Coinbase Global, Inc. (COIN) Earnings Call Transcript & Summary

Okay. I think we are going to get started here. I am very pleased here to have Emilie Choi today, President and Chief Operating Officer of Coinbase; as well as Faryar, Chief Policy Officer of Coinbase, also a Goldman alum. Very excited to have both of you guys on stage with us today. Before we get started, I'd like to remind you guys that during today's call, the company may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in Coinbase's SEC filings. Our discussion today will include reference to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures provided in the shareholder letter on the company's Investor Relations website. Non-GAAP financial measures should be considered in addition to, but not as a substitute for GAAP measures.

All right. Thank you, guys. I wanted to just jump right into it because I feel like we've got a lot to cover here. Emilie and Faryar, thank you so much. I wanted to kick off the question just on the operating environment, I think question on a lot of people's mind. Over the last year, many people have argued that you transitioned from a crypto summer to a crypto winter. Prices are down. Regulatory scrutiny is up. There've been some high-profile collapses of crypto firms. So high level, how are you thinking about the operating environment over the next 12 to 18 months? And then could you talk about how Coinbase's priorities have shifted as you navigate the market backdrop?

Yes. Thanks for having us, Will. We're happy to be here. So first of all, we have long-term conviction in crypto. Our whole business is oriented around crypto. So we are always going to make the right kind of long-term investments in the business, and we were very explicit about that in our S-1. The other thing I think folks should just remember is that Coinbase has been around for more than 10 years at this point. We've been through 4 crypto cycles. So we know how to navigate both the ups and the downs, and we're going to continue to do that. I think we are obviously in a challenging macro environment. And so we're going to be laser focused on core and strategic opportunities for the company. These include retail, institutional through Prime, we're focused on staking. We're focused on cloud, and we're focused on Web3. In terms of this environment, we are obviously also reducing expenses and costs. So our marketing spend has come down. We're optimizing professional services spend. We are optimizing infrastructure spend, and we'll continue look for ways to cost minimize during this environment. But I would leave this audience with we believe in the future of the crypto economy, and we are going to make the investments we need to. They will have a high ROI bar, but we're all in.

Got it. Very clear. Switching over to Faryar. Really thankful to have you here. And frankly, I can probably ask questions for 40 minutes on the state of crypto regulation, but maybe it's most efficient. Let me just hand over the floor to you. What is the state of the union or the state of play for crypto policy? And how are you thinking about progress over the next 12 to 18 months?

Well, thanks, Will. Thanks for having me. Yes, it's a big topic. I would say if I had to sum it up, I would say we're in a crypto spring as it relates to crypto policy. And what I quite say that is that I would say 2021 and 2020, we're all about regulators coming to terms of the fact that crypto's here to stay and then trying to figure out what the regulatory framework should look like. And then what we're seeing over the course of this year and going into next year is jurisdiction after jurisdiction all around the world making the decision about what that framework should look like and generally opting for enabling effective and mainstreaming regulation to essentially ensure that they don't fall behind in sort of the development of Web3 in their markets. So for example, in Europe, just a couple of weeks -- a few weeks ago, they passed MiCA, which is their crypto asset regulation, which is enormously exciting. And I think we're going to talk about later. But I think if you -- but it's useful for people who aren't familiar, not watch the space that closely, there are basically 3 categories to look for when you look at crypto policy. One is the regulation of crypto commodities, which is 90 X percent of the market as it exists now, stablecoins and then cryptosecurities. At least in Washington, if you look at the -- what's happening on crypto commodity is there's a bipartisan consensus that's emerged. And it's manifesting itself in 4 really important bills, co-sponsored by very prominent Democrats, Republicans, conservatives, progressives, essentially creating a comprehensive national regulatory framework or the CFTC as the core regulator for the crypto commodities markets. We're very positive about this and very hopeful that there's a chance of -- a decent chance they we could see legislation happening as early as next year. The second category is stablecoins. And with regard to stablecoins, the Presidential Working Group wrote a report on this. There's negotiations the treasury's been conducting with the leaders of the House Financial Services Committee. There's a lot of expectations they potentially will land somewhere by the end of this congressional session potentially going into the next one. So there's a decent chance we'll see some clarifying legislation around stablecoins as well. Crypto security is the hard one, and you -- to the extent you've watched this, we talk a lot about this. There is, at the moment, a completely undeveloped crypto securities market because of the regulatory barriers to issuing tokenized and digitized security products. And we've talked a lot about this. So we're very hopeful that there will be clarity. In fact, we filed -- we've submitted a petition, which is kind of a novel thing for a market player to do, but we submitted a petition to the SEC encouraging them and essentially laying out a road map for whatever we're making could look like around crypto securities. And we're hoping there'll be some interest in picking that up because I think it would be exciting to see the well-developed commodities markets, the stablecoin markets be joined by well-developed securities markets along the lines of what we're seeing around in other markets around the world.

