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

All right. So I think we'll get started here. Just I want to kick off with the safe harbor statement. So during today's discussions, Coinbase may make forward-looking statements. Actual results may differ 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. Discussion today will also include certain references to non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures are provided in the shareholder letter on the company's IR website. Non-GAAP financial measures should be considered in addition to but not as a substitute for GAAP measures.

Thank you, Will.

And on that note, Alesia, thanks for being here today. We're delighted to have the CFO of Coinbase to join us for a fireside chat today. So thank you so much.

Thanks for having me. Thanks for reading the safe harbor. It's always my favorite part of an interview.

I've always wanted to do that.

My lawyers love it.

So look, the activity levels, I think, has been the topic du jour. I think we were chatting before we got on stage. We actually took our numbers up really significantly on Coinbase to reflect some of the recent market volatility and elevated activity levels this morning. But would love to hear what you guys are seeing so far and how you would kind of contextualize what we've seen happen in crypto markets over the last couple of months?

Absolutely. Well, it's always important to talk about crypto is volatile. And the last 6 weeks, 12 weeks have proved no difference in that. Since the end of Q3, Bitcoin is up in the neighborhood of 60%. We've seen volatility materially change quarter to date. And when I look at volatility in the month of November and what we see right now, it looks much more like Q1 of 2023. This is a marked change from Q3, where we shared with you that we had seen record low volatility that we hadn't seen since the 2016 time period. So few months later, we're back to Q1 levels. What this drives that we've talked about for a long time is price and volatility tend to be the biggest factors of our trading volume and as well as the market trading volume. And so in the market, we've seen average daily trading volumes up 60% Q4 quarter to date versus Q3, so night and day behavior differences that we see over the last few weeks. And it just shows how quickly these markets can move.

Right. No, makes it easy to be CFO, right? So look, I think one question that we've gotten quite a bit -- I mean, as I noted, like I think the volume estimates kind of speak for themselves, lots of ways to sort of track that. One of the areas of the P&L that's been a little bit more volatile and harder to predict has been the take rate. And I'm going to be careful not to use the word pricing here because I think mix is probably the more appropriate word to use.

That's right.

But how should investors be thinking about sort of mix dynamics on the back of the elevated volume as it relates to advanced trade versus simple trade? And any kind of thoughts about maybe calibrating our expectations?

I like the way you frame that because that is the right answer. So our product platform, as you all know and many of you looked at our financials for many quarters now, the resulting weighted average fee that many people talk about is an output metric, not an input metric. And so it is all predicated on what is the behavior on the platform. Do we see a greater number of simple traders, a greater number of advanced traders? How do institutions behave different than the broader retail customer base? And that drives then different outputs of what drives the fee. Our focus is driving revenue. Our focus is on not managing that fee rate. And I would say is that we did raise spreads in Q1 of 2023, and then as we shared with you in Q2 and Q3, the resulting output of fees was all a mix shift and behavior shift on the platform. So what I can broadly say, Will, is, historically, what we've seen through the last 10 years of crypto asset price cycles is that higher volatility leads to more advanced traders. What we've seen historically is that's been very correlated with more hedge funds coming in the space, more institutions coming in the space to trade vol, to trade arbitrage opportunities. And the volatility has had a factor but much less so on the retail traders. And that's why we saw a higher percentage of simple trading in Q3. We're not through Q4 yet. We still have another month to go. As I shared with you [ at the beginning ], a very fast-moving market. So I can't say what the results of Q4 will be at this time, but it has been a historical factor in what that mix shift looks like.

Right. That's certainly something to consider. So maybe switching gears a bit away from some of the activity levels. Regulation has been a hot topic. There's been a lot of developments in sort of the crypto-related court cases, most recently, the multibillion-dollar settlement with Binance and their former management. We saw another lawsuit filed against Kraken recently that seemed similar to the one filed against Coinbase. Just broadly, how are you thinking about the legal and regulatory environment in the near term and particularly in the U.S.? And is there anything we should be watching on the legislative front?

