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

All right. Hello, everyone. Welcome to our next session here. I'm Ben Budish, Barclays' analyst covering the U.S. brokers, asset managers and exchanges. And with us for our next session, we've got Alesia Haas, CFO of Coinbase. Alesia, thanks so much for joining us.

Thank you.

First, I'm going to read the safe harbor statement.

I appreciate that.

During today's section, Coinbase may make forward-looking statements as results to differ materially from today's statements, information, risks, uncertainties and other factors that could cause these results to differ included Coinbase's SEC filings. The discussion today will also include certain non-GAAP financial measures, reconciliations to the most directly comparable and GAAP financial measures are 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. So with that said, Alesia, it's great to have you here. It feels like every week that goes by in crypto, it was like a year in our [indiscernible], like so much has happened since we last spoke.

So maybe starting with -- we're a month after your Q2 earnings call, some of the major schemes in that call it financial discipline, product excellence, driving regulatory clarity. Before we dive into those buckets, what's top of mind for you? Like I said, a lot has kind of gone on. What are you most focused on?

Those are 3 strategic priorities right now. So we continue to make progress against each of those, and I know we'll talk about those later. When I think [Technical Difficulty] more loudly otherwise it dovetails with the regulatory goals we have. And we think there's a situation where the regulations, our most trusted brand and the product innovation will really drive growth for us as a company. So that's an excitement announcements in Canada as we last so. We've been working on the global [indiscernible]. We also are just continuing to accelerate our product momentum, and I'm really proud of our efforts to continue to innovate, to diversify the revenue stream that we want to face. We can talk about onstream summer and kind of the growth of that protocol. And then on the disciplined, we saw that we've done on debt repurchase, we are looking to be more financially strong, build an efficient and financially prudent companies so making progress there as well. And I would just say our morale is strong, and I am so proud of our employees and their ability to focus, execute what we see in the headlines despite what we see is the dramas that we all guys kind of [indiscernible] ups and down.

Up for the course.

A little bit for better for worse. Here we are.

Well, so on the product side, I think let's talk some a little bit about derivatives and futures business. So Coinbase recently received approval for its FCM license, but let's start with the DCM. We've been running a futures exchange in the U.S. for some time now, mostly through other retail brokers and clearing firms. And more recently, you've kind of expanded to institutions with some larger notional-based products. So maybe start with an overview of the product set here. What's the behavior like on the plate? Who are the typical users so far? Are they hedging, are they speculating? And what sort of growth do you see?

All right. Let do that broadly. So Coinbase has been a spot trading platform up until just recently, which means that we were participating in roughly 25% of the global trading market for crypto. Derivatives represent 75% of the global trading part market. So bringing force derivatives platform and offering has been one of our core strategic priorities, and we've been working towards this goal for many years. [indiscernible] because these are in the U.S., highly regulated products and so require requisite licensure to be able to offer. So the DCM was the very first product that we offered. And that is the crypto, it's derivative exchange. We couldn't offer that directly to our end users. You had to then bring in derivatives brokers to that product platform. And so the goal there is to start to be building liquidity. We offer a few different contracts of different sizes. We are building smaller, what we call nano contracts that are for retail users and larger contract for institutions. And onboarding more and more brokers to enable that development on our platform. But the key, and I think we're going to talk about this next is being able to then broaden this product suite to enable more and more of our end users and our customers to access derivative products. The goal here is to [indiscernible] a variety of trading, whether it's speculative trading, hedging positions. Even for ourselves, we earn a lot of revenue now in crypto. So like our staking revenue was crypto-native revenue. Being able to hedge that effectively if we can't sell it right away is an important thing to manage our company, and we think it's others need that we'll have the speculative and nonspeculative [indiscernible] products.

Well, you led me to ask my next question. So what changes now that you're [indiscernible] in FCM. What can you share in terms of what the product might look like, the target user, if you can share any details around like the fee structure, what that might look like in the P&L considerations that we should?