Got it. And so it sounds like there's a lot of things still on the come. What does the current landscape look like for crypto regulation? I mean, there's a perception out there that the SEC is the only agency regulating crypto in the U.S., for instance. Who are your primary regulators? And what -- how do their focuses differ between the various?

Yes. That's funny because you'll see sometimes people will comment publicly that crypto is not regulated and needs to be regulated. I think that's news to our compliance people, our lawyers, people like me, to Emilie, who has to pay for all of us to do what we do. We're an extraordinarily heavily regulated industry sector. So we operate -- our primary businesses are operated out of 2 New York Department of Financial Services entities. So we have a BitLicense that we use to operate the exchange, and then we have a trust charter that we use for our custody business. We then have a -- I think it's about 47 money transmitter licenses in all the various states around the country. We're a Department of Treasury, FinCEN-regulated money services business. We have a CFTC-regulated derivatives and futures exchange. We have licenses in many of the foreign jurisdictions in which they have crypto-specific licensing regimes. So Japan, we're close in Singapore, Germany and other markets as well. And then we are -- obviously, as a public company, we operate under a variety of other sort of areas of oversight. Our strong interest is to take this sort of fragmented regulatory system, particularly in the United States, and to consolidate it into comprehensive national regulation. But it won't be a matter of taking no regulation and adding regulation. It's a matter of taking what is currently a sort of a patchwork approach in creating a much more of a national comprehensive approach and which we think would be enormous positive. And I know like in the midst of all of that, there's a lot of questions about the role of the SEC. As I said, we would embrace the idea of being able to build our business into the security side. I think we think there's enormous opportunity, both in terms of creating tokenized debt and equity as well as the broader -- the -- creating sort of hybrid-type products that we could potentially regulate under SEC oversight. But at the moment, and just surprised people who are not aware of this, you actually cannot under the current securities regulations trade tokenized instruments. You can't trade a tokenized equity. You can't trade tokenized debt. So there are real impediments. So we've laid this all out in this petition document that we put out because we think it'd be a real sort of transformational moment if we could work with the regulators and policymakers to unlock the security side.

Got it. So still a very fragmented landscape on the regulatory side. How do policymakers feel about the regulation of crypto? It feels like one of the few bipartisan issues in Washington. Is that how it feels to you?

Yes. No, it's fascinating. The [ Fed ] follows that you find on crypto legislation are fascinating. They -- It think we maybe the only or the last bipartisan issue left in Washington. So you've got bills on the House side to make the CFTC the spot market regulator of this crypto commodities co-sponsored by very well-regarded progressive like [ Rokano ] together with the House Agriculture Committee ranking member GT, Conway, very different members. I'm guessing if you had to line up their votes on almost every other issue, they'd be a miles apart. But they've joined arms together on this one. So Kirsten Gillibrand and Cynthia Lummis have put together a really thoughtful, comprehensive crypto bill. Chairwoman Stabenow send out to that committee and her ranking member, Senator Boozman from Arkansas have put out a really exciting bill to do this. And you find this pattern occurring over and over again. I joined Coinbase about 13, 14 months ago. And the degree to which we have been able to onboard, and I don't want to take credit for this. I think members are smart enough to see what's coming on the horizon, and they want to make sure the United States doesn't fall behind. But the number of members who've now sort of signed on to wanting to be a part of shaping the future is one of the most exciting things professionally to be a part of.