Dynamics, that's what we can say. Look, I think it's really important to differentiate between these cases. So what you saw in the case of Binance was failure for them to comply with what we consider very straightforward compliance obligations. These AML, BSA rules are no different than what every major financial services institution complies with in the U.S., no different than what Coinbase has complied with since our founding. And so for us, it really validated our strategy. It validated our investments that we've made in compliance, security controls since day 1. And we often, over the last couple of years, have said, gosh, it's hard to do the right thing. Like people are moving faster than us. People can bring more products to market, and we were kind of slowly plodding along, and it's now validating to see that, that was the right strategy, that we've made the right investments in those tools. That is notably different than the case against Coinbase and the case against Kraken, which are more narrowly defined around the definition of what is a security token and what is not a security token. And that is very important definition, very important crypto taxonomy that we've been long advocating for legislative clarity, for regulatory clarity on how do we proper distinguish between securities, commodities, currency. Like how does stablecoins differentiate from Bitcoin? And there's nuances here. We feel really good about our case. We believe that we have only listed commodities on our platform, and we are proceeding with that through the court system. The next step for us is that there are a summary including in January that we will then go in front of the court for oral arguments with regards to our case. And Kraken will go through their own court process. What I'll note more broadly, though, is a lot of this is taking place now in the courts. And we've seen positive outcomes in a number of court cases recently where judges are making it very clear that this -- these were not clear, and you've seen that with regard to Ripple. You've seen that in regard to Grayscale, and then recently, there has been another case where the courts pushed back heavily on the SEC for bringing forth bad charges on debt. So I think that we're going to go through the court and see where that goes. I know you touched also on legislation, so I want to touch on that quickly. There are 2 bills that have gone through Health, Financial Services Committee, Health Ag Committee, and we are hopeful that they would go to the house for a vote. It is complicated to get things through Congress these days. And so we pursued a multipronged strategy, which is, hopefully, we can go through the judicial system. Hopefully, we can go through Congress. Maybe we'll go through discussions with regulators. And any of those paths will give the outcome we need, which is clarity. And once we have clarity, it will enable us to build the right processes and controls no different than we built the controls around compliance, and we are complying with those. So clarity is a goal, and that's what we hope to achieve.

Right. And I guess, hopefully, that leads to more products coming to market, which maybe is where we can head next. You have been pretty active there despite some of the regulatory uncertainty. Maybe we could start with the international exchange. I think you recently expanded that offering to Canada. It seems like you plan to eventually launch in Spain. So it'd be helpful to hear about the momentum you're seeing and just how you're thinking about the profile of that platform relative to the domestic business.

Yes, great question. There's a couple of different things going on here, and so let me break these apart. One is that we have a go broad and go deep strategy, so just like we have a breadth of products and services in the U.S., where we provide on-ramp and off-ramp for customers to go from fiat into crypto, where we have the KYC controls and we know who our customers are, we are offering now those to international markets. And so we've recently secured licenses in Canada, in Brazil, in Singapore, where we've got a local license that we can offer then on ramps in local currencies. We enable more and more customers around the world to start with their native fiat and buy crypto on our platform. They can buy. They can sell. They can safely store it. They can engage in staking. And we think about it as offering them the breadth of our kind of spot trading products in order for them to experience the breadth of the Coinbase platform. That is slightly different than the initiative that we took with our international exchange, and that product is in exchange in Bermuda that is a perpetual future. So this is derivative products now for international customers out of Bermuda. What's super important about this is derivatives represent roughly 75% of the global crypto volume. So historically, Coinbase has been essentially a spot-only platform. So we're only tapping into about 25% of global volume for the products that we offer, and we're a very large dominant player in the United States volume. And so one is the opportunity to grow in that spot volume internationally, but importantly, it's the getting licenses, doing the right thing, complying with local laws. Then separately, we're now stepping foot into the derivatives market, and that was then the international exchange for perpetual futures. That is nascent. We just started rolling that out in Q3, and it's early days. So we've announced this morning, we're now at 10x leverage. We have had about 10 billion in notional volume traded in the third quarter. We've onboarded about 100 customers there, and so our goal is to continue to onboard, continue to offer more contract sizes. As I said, we just increased the leverage, which we think is important to that market, and we'll continue to go from there.

Great. Well, maybe going back to the home turf. U.S. derivatives has been a pretty big development this year, getting the licenses to start going direct to retail. I was hoping maybe you could talk a little bit about the pricing structure there, just how that compares to the spot business and how you're thinking about some of the early results on the demand side.