This is the next step on our journey. So we got the exchange. And now we just recently were approved the Coinbase financial markets to be a [indiscernible] broker. So that means now we can build products direct to our end customers, direct our retail customers, direct to our institutional customers. So now the broker will trade on our exchange. In addition to other brokers that can trade on our exchange. But our direct to retail is one of the key parts of our journey. We're really proud to be the first crypto-native platform to receive this license, and we can now have a platform where we can do derivatives not all within the same family of products and services. This is a highly regulated product by the [indiscernible] and the NFA just on the license that we received. We have not yet launched this product. We are in -- we're technically now in beta testing of it. And so this is coming soon that we'll be able to start rolling this out. Our goal is to offer retail products that are small contracts that are commensurate with our retail investors who can trade crypto on the global market, but in a highly regulated way. We also think that this -- procuring this obligation or this license demonstrates our commitment to compliance and demonstrate that we are willing to do the hard things and obtaining the licenses when there is clear regulatory structure to do so. So we're excited about this. We haven't launched, but it is coming soon, and this will be an important part of our story going forward.

We're all looking forward to. Maybe lastly on the topic of derivatives. Can you give us an update on the international exchange? What's the behavior like for late which as we enter more institution-focused, maybe what does that kind of profile look like? Is it market makers do hedge funds, trading firms? And what are your thoughts on rolling this out to retail around the world?

Absolutely. So what we just talked about was the derivatives offering in the U.S., which, as I mentioned, regulated products. For non-U.S. customers, we have started to offer derivative products through what we call the international exchange. These are perpetual features, which may look different than U.S. derivatives. They don't have an expiry date [indiscernible] they will eventually. And what we are doing there is we've just launched this product to eligible users in global markets. so some surprise, but other countries like the U.K., Europe, they have other licenses that we would need to obtain to offer derivatives within certain markets. And so we are obtaining licenses to be able to grow these products, and we will kind of have rolling announcements within the derivative product offering as we have to be new licenses. But [indiscernible] customers in global markets, the Coinbase International Exchange will serve that platform. Today, we are still in the process of building liquidity. We've opened up order books. We are just getting started with onboarding customers. So initially, it's market makers to develop the liquidity. That is the key foundation of any market and we will go from there to onboard customers. So we'll serve retail and institutions broad.

If I could ask maybe one more sort of ancillary question. I think sort of as we think about or as we understand the crypto landscape outside the U.S., we tend to see more of a concentration in retail traders, more of a concentration in the institutional side in the U.S. Why do you think that is? And why you sort of start your international exchange with an institution focused approach rather than retail?

So I think the answer is it's both. Importantly, when we looked at the market, and we obviously talk to our customers, as the competitive landscape changes with certain inclusions in 2022 and the certain changes in banking rails that we've seen in 2023, the market has changed materially. Market makers though are the foundation of these platforms, regardless if there's a lot of volume from retail or not. And so we need to start with the liquidity market what we think our most trusted brand and what we bring to market in terms of just only the transparency of our financial statements, our commitment to doing the right thing in compliance is going to be us well to be able to onboard to institutions that would provide the foundation that we can then offer it to more and corporate, more retail users, et cetera. But it's really step one to get the hedge fund some market makers there.

Got it. Makes sense. Maybe changing gears a little bit. Let's talk about USDC and Circle. So you recently announced a revision to the relationship with Circle. What -- can you talk about what drove that new agreement? What do investors sort of need to know to understand the background, any context you can provide?