Got it. Sounds exciting. Sound like you got your work cut out for you though. Maybe switching gears over back to the business. You mentioned being focused on staking in the near term. It's been one of the greatest adoption trends at Coinbase more recently. It's driven a lot of growth in subscription and services. It's created a lot of reoccurring revenue. Could you talk about the product as it stands today? How does that product differ across the retail, the institutional and then the Coinbase Cloud platform? And how do you think about the opportunities in each going forward?

Yes. So for those who need a refresher, staking is basically a mechanism whereby a protocol will pay a user to validate a transaction on the blockchain. And it's a very unique way for users to engage directly in the crypto economy. It's a very novel thing. What's interesting is that I think in Q2, we reported that more than 2/3 of our monthly transacting users were engaging in some form of noninvesting activity, and that was largely in staking. And staking didn't really even exist in the last crypto winter in 2018. So one thing about crypto that I love is that you have these new technologies and behaviors that emerged that didn't even exist several years ago. That's part of the beauty of the whole space. When we think about staking, we have 3 core customer segments. We have retail, institutional and developer. And we're going to just build once and be able to deploy 3 different ways. So for example, perhaps the developer wants us to run a node for them in staking. We will do that. Perhaps a retail customer wants to do staking, but they want us to do it on their behalf. So there's a whole host of ways in which we can engage. In Q2, we added a couple more staking assets, Cardano and Solana. We'll continue to explore adding more staking assets, adding more liquid staking capabilities, expanding across our different customer sets and then, of course, globally.

Got it. I think a decent segue into the Ethereum merge, which this presentation is very timely because, knock on wood, we're very close. This -- I mean, this seems like a kind of a watershed moment in the space. How are you thinking about the implications for the merger -- for the broader ecosystem and then for Coinbase as well.

So the ETH merge is expected to happen this Thursday, so it's very timely. And it's going to be moving ETH from largely proof-of-work to proof-of-stake mechanism, which is exciting in many ways. Zooming out, I think the most important thing that it represents is that there can be continued sustained technological development done by decentralized communities at scale. To me, that's the most important kind of takeaway about the ETH merge. In terms of just how we participate, we're always going to be working with developers to support this. I think that the absolute most exciting kind of feature of the ETH merge will be more blockchain scalability, which just makes things run faster. So if you think about something like the mobile phone in its early instantiation, it was super slow and clunky and then got faster and faster and slimmer and slimmer and sleeker. And I think that you can think about it in an analogous way. It's also another interesting way for users to participate directly in the crypto economy. And then third is that it is just more environmentally friendly. So energy consumption may be reduced by as much as 99.95% when you move to proof of stake, which is incredibly exciting. I think nothing comes out perfectly hatched. So I don't think on Thursday, all of a sudden, everything changes. I think that this is an incredibly important step, and we're cautiously optimistic about it.

I guess what about the catalyst for adoption of ETH staking on the platform?

Yes. I mean, I think that when you think about the scalability factor, that attracts more developers into the space. That attracts more users into the space, so it just becomes this great virtuous cycle.

Got it. So switching gears a bit. One of the most topical questions since the earnings call has actually been on the interest income side of P&L. I believe the component subscription and services largely. Given where the rate environment has gone, I think we're seeing a lot of companies kind of benefit from this and kind of unexpected ways. You guys have an interesting relationship, I think, with USDC, which, in particular, I felt was a bit misunderstood this most recent quarter. Could you dive in a little bit about the various ways that Coinbase makes interest income off of the platform and then just how you expect, particularly on the USDC side to flow through over the next however long.