Absolutely. So getting the U.S. license for derivatives is the sister product into the international exchange. And there's many markets around the world that we're going to have to get local licenses to offer derivatives directly to retail in those markets. So think about this as part of the overall growing derivatives global strategy. Just like we're growing the spot strategy, we're going to get the required licenses. I mean this sounds really boring when I say this, but it's like the long effort of doing the right thing, of get local licenses, be compliant with law, offer products to customers. That is our basic strategy there. But in the U.S., we are really proud to be the first crypto-native platform to be able to offer retail derivatives, leverage products to U.S. markets. And we just launched this very recently. It is now available to our advanced traders in the U.S. We are continuing to -- we have 4 products there, different contract sizes now for Bitcoin and [ East ]. And our goal is to integrate that into the retail application. It's now desktop only. So we want to continue to enhance it into our product offering. And when you talk about pricing, what I would say is early days. We have volume-tiered pricing right now. We're trying to introduce this to products. The goal is to then evaluate the pricing over time and make that competitive to the overall market. But it is going to be a different product than spot.

Yes. No, that makes sense. I mean we see some of the people in kind of like fiat brokerage businesses. They'll get -- over half of the trading revenues will come from the derivatives side of taking options, futures. I mean is there -- do you think there's the same demand for that type of product in crypto markets among the advanced trading cohorts?

Well, we do see that it's 75% of the global volumes to be on the derivative side. So most of that is offshore today. There have not been a lot of U.S. products, and so we're proud to be one of the largest players to bring it to the U.S. But just broadly in the market, given it's 75% of the volume, yes, I think the revenue opportunity is there. .

Got it. And then maybe lastly on Base. I think, first, it might be helpful just for those who might be newer to go give an overview of what Base is. How does it compare to other offerings in the market? And maybe just give an overview, and then maybe we'll talk about scaling that.

Base.

Back to basics.

Base is back to basics. Base is our Layer 2 solution. So what is the Layer 2 solution? So the underlying protocols, Ethereum, Bitcoin, what we talk about are these infrastructure layers, the protocols. The challenge that we've seen with those is it's very much like a dial-up modem. These are the early days. They're a little bit slow. When volume gets high, the pricing gets very expensive to confirm a transaction. So what you saw during, for example, the last crypto winter, there could be days where Ethereum was like $15 [ and then ] $5. That doesn't work. That's not fast or cheaper. That's not what we're trying to build in crypto. So what the Layer 2 solutions do is enable scaling a blockchain infrastructure. And so it's consolidating transactions on a second layer on top of this. I think, over time, our belief is this is all like important technology that goes below the scenes, and we're not talking about this with users and platforms like Coinbase will route your transactions through the cheapest, fastest layer within the stack, and the user is not going to have to say, today, I pick Base. Today, I pick optimism. Today, I pick Arbitrum. But our goal is to bring a fast, cheap, friendly developer protocol to the market that will drive down transaction costs, that will increase transaction speed because we hold a fundamental belief that if you can get payments as fast and cheap as you got text and messaging, that will proliferate more use cases and more activity. And today, because of speed and cost, people then chunk up payments. Like they're -- you send a wire for big payments. But if you could then send everything for $0.01 or less, you might send more payments. And so just this week, we also introduced within our wallet application, anybody can send USDC peer to peer for free. It's settled instantaneously to anybody who has access to a wallet, which is anybody in the world who wants to download the Coinbase app. And we're really excited about that initiative, immediate cheap payments on Base. And from a monetization, Base monetizes like what's called sequencer fees. Think of it as just a transaction-based payment. Again, our goal is to drive down this payment cost. So our goal right now is to just make Base the best platform for developers. We want it to be the place where all developers are like I'm going to build my application on Base because that sounds like the right home. And our belief is that we can attract developers much like you saw aggregation of folks who choose different software codes to write in or different cloud computing platforms, that there's benefits to aggregating that behavior and activity, and that will create long-term opportunities for Coinbase and long-term revenue generation when, therefore, users use the applications built on Base.

So maybe can you talk about what that looks like to scale? What would be kind of like a successful scaling trajectory of that product? And might be helpful to double click on what it actually looks like for a developer to say I'm going to choose to build this on Base. Like what's the result of that? And how does that kind of benefit the consumer and the apps that they're building?