So USDC is our stablecoin. We think stablecoins are a really important part of the overall crypto ecosystem as they offer the benefits of crypto which we hope think is a promise faster, cheaper, more accessible products without the volatility that you see in main crypto assets. And so these are U.S. dollar-backed crypto currencies that have instant 24-hour settlement. We've been in Circle since 2018, we jointly launched USDC. And at that time, we did it through a consortium, which we refer to a center. We've learned a lot over the last 5 years of this relationship. And so we thought there was efficiencies to be gained. We think there's accountability for Circle to be the sole issuer and Coinbase plays an important resell opportunity in this ecosystem is transaction unlocked the ability to put USDC on 6 new protocols. Importantly, it put it on a basis, the Coinbase new Layer 2 solution. And we think that Coinbase starts to open up the opportunity for us to build this future of our goal of like very fast, very cheap transactions on a global payment realm. And the commercial relationship that we have with Circle was slightly amend as well. So we've always had a commercial relationship with Circle by which we earn a portion of the revenue from the underlying reserves on USDC. We continue to earn revenue on that. But what we simplify is now for the off-platform, i.e., USDC that's held not Coinbase on our platform, not on Circle, but just in other platforms, we now split that equally. So that was the key economic change within their relationship. And then we took an equity stake in Circle as a result of why we come there.

Got it. So maybe let's talk about USDC itself a little bit. So what are your thoughts on the decline in market capital for the last 6 months? What is the company doing? Or what can you try to remedy this?

Yes. So going back to Q1, we had a really unfortunate event in Q1. The banking collapse that Circle had just over $3 billion of reserves of USDC reserves at Silicon Valley Bank. And over the course of the weekend before it became clear what would happen with uninsured deposits, USDC, i.e., in secondary trading in various crypto platforms, people were selling their USDC for less than $1. Nobody ever burns USDC. So with USDC, you meant it, which means you give the issuer dollar, you receive a USDC, when you burn it, you give the issuer USDC receive a $1 back. So the missing and burning continued at one-to-one. But secondary trading where you said, I will just trade you on a secondary platform USDC for something else, sort a [indiscernible]. As a result of that market makers need to restore the pay back to and the trade that they did to restore the pay resulted in a significant decline in the market cap of USDC. What then is that compounded by then some other platforms choosing to not offer USDC and moving to non-U.S. dollar back table point or non-U.S. domicile issuers because they were clear of the overall, what was going to happen to banks in the U.S. We saw money move to [indiscernible]. No comments, no judgment, but interesting to observe. But now it's really stabilized. And over the last few months, you mean what it looks like a new USDC roughly the $6 billion level. So what are we doing now at going? I think it's really important now the deal. The other thing that I didn't mention is, previously, Circle and Coinbase would compete for Mint share to drive their share in the economics. The new deal removes competition because it's split equally, which seems we are jointly motivated and equally gold to just grow the market cap again. So the circle is doing things, Coinbase is doing things. So focus on what Coinbase is doing. We're really working on integrating USDC and our products. I mentioned that we are putting USDC now on Coinbase. New USDC and Base, we believe, will get us to a future where pennies will be spent for international payments. That really changes what people can spend right now on like compared to Western Union compared to a wire or compared to some of the expensive payment rails. So these are 24-hour, a few pennies, a few seconds confirmation time, money can move anywhere in the world. We also have added a reward rate on USDC. So just today, we were now up to 5% rewards the whole USDC on our platform, you can earn 5% on your USDC. We find that when the customers hold more assets on our platform, they're more likely to trade more use it integrate and other products and services that we offer. And so this is net additive to behavior platform. We've also been USDC, the primary trading tier on our international exchange that we talked about. So encouraging end market makers and others to use USDC at that primary currency. And essentially with crypto with this 24/7 market that you have to move money for quickly. You can't move the out 24/7 through the banks through moving it through the exchange system. And so stablecoins are heated at and so people in just one of the other things we've done. So we're working through all of our products to see how we can more drive behavior, drive adoption towards USDC in turn, we believe, help drive the market cap up.

Got it. So maybe from now think about Coinbase's P&L. So you're now generating a pretty meaningful portion of revenues from interest income. There is presumably a future risk that if you were to see all you could see a disproportionate bottom line impact. So how are you thinking about hedging this risk and thinking longer term, I mean, I know Brian's dream, right, he's thinking about the next 30 years of what the financial ecosystem looks like. But how do you anticipate interest income will evolve? Will it remain a meaningful portion of Coinbase revenues? Or as we look further and further out, does it get diversified away? Or do you think that kind of shakes out?