Sure. So obviously, rising interest rates negatively impact our core business in some ways, but we have exposure to business lines that also benefit from rising interest rate. The first one is USDC, which is our fiat-backed stablecoin. We have partnered with Circle on that through a vehicle called CENTRE. And the market cap of USDC right now is about $50 billion and growing. And again, back to this other point about nascency and when things develop, USDC was built in 2018. So things kind of in crypto are funny. They kind of like sputter along, and then they don't show much promise. And then all of a sudden, you'll have this sustained growth after a certain point, but you have to be very patient. And I think that's what we've seen with USDC. So we monetize USDC because it's fiat-backed, so that generates interest rates. When we mint, we derive a revenue share from that. And then anything on our platform, we have 100% revenue share on that. So that feeds into our interest income line. We also have customer custodial balances. I believe that's around $7 billion of fiat. And so this is just like Venmo or PayPal. You monetize that, that drives, again, interest income. And then we have corporate cash. So we have, I think, $5.7 billion as of last quarter. And so we are monetizing that, and then that feeds the other income line.

Got it. Very clear. Maybe switching gears to the competitive environment. It's always a very hot topic. We've recently seen Robinhood expanding their crypto wallet to an open ecosystem. We saw some movement on trading fees at Binance. I think the amount of advertising for crypto particularly much earlier in the year was very high. How do you -- who do you see as your main competitors? And I guess, how is the competitive environment evolving given this environment that we're in?

We genuinely believe that the total addressable market of crypto is going to grow, and grow, and grow over time. And there will be many ways for many different players to monetize from that. So we absolutely do not view this as a zero-sum game. Many of the Web2 companies looked at things that way. It was actually a big education for me to come into Coinbase and think about things in a completely novel way. And that's genuinely how we think about it. To frame it up, the way that I think about competitive landscape is that there is a group of very crypto-native players who build crypto-native features, leading edge. They are located offshore. They have incredibly rapid development speed, and we admire them greatly for that. It is going to be very hard for them to play the same game in regulatory compliance security as us. There's also the financial institutions that want to dabble into crypto. And we love that because it validates the space. They are never going to be on that spectrum of being able to offer truly crypto-native capabilities to their customers. And so in many cases, we can partner with them as we recently announced we did with BlackRock. So ultimately, the way that I think about our value prop, how we differentiate in this whole competitive landscape, one is that we are a comprehensive suite of services. So you have one account, whether you're a retail, institutional or a developer. And you're going to be able to do a whole host of crypto activities: buy, sell, trade, custody, stake, et cetera. And that's just going to keep growing and growing. And we're going to expand our engagement and share of wallet with those customers. Another is safety, security, compliance. We always leaned into those even when it was not intuitive to do so or when it was expensive because we know it's the right thing when you're a highly regulated institution. And then finally, we always focus on ease of use. We have tracked the way to complexity of crypto for the average user, and that makes it much more pleasant to engage in the crypto economy. So we feel really good about our positioning.

Got it. That makes sense. I guess Coinbase is a very U.S.-centric company. Crypto is obviously a global asset. You mentioned many of your competitors are actually offshore. How big of a priority is international expansion for Coinbase in the future?

We are very happy with our U.S. position, and we're going to continue to invest in growing that. International is very important. So we have a two-pronged strategy there. One is go deep, and the other is go broad. So when we think about go deep, if you think about Coinbase and how we kind of got started in this, we were always the fiat-to-crypto bridge for those who wanted to get into crypto. Being the fiat-to-crypto bridge and being somebody who kind of wants to expand internationally in financial services, it's extraordinarily difficult. It means that you have to build local fiat rails and relationships. It means that you have to build local regulatory relationships, and that process can take years. But it is a very differentiated position and one that plays very much to our strength. So to that end, we are hiring in U.K., Brazil, EU and other places, Australia, where we believe that there is a disproportionate opportunity for us to play that role. On the go broad strategy, we also expand fast and scalably through wallet and through crypto to crypto. I think we're in now 21 different languages for wallet. I encourage anybody who hasn't played with our wallet product lately to do so. It's been getting rave reviews. It's just a whole different product than it was not too long ago. Ultimately, for us, our mission is to increase economic opportunity in the world and economic freedom in the world. And in order to do so, we have to be a global company, so we're all in.

