a certain percentage of equity in a company, reports get filed automatically. Those characteristics — interchangeability, 24/7 access, instantaneous settlement — that is what turns this into a real fundamental shift.
There are $300 trillion in high quality liquid assets globally but only 10% used as collateral. How does Coinbase change that?
Tokenisation puts things on an interoperable platform. Let me give an example. Two friends offer collateral — one a bar of gold, one a Monet painting. The quality of collateral is a function of the quality of the asset, yes. But it also depends on your ability to use it. If you are a gold trader and I do not pay back the loan, you can sell the gold. But if you have never touched physical gold — and you are an art critic who knows all the buyers and sellers of art — you choose the Monet. Tokenisation does not magically make a bad asset a good asset. But it starts to create interoperable markets that are easier and more liquid to navigate. The likelihood of you being able to move that collateral increases — and therefore your willingness to accept it as collateral increases. Now take stock markets and expand them to the entire universe via DeFi — like what I described with Aave and Coinbase — and you can see the power.
What is Coinbase building next in the region?
We have Deribit — the largest transaction in crypto — operating under VARA in Dubai doing derivatives. Very easy to remember — derivatives in Dubai. And we are doing our tokenised equities out of FSA in Abu Dhabi under ADGM — equally amazing regulator to work with. We got up and running very quickly, have seven tokens launched and many more coming. Derivatives in Dubai. Asset tokenisation in Abu Dhabi. We have decided the UAE is our primary non-US centre to reach the rest of the world. If you have a legal entity in New York, one in an offshore territory like Bermuda or the Bahamas, and one in the UAE — you can paper to any person or entity in the world. That is the minimum viable footprint to cover the globe. And we have that now.
Thank you so much for being here with us today John.
Always a pleasure. Thanks.