Look, for the developers, they want the same thing. They want fast, cheap, easy code to build on. Like they want that to have -- what is unique about Coinbase is that we've connected this into our products and services, and so then they could get distribution to our millions and millions of customers on our platform to introduce our customers to their end application. The key though is for the developers to build amazing applications. So we've seen early days. Friend.tech was an application that took off a little bit during our Onchain summer. We're seeing an application called BasePaint get a lot of activity and engagement today. It's an application where you go buy a paint brush. You can contribute to a collective pixelated art project. And then that art moves at the end of every day as an NFT, and then you can own that NFT. The creativity is pretty phenomenal, and what we're seeing is a lot of people want to like log in every morning and say like what is the canvas that's getting painted today. What does that evolve like over time? It's a fun thing to just like check out. This is great. It's starting to show utility in crypto. It's showing a different way to engage in applications. These are not speculative of any nature. These are social. And these are art. These are gaming. These are different ways to engage. And so I think the key is giving tools for those developers to build in an easy, simple-to-use way on blockchain. Those developers then can focus on making cool products, and we help them with distribution. We help them with the underlying infrastructure technology. And that's success right now. And then, over time, that success will be then driving more engagement volume and volume will turn into revenue.

Got it. That makes a lot of sense. Maybe we can switch gears a little bit, talk about subscription and services. Excluding interest income, I think staking is largest source of subscription revenues today. You guys have, I think, done a good job of kind of neutralizing the price and kind of showing how the native units have continued to increase on the platform over time. So can you just talk about how you're thinking about the outlook for blockchain-related rewards? Is anything structural in the market other than obviously the recent increase in prices that people should be keeping in mind?

Sure. So I think it's really important to think about proof of stake is a technology improvement over proof of work. So these are consensus mechanisms that confirm transactions on a blockchain. This is how you get confidence that the transaction settled, right, very basic. And I believe that proof of stake has benefits over proof of work because it drove down energy consumption on Ethereum by 99%. It enables anybody to participate in that network security, so not concentrated with miners. It's any individual who owns Ethereum gets to participate in securing the Ethereum network. So I think we'll see continued growth of proof-of-stake networks as a starting point. Now I also think now with liquidity on Ethereum, once you have -- if you're going to own Ethereum, you might as well stake your Ethereum and earn the reward associated with validating a transaction. Now I think what will happen is, as more applications are built on Ethereum or built on Layer 2 on top of Ethereum, and there are more transaction activities in those Layer 2, so more people paint in BasePaint and do a transaction, that drives volume. That drives more staking. That drives more reason to be able to hold these. And it becomes a long-term predictable pattern. You see the volume. You can forecast that volume. You can forecast then the staking reward. You can figure out then what is that asset. Do I want to hold that asset as part of my portfolio? So I think that there's a really exciting future of staking assets in general. And right now, with just the developer adoption of Ethereum, I think that, that is clearly the leader. There could be more. There could be less, but that is why we think that staking has an exciting future.

Yes, makes sense. I think this past quarter, I think you called out a little bit lower yield on some of the blockchain protocols. How do you think about just like the level or the yield that these different protocols kick off over time? They were much higher than Fed funds when rates were very low. I think they just converged a bit. But how do you think about that?

It should be unrelated. It should all be driven by volume on these chains and the number of people staking and the number of different validators out there enabling stake transactions. So my belief is, like all things, like as you get commoditization and you've got more people who understand this and you have more people who technically understand how to validate transactions, you should see them come down over time, and then it becomes lower fees, higher volumes. .

Yes. That makes sense. Maybe switching over to USDC. I think earlier this year, you announced a partnership -- or a change to your partnership with Circle. Kind of crystallize the economics and the revenue sharing between the 2 entities has obviously been a major driver of higher interest income this year as the USDC ecosystem has just benefited a lot from higher rates. How are you thinking about kind of the opportunities that you have to drive more adoption of USDC, more USDC on the Coinbase platform and get kind of more Stablecoin adoption out there? It seems like one of the most direct kind of avenues for payment adoption and crypto.