Makes total sense. Faryar, I want to get you involved again. I think in the shareholder letter, Coinbase referenced a wave of global crypto regulation. I was wondering if you could help unpack that for us. Where are things moving fastest internationally and what kind of opportunity does that open up for you?

Yes. I would say other than China, I would say the question is really where are they not moving forward aggressively. So I was just in the EU, for example, last week, meeting with European policymakers. We're about 4 weeks out from their passage of the MiCA regulation. So this is the market in crypto asset regulation. And so for those of you who haven't paid attention to it, this is a landmark piece of EU-wide legislation that will create a single market across 27 member states, 550 million customers for crypto asset service providers like ourselves. So right now, if you have to operate in Europe, you have to go market by market by market to enter. MiCA has now created a pan-European framework. It's enormously exciting. It's a sign that Europe wants to be a leader in this space. And having the models that Emilie described, the regulatory forward, compliance forward model puts us in the pole position to be able to take advantage of MiCA once it goes into effect because we've got the systems in place and the reputation that allow us to sort of take advantage of the opportunity that exists there. But the interesting thing about Europe and MiCA is that it doesn't stand alone. So if you look at what the developments that have occurred over the last, I don't know, a couple of quarters, and you look at what's going to happen in the next several quarters, if you do the -- if you go down and kind of look at the list, it's actually extraordinary. So you have the U.K. government, the previous government, but we expect this to be reiterated with the new one, essentially declaring that they want the U.K. to be a crypto -- the global crypto leader. They want to leverage their innovation strength and their financial market strength and become essentially the home for the next stage of financial innovation through crypto. Switzerland has made a significant regulatory policy investment into the space. Australia, we expect, will be passing comprehensive national regulation probably by Q1 of next year. Japan has had a regime in place for a few years now. They've recently updated and revised it to make it more workable framework. And that's a market that we're in, we have some interest in. Singapore is moving quickly to begin to onboard countries into their regulatory regime. We expect with the presidential elections coming up, the Brazilian Central Bank will get legislative authority from the Brazilian parliament to -- or the Brazilian legislature to become the national crypto regulator. We're in dialogue with all of these markets as a part of both looking at the opportunity set but also in being a thought leader in terms of how the regulation should be shaped. And we've been lucky because Emilie and Brian have given us a lot of latitude to essentially help global policymakers as they think through how to regulate the space. So we produce a lot of content. We produce a lot of -- we respond to a lot of customer comments, things like that, because there's this big interest in trying to get it right in the space. And we try to meet that need by sharing the expertise that we have from being active in a multitude of different markets. But we're very excited about the opportunity set and by the trend line ahead of us.

Makes sense. I want to pivot over towards some of the recent announcements that Coinbase has made. Coinbase, like many other companies, recently had to make some very difficult decisions around staffing given what has happened to the revenue environment. Could you walk through how these changes have impacted the organization's day-to-day in terms of the ability to invest as well as how you've managed sort of the impact that, that has on employee morale?