I'm really cautious to say that I have a how anything takes and so one of the things that we do is we just run scenario after scenario, scenario and we continue to invest in diversification. So with USDC specifically, obviously, if interest rates fall, that will impact USDC revenue. We're hopeful now that we can grow market cap, that volume offset price, and we could see a change in that revenue per [indiscernible]. But it is a scenario that interest rates fall. It is a scenario that we then see degradation of net revenue, no different than as the interest rate rise, and we saw a growth in that revenue in this year. What's important, though, is we're building multiple uncorrelated revenue streams. And I think that's kind of an important part of our story. And we have multiple new products monotype in very different ways. And our goal is to build diversified revenues. So like as we saw when interest rates rose, that investors went to a more risk off behavior so we have less trading crypto because volatility has come down because risk behavior is transformed. We think that lower interest rates in on behaviors that you could see more specialities. So those can naturally offset each other. But now we also have a custody business that grows with assets on platform. We have a stacking business that's growing with assets on platform that is offering validation of transactions. A theory has been an important protocol that is underpinning multiple new utility use cases with decentralized applications and so the players just speculations for utility based is going to monetize this profile that I mentioned the class through sequence every single transaction on Base. That is monetizing through just like payment or keeping the transaction uncorrelated with price, uncorrelated with interest rates. So the key for us is continued diversification, continuing to ensure that we've got good product adoption. And then our revenues will have correlations with broader macro factors, but we can hedge them out through different things. No different than if the bank has trading revenues go up 1 year, maybe asset management changes another year, maybe investment banking piece. We're looking for that type of specification and to lower the Base of our revenue stream.

Makes sense. Moving on to another topic, Bitcoin ETFs. So a number of applications have been filed with the SEC and Coinbase has been listed as a partner, either as a custodian, prime broker, surveillance sharing partner or all of these. So I guess, first, what are your thoughts on the potential fund approvals? I think there seems to be a market view that BlackRock is coming at this, they probably crack the code and it seems to be kind of viewed as developing, but what are your thoughts there? And second, how should we think about the P&L impact to Coinbase as partner in those various ways?

We were absolutely honored to be selected in some of the ETF applications. And we think it just speaks to the trust and the value of our platform because you can imagine the level of due diligence that we went through to have been awarded these mandates to be selected as these participants. . The primary revenue stream for us is custody revenue. So we will be custodying the underlying spot asset that supports the ETF of these various funds. We believe that over time, they could go to trading as they buy additional Bitcoin to put into their products or sell as case may be. So we think these bring ancillary revenues. As it relates to the timing, as it relates to the certainty of the SEC approving or not approving is, I honestly can't speculate as to when that will be. We are heartened to see the quality of the names that have submitted these applications. And I think it speaks to that they're seeing their end customers seek out these properties. They're not doing this for the fun of going through an application process. But I also think they have the credibility and the reputation of bringing high-quality financial services products to market, and I hope that they are taking very seriously. We are heartened to see the recent court case with Grayscale, where the judge rules that the SEC can't act in a arbitrary and capricious manner and that we have to have a level playing field for these ETFs is a good sign, but it is still subject to approval and high are in certainly they have been recently extended. So we're doing all we can to support the applicants.

Fair enough. So how do we think -- or how do you think about sort of the pros and cons of these products. So on the one hand, we could see Bitcoin volumes maybe on the negative side, move away from Coinbase. You could see that sort of incremental users say, "Well, I could buy the ETFs in my account. On other hand, it brings in a whole group of new investors into the asset class that may be more able to or were hesitant because of this sort of unchained nature of Bitcoin, which could be quite beneficial. So how do you think about those sort of pros and cons, good for the ecosystem, but could you see volume activity migrate off Coinbase?