I do think Stablecoins are an important part of crypto adoption and payment adoption in general. An example of what we just talked about has been the ability to send USDC for free instantaneously on Coinbase Wallet. So we think that those create new use cases. So we're working on product innovation to drive adoption. We're also enabling people to get rewards, and so there's not an opportunity cost to hold USDC versus holding other assets at this time in the way that there could have been. We're looking on our international exchange, as an example, and USDC is the base payer. And so you need USDC in order to trade on the international exchange in those perpetual futures. So we're closely integrating it into our products, giving you use cases, i.e., payments and wallet, finding ways to earn rewards if you're holding it as a more stable asset on our platform. These are the things we're looking at, and Circle has their own initiatives to drive USDC. A key for us for USDC and to differentiate USDC amongst other players in the market more broadly is that comes back to trust and so investments in the transparency reports, where the reserves are stored, how those are carefully monitored to give users confidence and that they are holding something that they can underwrite the risk on.

Got it. Makes a lot of sense. So because we have the CFO on stage, I thought we'd maybe talk a little bit about expense management.

Thank you, Will. It's my favorite topic. I appreciate that.

A wonderful topic, particularly it's a financial conference. So you pivoted your approach to profitability over the past year or so. You're now targeting profitability through all market environments on track to deliver positive EBITDA for the year, a narrowing net loss. More notable to me is that you've been able to do this while maintaining a lot of the strong product momentum that we just talked about. So just wondering if you could talk about the level of OpEx flexibility from here. Is there more to do on the OpEx side? And maybe conversely, does -- do the higher activity levels make you think any differently about scenario planning for next year?

Great question. So we did make a very concerted effort this year to bring down our overall expenses, as you've noted, and we're really pleased that we were able to deliver 3 quarters of positive adjusted EBITDA. I think it's also important to note that our cash balance was roughly flat year-to-date through Q3 and our debt is down 9%. So we've delivered positive adjusted EBITDA. We've strengthened the balance sheet, and we've really positioned ourselves, I think, for strong success. What we are most proud of, though, is what you just said, is that we did not take our eye off growth. We didn't like cut back to the quarterly focus on our mature products. We continued to invest in what we think is the future of our portfolio, the future of diversifying our revenue into new markets. And we're doing that through a focus on efficiency. One of the things that I think is notable is our employees have really increased their tenure now over the last 2 years here. When we were scaling up very quickly, the lesson learned is we were scaling too quickly and that we didn't have people learning the depth of tenure -- the depth that a tenured employee knows and so the productivity was not as high. We've now increased productivity. We're increasing efficiency, and we feel really good at this level of operating expense for the breadth and depth of product portfolio that we have. So not looking to make any major changes to our expense base at this time. But 2 things that we think a lot about are one is, as I mentioned, we just dipped our toe into derivatives. We just dipped our toe into Base, and so we may invest after those to help those scale, but we're going to be really disciplined to make sure that's the right ROI and see that we're generating product market fit and growth before we just turn on the gas pedal there. As we see -- if we see this November activity persist, we may need to then increase our volume-based expenses accordingly with that market. But those are the ones that go up and down properly with margin. We will not increase a lot of fixed costs associated with things that are more macro driven. And I think that the other thing that I would just comment on is a lot of people talk to us about AI and a lot of people talk to us about like what that could do to either our expense base. And there, we're starting to see the opportunities for enhanced productivity and more efficiency. So we may be able to even get even more out of our workforce and not change our expenses but move even faster on the execution side, which is something we're really excited about the potential for.

Makes sense. Sounds good for incremental margins.

Yes, it does.

So maybe just one quick follow-up just on the topic of SBC. It's everyone's favorite topic. The market has increasingly become more focused on SBC as an economic expense. And I know people focus on it as a percentage of revenue, the absolute number, percentage of market cap. How do you think about the level of stock-based compensation? How has that changed since you've become a public company?

So the metric that we really focus on is net dilution, and we look at net dilution as an average over periods of time, and it's because our revenue goes up and down. So looking at SBC as a percent of revenue I don't think is the right metric for our company. And so we're really looking at like what is the actual impact of our stock-based comp to our investors. Our average stock-based comp dilution has been about -- I'm sorry, our average dilution in full, which includes stock-based compensation, M&A acquisition cost that we do a lot in stock, our convertible preferred note, the entire shares that we've issued, have been about 3.5% of dilution per year since we went public. We feel pretty good at that level on a trailing basis as we kind of benchmark ourselves and think that that's the right area on the entire portfolio of what we've delivered. But that's what we're keeping our eye on and making sure that, that feels appropriate to our growth and to the opportunity set for us.