Yes. To paint a picture of 2021, we had to keep the lights on. It was -- the activity and volumes were just increasing at such a rapid rate that I don't think we would have been responsible had we not added the headcount that we did at the time. It was an extraordinary time. But like I mentioned before, we've now been through 4 of these cycles. And we know how to adjust accordingly on the upside and the downside. And so to that, we had to do this risk, which was about 18%. And I think the thing -- it was a very difficult thing for us to do because we parted ways with some extraordinary employees, and we wish them the absolute best. They did amazing things for Coinbase. That said, I think we took very swift decisive action ahead of most companies because we recognized that we needed to. And I think that you'll see that from us in general. We know when we need to take action. We know when we need to do the right thing for the company. The thing in crypto is that you have to have a certain personality to be able to weather these things, and it means that you're very mission-oriented. For those who like comfort and safety, this is not a good space or company for those people. And again, like we want folks who are aligned to the mission. So there are going to be some people who just aren't going to be aligned with that or it might be too volatile for them. And we totally understand that. We wish them the best, and they're probably not the best employees for Coinbase. For those who are in it to win it over the longer term, this is the most exciting opportunity that I think exist. So we are laser focused, like I said, on these 5 product areas. We are focused on making sure we minimize expenses, and we're focused on creating the absolute best crypto company in the world to work for.

Clear. Maybe we could switch over to derivatives. Coinbase has been working out -- working on rolling out a crypto derivatives platform for some time. Could you talk about how this product differs from the spot trading platform that you guys have been in for so long? And then how do you dimensionalize that opportunity across both the retail and the institutional side of the business?

So leverage derivatives margin we know are a huge part of the traditional finance world. So we have this playbook. We know that, that's important for those folks, and it already is for crypto. 2/3 of global crypto activity is actually in derivatives today, and most of that is offshore. So what are we going to do at Coinbase? We're going to take that activity, and we know that there's that market demand. And we're going to package that up in a way that is good for Coinbase and good for our users, compliant, secure and so on. So the first step of this is that we launched the Bitcoin and ETH nano futures. That's showing some really great progress, and we enable those through third-party brokers and market makers to retail. The next step of our journey is we want to get an FCM license, which then will allow us to go direct to retail. And then over time, the third step of this is then to expand our volume capabilities and expand to our institutional base. So we're really excited about offering this. We know that there's already demonstrated demand in the market. We just want to do it in our own way. That might not be the fastest, but it's always going to be the most compliant.

Makes sense. And speaking of compliance, Faryar, maybe you could talk through some of the nuances around the crypto derivatives from a regulatory standpoint. How does the approach at Coinbase differ from some of the crypto derivatives that are already in the market?

Yes. It's -- look, it's one of those areas where the regulatory path is actually quite clear. And the level of uncertainty is much less than people sometimes imagine. And so as Emilie said, we have a crypto derivatives exchange that's regulated by the CFTC that we have in place right now. We've applied to essentially set up a futures broker, which will allow customers real-time access. And we think this is a model that will work quite well for us and provide a really effective user experience and a range of products across futures and derivatives that we know customers are looking for. We know FTX, for example, has actually applied for a different innovative model. And we're actually, in broad terms, quite supportive of efforts to adapt existing legacy rules to allow for broader innovation. So we actually wish them well. But their model would be a direct-to-retail, direct-to-retail model for the exchange. So the customers would actually directly engage with the exchange. That's not the path that we're following. We think the option that we are building is actually quite a good one. And we will, over time, be able to essentially replicate the experience that users have in the spot markets, which is a 24/7 market and potentially develop that on the futures and derivatives side as well, which is quite exciting. It's also good to know that in terms of the future of the derivatives, the 2 contracts that we have up now on our exchange, both the Bitcoin and Ethereum, are very clearly and very noncontroversially regulated by the CFTC. So there's a significant amount of clarity that exists regarding the outlines of our business. And that clarity is becoming, I think, more and more vivid as we build out our business and take advantage of the licenses that we operate. It's actually worth underscoring it. It's a point I may need to have made earlier. This whole debate about securities commodities that I know is a significant part of the lens through which people look at crypto in the United States is a nonissue in most other markets. We run businesses that are more or less look a lot like the business that we run in the United States and a multitude of other foreign jurisdictions. This whole securities commodities thing is not an issue. These markets are regulated as commodities markets. And we think that's the right answer, and we're very careful in terms of how we select assets for our domestic listing to make sure we stay on the right side of that. And we feel quite confident about what -- the decisions we've made.