We're definitely in a camp good for the ecosystem. And I think it's so important is one in 5 Americans owns crypto today and predominantly that's Bitcoin. That is [ 50 million ] Americans that is 5x the number of people that own an electric vehicle. So we already have a lot of spot Bitcoin holders. But importantly, you can't have a spot crypto asset with registered investment advisers. They can't buy crypto to go into portfolio. And so they can advise for an ETF. And so we think that this opens up new pools of capital. Many new market participants now that can now invest assets into crypto in a regulatory compliant product that meets their then requirements. So for us, we think this is additive, we think this is going to continue to grow adoption of crypto assets. We think this generalizes the asset class, which just brings it more and more into traditional mainstream products and services. And it will benefit in other ways like providing company services we can provide support. And that's broadly our goal then because, well, we do want to be direct-to-consumer in many of our products and services. We also want to build important schools that enable other financial services providers to offer the products to their end users, and this is an important way we can grow that.

Makes sense. Maybe move over to sort of trading, thinking about the competitive environment. Starting on the trading side, you surprised again on the last earnings call on the fee rate side, but as you kind of explained, that was largely due to a mix shift in the customer base. At the same time, you've always maintained that over time, you expect your fees to contract. So given that that's not really played out over the last 3 quarters, 9 months, what does that trajectory look like? What does the time line look like? And what are the factors that you weigh internally when you think about balancing revenue versus volume growth?

Absolutely. We fundamentally believe that at some point in time, fix rate will be commoditized. No different than many asset services have become commoditized. I mean, equities took 20 years to get to the level of fees that we see today, no fees and be truly commoditized. So crypto will go on the same journey. I don't know that it will be 20 years. I don't know it will be 5 years, but we do believe that when we get to the level of commoditization with multiple participants being able to offer these services, fees will go down. Not commoditized. What we're seeing is instead companies blowing up for control, like it's the opposite of commoditization. We're seeing a move from proof of work to proof of stake, like changing the underlying technology about how you hold and validate those assets. And we are not at the point of maturity, we're seeing consolidation of activity on certain protocols where then people know these protocols. They've been stable and mature for many years. So we do believe that we're not yet at the point of fee compression. And so today, what we think about is that we are a premium product. We are offering safety, trust, like access to the breadth of products and services that Coinbase offers and that commands the fees that we charge today. We also look at the competitive environment and say, how do our fees stack up broadly alternative platforms and what is the value proposition there? We're happy to see that we have not lost market share as a result of fee changes that we made in Q1. Q2, as we said, it's just mix shift, so nothing changed. And that's an indicator that we don't believe that these fees are then causing us to use business or business. We also changed feed on the institutional side, and we saw growth in our trading quarter-over-quarter. So we look at ourselves, as I said, the premium provider, we definitely did see what is the right price equilibrium. Our goal is to grow revenue, our goal is to grow trading volume, and we will need at the right level or to facility growth.

You kind of touched on competition as it relates to trading, which I wanted to ask about next. But maybe it's sort of a topic that always comes up because there are fewer than they were before, but there are other sort of providers of crypto trades. In terms of beyond the volumes that we can sort of track just on a daily or monthly basis. What else are you seeing out there in terms of USDC or customers moving funds from platform to platform -- or given the nature of crypto asset transfer is at all it more obvious than you can see filling into a while but you don't know where is. Any kind of insight to that kind of behavior? Or what switching looks like in general?