Got it. Makes sense. I'm surprised we got this far into the chat without talking about a Bitcoin ETF, but there's a lot of asset managers here at this conference. Just curious, I mean, we've seen a lot of developments on the back of this. You guys have been listed on most or many of the Bitcoin ETFs that have been filed. Just could you just talk a little bit about how you're thinking about that as an opportunity for the company? And then I'd love to hear you talk a little bit on pricing and how you're thinking -- how should we be framing sort of the custody fee opportunity assuming that one or all of these do get approved over the next year or so.

Yes. We're really honored to be selected as partners for many of these asset issuers as they pursue the Bitcoin ETFs, and we're cautiously optimistic that we're going to hear soon about whether they're approved or not. You're right. So we have been named as custodian partner in many -- maybe all but one of the applications with the SEC, and we're excited about that [ pop-up ]. Their products aren't in market yet. We're going to see adoption. But just by the level of investor interest in this, driving this number of asset managers to file for these, we think there's a lot of investor demand. We believe this will really grow the investor universe that can participate in Bitcoin. So for example, this will broaden into RIAs, to pension funds, to others who didn't have the ability to invest in the spot asset, and that will be largely benefiting our institutional platform. So the way that we think about it, and we've shared this in previous investor letters, is we've moved our Prime products. So our Prime product for institutions encompasses custody, trading, either directly on the exchange or through our broker where we offer smart order routing. Now we're really getting into the financing business. So it's a broad portfolio of products. And depending on the customer relationship, we adjust pricing. So pricing is a la carte, but we may offer better custody fees if we see a lot of trading revenue. If you're doing a lot of financing with us, maybe we offer lower trading. And so the pricing for this product will really depend on the broader relationship that we have with the asset issuer. And so we'll generate custody fees, though, but we also expect, because you have to buy the underlying spot, that we will generate some trading revenues as a result and benefit from people trading on our platform. And so depending on that mix shift, we could see it benefiting those 2 lines. But the overall Prime product is what will benefit.

Got it. Okay. And then I think there's also this counter narrative that a Bitcoin ETF might somehow take away from the existing crypto market. I mean could you maybe just talk about that? I mean if you can buy a crypto ETF on your Fidelity account, how are you thinking about like the risk of cannibalization if any?

So I think everyone's asked that question to really focus on our retail customers and how that may impact retail behavior. Retail has long had the opportunity to buy Bitcoin spot on platforms that offer different pricing. They've had access to the ITO, which is an ETF that had different pricing on it. And we haven't seen that deter them from buying Bitcoin on our products and our platform over time. So I don't anticipate this will have an impact to retail behavior who have long had access to Bitcoin. We think that they're looking for more than just financial exposure through an investment, a passive investment. They're looking to engage. They often will buy more than just one asset. They will then potentially want to stake their Ethereum when they get that, participate in other news. And so it's possible that this may do some on the margin, but we actually think this will just add new customers who were not thinking about, oh, I'm going to go buy Bitcoin on Coinbase. Maybe they're going to look at this now as, "Wow, Bitcoin I've heard about it. I wasn't ready to go buy it on Coinbase, but now it's available to me through my other brokerage platform, and so I will add this to my portfolio." And we think that will start getting them on the crypto journey and get them more excited about following the crypto markets and then could add to more benefits over time. So it's an onboarding asset.

More of a feeder, right? .

Yes.

All right. That makes sense. You touched a little bit on Coinbase Prime. It continued to be a bright spot in the business. I think back in September, you highlighted the Q2 trading and was higher than Q1 and you highlighted traction in the Prime financing in your Q3 shareholder letter. Where do you see the Prime product going from here?

I think as I mentioned earlier, so we continue to build out features and services, so financing, cross-margin products where you can now pledge both your spot and your derivatives and get a margin loan for the entire portfolio is an initiative that we are taking on. We're really just customizing now to our most sophisticated advanced traders and hedge funds to ensure that they have all the tools that they need to efficiently trade in these markets, and that is the direction of the Prime platform.

Got it. Makes sense. We'll pivot to capital allocation in the last couple of minutes. Maybe you could just give a high-level overview of how you think about capital allocation priorities. You've got $3 billion in debt, $5 billion in cash, positive free cash flow. You've done a little bit of opportunistic debt repurchases over the past year. I guess looking forward, do we think we could see more M&A activity, share repurchases? What are you thinking?