Makes a lot of sense. Maybe we can pivot a little bit to the institutional part of the business. Obviously, the retail side gets a lot of attention, still comprises a significant amount of the revenue at Coinbase, but institutional, the acceleration and the adoption of institutions arguably was a major contributor to some of the acceleration we started to see towards the end of 2020. How has that progressed as we've headed into the crypto winter? And then what are you most excited about on the institutional side of the business as it stands today?

The institutional business really began in 2018 during the last crypto winter. So we did the acquisition of Xapo, which helped us launch our crypto custodian. We did Tagomi, which helped us build out our prime brokerage features, and it also brought us an exceptional team. And so we started kind of cobbling together the pieces that we needed during that last crypto winter. And so we are very pleased with the progress of the institutional business. But it's not like JPMorgan or Goldman Sachs was formed overnight. There's going to be a trajectory to it. I think that the advantages I think about with respect to our institutions, I think we're -- we are uniquely poised to serve that in a way that no other company is poised to. And I think it goes back to the security and safety, the regulatory compliance, the suite of services that we can offer institutions, trading, custodies, staking and so on through one account. We also have shown remarkable risk management, and I think that's why we had 0 exposure to the contagion that happened this year in the crypto space. So very bullish on it. It will be kind of slow and steady wins the race, but this is what -- I mean, we signed the BlackRock deal in the midst of the crypto winter, and I love that we did that. I think it just shows that this is real. It's sustained.

Got it. I mean, that's a good transition. Maybe you could touch a little bit more on the BlackRock partnership. What does that bring to you in terms of distribution? And how important will that be towards the growth of the Prime offering over time?

I think that with the BlackRock deal, this is something that I spoke to our Head of Coverage about 2.5 years ago when I hired him. I was just like, this is the deal that I want because this is the marquee player in the space. Being able to deploy crypto offerings to that customer base is incredibly powerful. We are in the early innings, though, like we've just signed the deal. We have to do the hard work now. We have to onboard these customers, make sure they understand crypto. We have to do the cross marketing and everything. But this also speaks to what we were talking about with respect to the competitive landscape, where traditional financial institutions want to come into crypto. They don't necessarily want to power everything themselves, and we can be that provider. So I think it -- there's a lot of opportunity for us across that whole swath of financial institutions.

Got it. It might be helpful just to explain kind of exactly how that works from an end-user perspective. How would someone interact from Coinbase to BlackRock?

Their Aladdin customers will have a joint kind of BlackRock-Coinbase customer experience where they can immediately kind of plug in and trade crypto, do other things that they want to do with crypto.

Got it. So I've waited until the last 5 minutes to ask about pricing and retail take rates. I thought it might be a good chance to hit on that. I mean, since you went public, I think it's probably fair to point out that your retail take rates has actually gone up, not down. And yes, this continues to be one of the biggest focal points among investors around the long-term trajectory of fees in this industry. So I think you've been very consistent with the IPO and saying, eventually, they will come down. I'm curious how you think about what the mechanism or the catalyst will be that will ultimately start to put pressure on fees.

Fees are an output. They're not an input for us on retail. We have not changed them, and we've actually felt no pressure to change them. We do have some customers who will talk about them with us, but it's definitely not this high-pressure situation. And the reason I think it's not a high-pressure situation is because users inherently value the security, the safety, the ease of use that we've talked about, the suite of services. So they are willing to pay for the premium offering in the space, and we're going to continue to double down on that. I think that there's a bunch of issues with the 0-fee ideas in the space. There's all sorts of bad behavior that can happen, wash trading and so on. We are going to continue to play our own game to focus on providing the absolute best experience for our users. And we believe that these fees are a reflection of that.