Yes. So retail doesn't have a lot of switching. And the reason being is that the other platforms we're now offering crypto trading tend to be retail financial service providers. So we've seen the growth in and we've seen the growth of and all we see block off to climate offering in this is. What's different about most of those platforms is you have to buy it on the power and hold on and you can't actually spend it back and forth. So that's an observation. The other observation I have and we shared in our shareholder letters. We've seen an increasing amount of our customers just holding their big point. So yes, they're not trading, but they're not selling it, moving to Fiat and exiting the platform. They're just moving into model mentality, which is no different than the behavior we saw in the last few crypto winters that when volatility is low, like we see today, people just sit in holes. They're sitting in the hold. They're not exiting our platforms. That's not to say that people don't have multiple accounts on multiple platforms and are buying it in multiple places. But what we think is our unique value proposition and where we sit in the overall spectrum is, yes, we're an easy place to buy and sell crypto. But increasingly, we're now a place that you can buy sales in state you can explore DeFi. We had onstream summer where we saw many people then buying Coca-Cola NFTs, engaging with these new early, early stages. I mean I need to underscore it like early stage decentralized assets. And this is the future of the utility that's using crypto as a consumable in the way that it was designed. And so that is how our platform grows and evolves and what provides the unique attributes. And to do that, you have to be incredibly crypto native. You have to be able to handle bridging of assets, movement on chain. We hope to really obviously back complexity and continue. We're not doing it well today. This is sort of like we're so early in the test. This is like think about early dial when you hear the sound of your modem connecting to the Internet and then you like logged on to AOL, like we're in that day in crypto, where it's like that we're showing the tactics which makes it not easy to use. Our goal is to use that technical strength that we have to push that technology below the surface to just create like, "Hey, I want to buy Meta, push by, it shows my wallet. Today, you're bridging your asset to the protocol you want and then getting on Base in line NFT that we raise those assets we can really differentiate I thought I was sitting in watching the prices in my account.

Interesting. Definitely want to come back to that sort of topic, but a few other maybe kind of financial questions. So maybe on the capital market side, you've been in the market repurchasing debt in the past few months, albeit a relatively small amount. So are you being opportunistic? Or is this sort of an important part of the capital allocation strategy?

I want to be opportunistic. So we generated cash flow in Q2, which are about $150 million. And when we looked at that and said this is a good opportunity for us to reduce leverage given where the bonds were trading vis-a-vis other companies. So this is an opportunistic way that we can deleverage move us forward with more steps towards stronger financial health, contain financial prudence and operating efficiency.

And then otherwise, what are your capital priorities? What areas of the business makes sense to accelerate? How are you thinking about M&A in that context?

We're always thinking about M&A. We're always thinking about product growth. I think Brian did a all the founders that you might say on Twitter where he has 10 more ideas that we built in crypto that we don't have the ability to do. So there's no shortage of ideas of what to be built here. Our capital priorities are, though, to continue organic growth. We always look at M&A in service of our organic road map to say, could we accelerate this by buying new partner? Is it the most efficient one to build directly. A lot of companies raised a lot of capital in 2021 and are sitting on a fair amount of cash in crypto and not excited about the change in valuations that we may be interested in exploring with them today and we will be opportunistic in M&A side. It is a little bit slower today than it was in the past.

And how do you think about the great cash balance in Coinbase? Like it's sort of an ongoing topic. I think industry, maybe there's some -- you want to be conservative because you don't know what's going to happen in the environment. You don't know what's going to happen with your regulator. But how do you think about that? How much is available on hand for M&A or to kind of way back in the business, how much is how much to kind of [indiscernible]?

We were opportunistic in raising the [ $3.5 billion, $3.4 billion ] of debt in 2021 as we looked at that overall interest rate environment and thought these will put good liabilities to put on the balance sheet with no covenants with low interest rates that we can then use that opportunistically. And when we think about using it opportunistically, we could use it M&A. We also are using it to boost drop our institutional financing business where we're using some of it to lend out to customers to enable them to take leverage positions on the institutional side. We had some of that on the retail side, and we've deprecated our product at this point in time. We also use this as self insurance against the potential what if, what could come in the overall market to ensure we can invest through a cycle. We did burn cash in 2022. Having that balance sheet give us confidence we can do that and continue to invest to do that trough. Importantly, Crypto has gone through price cycles. And what we've seen is that in price cycles that big one-offs then it comes back down, but that trough is higher than the last trough and then that next peak is higher than last week. And so having that ability to invest through that time period was important to us. And so they felt like the right strategic decision to run a large cash balance to just have the ability to be incredibly optimistic at that time. Now we're in a positive carry situation where that we're earning more on the deposits than we do pay on the deck. We are being opportunistic at selectively repurchasing assets to deleverage a little bit, but it still provides all of that same optionality around opportunistic investment in products, whether they're organic or inorganic, continuing work on the financing different and continue to prepare for the unknown unknowns that may occur in this space.