We have always been opportunistic when it comes to M&A, and we've been opportunistic with regards to our debt purchase. So what -- for strategic purposes, we always start with our product road map. What do our customers want? What do we want to bolt on? And then we determine should we buy, should we build, should we partner. What is the best way to get that product to market as quickly as possible? So for example, earlier this year, we bought One River Digital Asset Management, which is getting us into the asset management for the first time. That was a great acquisition for us because it brought us licenses that we needed, the talent that we needed. It wasn't something that we could have built. You don't just start track records from day 1. You have to buy track records, is the learning for everybody in this room that you already know that we're learning on our side as well. And so if those opportunities present themselves that there's opportunities for us to more quickly enter new markets, we may pursue acquisitions. We have nothing to announce at this time, but we are always looking for opportunities to grow more quickly via acquisition. With regard to the debt repurchases, again, that was very opportunistic. Earlier this year, our debt was trading at a significant discount to peers, to other companies rated in a similar fashion of ours, and we thought that was a good return of capital and also help us continue to deleverage the balance sheet and get our balance sheet in a healthier place given the positive operating cash flow and given that we didn't see a near-term acquisition in that earlier quarter at that time. So we'll continue to be opportunistic. We're using the cash to facilitate this financing business that I've talked about to really bootstrap and get the margin requirements for our institutional customers. And so we'll continue to do that and then determine how we rebalance over time.

Wonderful. Maybe we can just hit on the competitive dynamics really quick before we wrap up. The -- it's been evolving, you could say the least. A lot of your competitors are on their back foot. They've got regulatory inquiries. You were actually going to take price earlier this year. I think that kind of shows strength in the competitive position. How are you thinking about further evolution of the competitive landscape from here?

We welcome everybody to have a crypto offering just like in their early dotcom era when everyone needed to build an Internet website. Please build a crypto offering. That would be great. Everyone is welcome to participate in crypto. No, but in all seriousness, I think that you're seeing more and more traditional finance into crypto. I mean the asset managers that are bringing Bitcoin ETFs to market are a great example. We are starting to see PayPal with a stablecoin. I think lots of people are recognizing that this technology can augment their products and services. So the competition is changing quickly. It's clear that everyone needs to be a compliant, trusted counterparty. And so Coinbase got that right from day 1, and we're really proud of our positioning. And because of that positioning from day 1 and because that we have brought a breadth of products and services to market. We think of it very similar to the early days in the Internet where there was Internet-only companies, i.e. the Amazons of the world that's built up an entire successful business. And there were folks that had brick and mortar that tried to transition into online companies. So we're going to see [ that come ] to crypto. We are crypto native. We're going to start, and we think we can run a little bit faster. We think we've got the best crypto talent in the market and continue to stay paced with the evolving protocols, with, for example, the merge going from proof-of-work to proof-of-stake networks. These are technically complex things. And we're really proud of our execution this year where we did everything from launching a Layer 2 on Base to so bringing the first regulated derivative product to retail customers. Those are very different things. Those do not look like one another. Those require very specific skills. And I think that we're really demonstrating our execution strength by the diversity and breadth of our platform at this time.

Great. So in the last minute here, you spent a lot talking about all of the great product enhancements that you guys have had this year. How are you thinking about 2024? Anything that's top of mind? And how would you kind of frame the strategic priorities into next year?

Well, I will just reiterate crypto is volatile. Don't extrapolate. We prepare for it all. We prepare for good. We prepare for bad. But there's a number of catalysts that we're really excited about as we look to 2024. One is just the continued pace of innovation that we've seen and momentum on bringing new products to market. Specifically, next year, there'll be a happening at Bitcoin that historically has brought a lot of new activity and interest in the space. We think we'll see the ETFs in early Q1. We believe that will provide a lot of momentum on the institutional side. We think that we are going to see growth of these Layer 2 solutions. We're going to see more speed, and that will unlock developer ideas on how we can capitalize on fast, cheap payments. And I think that we might see some on regulatory clarity. I think we'll see the benefits of clarity, and I think clarity always helps remove the tail events and the uncertainty, which will then benefit customers to get back in, investors to get back in, and I'm excited for what that could bring.

Awesome. Well, we're right on schedule. Thank you so much for joining us. It's been awesome.

Thank you, Will.