Makes a lot of sense. Emilie, I wanted to maybe start in here on one of something that I know is near and dear to your heart which is Coinbase Ventures. What does this do strategically for Coinbase? And is this part of the business doing anything differently now that market backdrop and I would presume valuations have changed as significantly over the past couple of months?

Coinbase Ventures, I think, is part of our secret sauce as a company. I think it's something that Brian and I are incredibly passionate about. And we love kind of just being under the radar in some ways. We started investing in 2018 off the balance sheet. We have been in early investments in things like CoinSwitch, these global players, everything you can imagine in the NFT space and so on, OpenSea in the absolute earliest seed stages. And I think that the value that we get from Coinbase Ventures is multifold. One is we get incredible proprietary insights. So we can see when OpenSea and NFT volumes were starting to take off that, that was a force to be reckoned with and something that users were demanding. It also provides us with a pipeline of potential M&A activity and opportunities. So for example, we made an investment in Bison Trails. We later then acquired it when we saw it taking off, and it formed the foundation for Coinbase Cloud for our developers. And then finally, this isn't the primary thing that we go after, but it's absolutely a benefit is the ROI. I mean, the IRRs have been off the chart. And I think because of Coinbase's alumni network and the connections that we have, we're just able to get access to deals that others would, frankly, kill for. So we are doubling down on it in this type of a crypto winter. We're going to double down even more because there's going to be better value. We'll have a high bar for ROI. But you can imagine that we're going to want to double down on certain growth rounds for proven companies. We're going to want to even go more global than we are today, and we're really excited about it.

Makes sense. You mentioned NFTs a handful of times there. Price has obviously been down very significantly. How are you thinking about the next kind of wave of NFT adoption or proliferation relative to kind of like the initial proof cases that we saw call it early this year or last year?

This goes back to like what I was saying about the quirkiness of crypto. Sometimes things will take off, and then they'll go down. And they're sputtering along, and you're kind of like, Oh, was this really the big trend we thought it would be? And then the next cycle, it comes back with a vengeance. So I think NFTs are absolutely here to stay. There are a ton of usability challenges right now. It's frankly tenfold to access them and get them and mint them and so on. But I think that we're going to continue to invest in it in our NFT marketplace because we see the future. And we believe that it's a big mainstream adoption use case. I don't know how it manifests in the future. I think social is going to be an important component of it, and duration is going to be an important component of it. But we'll see how the space evolves and will play a big role in it.

Got It. Makes total sense. We got about 60 seconds left. Faryar, anything you want to call out or highlight about what you're focused on for the next 12 months in crypto regulation kind of most actionable or that you're focused on?

Yes. I think next year is the year to watch. I think we'll know a lot about -- well, I guess we'll learn a lot more about where the regulations are headed over the course of the year ahead. I think we'll have at least 2 major components of that 3-part regulatory architecture in the United States. Fairly clear in terms of what the likely path is going to be in terms of congressional action. I think that's quite exciting. And I also think from the SEC side, I think we'll have a -- we should have more clarity by that point. I just think the degree to which there's consensus among members on the Hill and even within, I sense, within the administration that it's time to provide a clear road map for how the crypto securities markets could develop. I'm hopeful that you'll begin to see a lot more of that even as we go into the early parts of next -- the first quarter of 2023. I think internationally, I think it's hugely exciting. I think MiCA is going to get followed by those other jurisdictions that I talked about, and the momentum will build on itself. So I feel quite good about where we're headed. I think there are very few jurisdictions around the world, the United States probably being at the top of that list, who want to be left behind on Web3. I think that was a significant part of the Biden administration's framing when they put out their executive order. And I think essentially, everything is going to come back to that. There will be a strategic reckoning in many, if not all of the major jurisdictions around the world or most of the jurisdictions around the world that they need to essentially develop enabling legislation around this. And I think it will come together.

Makes sense. All right. Well, we are out of time. Everyone, join me in thanking Emilie and Faryar for their time today. Super interesting, and I appreciate you making the time for us today.

Thanks for having us.