Got it. Maybe switching gears again to the regulatory side. I think as we've discussed before your sort of views on the SEC, the ongoing lawsuit, it's all pretty well understood. So maybe a question about something new. So the treasury and the IRS recently proposed some new rules around crypto tax reporting rules. So can you maybe talk about these rules a little bit? And what's your reaction here? What sort of impact could this have if any?

So IRS came out with broker reporting rules. Think of the types of rules that you have for any of your current brokerage accounts, you get a in the mail over year in tax season that said, here are your gains and losses, definitely from IRS, you get interest on IRS. We've long been advocating for broker reporting crypto because our customers us to provide distinct in their taxes. It's long been required to be able to pay for your taxes when you have a gain on crypto sale, great. That's all very good news, like we've advocated, we have rules as we're moving forward with like parity. But unfortunately, the proposed rules go beyond just security with analogous assets. And that's where we're going to have some comments in the comment letters and we'll be as verified. I hear of you to be acted too quite candidly because where the IRS is following the proposed rules now is, they're asking for all transaction reporting for anything you do in crypto. If you spend $1 on a cup of coffee, that has be reported to the government. A stablecoin in this instance is just the dollar that you just spent on a couple of coffee that goes far beyond. We don't show dollars that you spend on coffee for any other bank reporting. If you buy an NFT that is the sum of local, now that has to be reported. There's no financial reporting, tax reporting in art today. There's none and collectible lands that has to be reported by brokers. That has all been stripped in for reporting. So we believe that there should be parity with analogous asset classes. We believe that the IRS has ability to audit any point in time and on their own, they don't need financial reporting providers through data. And we think this amount of data will overwhelm them. So there's privacy who would like to flag there's just overwhelming data that we don't believe that the government can only the transaction given the amount of small to mid and then the time might supply for non centralized protocol in the, how on earth will they do it? So those will see some project the part of it was driving parenting and getting progress for that.

Well, we talked about it a little bit earlier, so maybe let's return to Base and some of your citing initiatives. So I think it's always helpful to kind of you sort of remind the audience, what is Base? And what is sort of -- how -- what is in to help grow it and develop the crypto ecosystem at large?

Yes. so this is a long deep in the technology. So -- there are [indiscernible] solutions. These are protocols as is Bitcoin, This is a theory. And this is the blockchains about how we move value on chain. The challenge with that is Bitcoin has a consensus mechanism of proof of work. That is taking so much computing power. And so it's like quite expensive. It is quite slow to be able to like confirm a transaction on the blockchain. Maybe on that by going to prove stake, so it's less energy efficient, at more energy efficient cost less energy, it was getting to a faster speed, but it's still not as fast as the Visa payment. It's cost us like when you put Apple Pay, it's not a fast yet. So what Layer 2 do is they sit on top of these Layer 1 solutions and they package transactions is like they're batching them. And so they can increase the need of a transaction, they can then lower the cost of a transaction. And so what we see is based now and when we've done early 3 months now, a few seconds, it's a few pennies. And so that will start to be really competitive against other premier rails. And then when thinking about Base and we also the common thing if these are going to be centralized protocol for anybody can plug in them and build app on top of them. They own global payment rails, meaning they're not unique to a certain country or unique to a certain group of companies. I like what works for the bank or it works for Brazil or -- these are now the global protocols that can be filed on second half fast, cheap transactions. And that's what we're really excited about is this. And so again, transactions will earn a little sequence for fees we get paid. We are willing to make sure other people can sequence transactions. So this will be a decentralized protocol for the community at which we will commit to 10 hours because it is year-and-year to our hard and can continue to build out any position around this.

So what does that look like as the platform becomes more decentralized? Is Coinbase currently, are you allocating pretty much all the transactions on Base?

Actually, we're the only single pair now, we are building more sequencers on top on it.

And then in terms of just kind of overall activity, I think for anybody that's unfamiliar, there are a bunch of places that you can kind of easily track the amount of activity. We've already seen quite quickly that the average transactions on Base are quite comparable to some of the other leading roll-ups -- so what are you sort of seeing where is the sort of excitement? What are developers kind of coming to the platform to do?

This is -- first of all, these are early days. And so we've basically been launched just over a month. We're like at 35 days, but we were the fastest L2 layer solutions to get to over 100,000 users. We're like the third in terms of total value lost on the contract. And so we're seeing rapid adoption in it. And inventories are hard to build 2-sided marketplace has been. I mean, in this case, we're building the developer community to build development applications on Base and then bringing users to those developers. And so we can really building a 2-sided marketplace on Base. We're pleased with the developers is the breadth and the like creativity of these applications, and that was back on thing summer. So on team summer as we launch Base, we wanted to share with our customers and with the overall ecosystem, just the creativity of these new apps and so every day, we had a new on chain advent that people could do. And if any wallet use the Coinbase and the loyalist, but you could use as these wallets. And people bought seeing an NFT that represented a realized object. And so they could connect goods and services back to an online representation and an affirmation. There was a thing called around social network on you're consuming, there's big brands, Coca-Cola, [indiscernible], others that the loyalty program, we need or worksite was tied to their brands that people bought. And we're seeing all sorts of different people experiment with different things like the emission like an early com era in the Internet where people were like, okay, I'm going to bring on something online and see how that goes the development community having on Base. But we're most excited about is you've got a very core utility. These are gaming, social messaging, collectible not speculative trading in nature, but a whole new hiring.

That's the developer side, we've talked about the retail. Maybe let's return to the institutional side. I remember an investor letter Premium FTX kind of before the fall of last year where you kind of outlined a number of your institutional initiatives particularly BlackRock and others. So can you kind of I think that's sort of taken a back seat in the narrative as we had losses, as the regulatory environment has kind of changed. But where are you kind of in terms of the pipeline or the rollout of institutional partnerships? What kind of traction are you seeing on Aladdin? What can you share with us there?

I can say anything specifically on Aladdin. Although I continue to share that BlackRock is very active in the crypto space with applications. This is a core part of their service offering that they're continuing to build out, and we're happy to be a partner in many than through the ETF application, et cetera. Well, what we've shared in our shareholder letters and what we continue to see and we refer to it as like the coiling string of institutions, and it's appropriate to sort of end on this because you are all institutions and represent institutions. We have seen growth in onboarding quarter-over-quarter. We've seen growth in our prime trading quarter-over-quarter. People are gearing not they are testing the pipes. There are definitely some who are sitting there and waiting for regulatory combines to clear. There's definitely some that are sitting there as to say, well, I mean I'm not -- this is not me I'm speaking about boldly NFT, you had to buy a Etherium, how are they for the treasury corporates are like thinking about how do I then build crypto into my pipe and services. So we are getting continuum momentum in driving those conversations, providing markets and services to sell for it feet need to do that through our business, and that we see nice momentum. But I don't think we've seen this like open the gates of a huge institutional capital, but it just feels like every quarter we continue to momentum towards that future.

Great. We've got just over 30 seconds left. Maybe a last quick one, but on the institutional thing. You mentioned the institutional financing business that's sort of something that the ecosystem saw come and go again with the a lot of these platforms last fall. But where are you in that rollout?

That in Q2 was just the first few customers, and we're going to be slowly building that right now. We're onboarding.

We're just out of time there that. Alesia, thanks again. Yes. Thanks much -- you have a pleasure .

Thank you, everyone.