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

All right. We're going to go ahead and get started. Thanks for joining us, Coinbase investors and future investors. I'm Michael Grimes from Morgan Stanley. Really pleased to have Brian Armstrong and Alesia Haas back here again. Thank you for joining.

Yes. Thanks for having us.

We were here a year ago today in what seems like 5 years ago of cycles because every quarter is a year, couldn't be more different in terms of the environment, your execution, the industry, the whole thing. So for that momentous '23 with the lows and highs, what were the greatest learnings to start that off, given how different it is today than 1 year ago?

Yes. Well, maybe the understatement of the century is that the crypto industry is a little bit volatile. So we always -- we've been through a number of these cycles. Now at Coinbase, we try to just be a steady hand. It's never as good as it seems. It's never as bad as it seems. And we made a big shift last year to really cut 45% of the cost out of the business, make sure that we could generate positive adjusted EBITDA in any market environment. And then we had a lot of good execution even with that reduced cost base. So we got our derivatives platform live. We continued to innovate with Layer 2 solutions like Base. We saw the ETF approvals happen at the beginning of this year. A whole bunch of inflows have happened. A number of our competitors ran into massive regulatory and legal challenges. And so it was very validating of our long-term approach of being the trusted and compliant one in the space. So yes, just zooming out, I think we ended up in a really much better spot. And it was a testament to our long-term thinking and making sure that we never get too irrationally exuberant or despair-oriented around crypto. We just try to be a steady hand through the ups and downs.

So you're the leader in crypto, leader in stablecoins. Tactically and/or strategically, how have you stayed ahead of the competition? And what are the competitive moats?

Yes. Well, the big one is trust. Every few years, there's a run-up in crypto, and we see some companies rush in and they cut corners to try to get big fast. And what we found is that, that doesn't really work. This is regulated financial services. It does take longer to do things in a compliant way, but that's what creates value long term and makes sure that we stand the test of time. So our defensibility has been around trust. It's also been around ease of use of just how do you bring in the next 100 million people into crypto. Maybe they're not very tech savvy or maybe they don't even really care about crypto, but they just -- they don't want to pay high fees when they're sending money somewhere or they're an artist, and they want to have a direct relationship with their fans. So Coinbase has really distinguished itself on trust and ease of use. And I think it's allowed us to become -- have an opportunity to become the global leader.

So a lot of activity in retail. The App Store rankings really spiked to some serious highs. Is that like the beginning of a super cycle? Do you expect the retail to continue?

So I start with this [indiscernible] add on?

Yes, go ahead.

You get to take this one. 2021 coming back.

[ Everyone's ] favorite question about what the next quarter is going to look like, and the answer is we don't know. The answer is that crypto has been volatile, but we've learned to just trust our processes and plan for any environment. And as Brian said, we want to generate EBITDA in all market environments. So we also want to instill our product teams the ability to innovate and drive product through all market environments. And so we don't know what the retail investor will do. We don't know what the price will be in a quarter, but we are planned for any scenario in which we find ourselves, and we're very committed to the long-term future of this company.

Okay. I mean anything to add?

Yes. One thing I'd add to that is that I think a lot of people just think about crypto as a speculative asset class, and that's certainly how it got started. And so sometimes, price will go up or down, it generates a new cycle, retail comes in. And that's fine as one layer to look at crypto. But I think what people haven't realized is it actually goes quite a bit beyond that. We see it as a technology to update the financial system written large, and it certainly is in need of an update. Transactions are slow and expensive and there's unequal access and there's oligopolies in different countries around the world. And so what we're actually seeing is that crypto is starting to update the financial system. If you look at things like stablecoins and Layer 2 and making payments fast and cheap and global, and it's starting to be an interesting alternative to things like SWIFT, right? So it's a new set of financial services. It's a new way that people are building applications on the Internet. And so I think there's another layer to crypto, which more and more people are starting to realize, and I think that's actually the potential of where this is going.

Let's keep piling on then. Okay.

Yes.

So let's then explain how that all impacts our revenue as well, which is historically, the majority of our revenue was tied to trading revenue, which then we were really reliant on crypto market prices and volatility. And increasingly, because of the diversification and the efforts to drive utility, we are driving the subscription and services revenue growth, which as of last year, then got very near 50% of the revenue, and importantly, was up 78% quarter-over-quarter. So that growth, that utility is what we think will then drive more stability, more engagement in the sector and helps us weather the ups and downs and volatility of transaction revenues.

So you mentioned this disruption of financial services broadly defined or pockets of it. You mentioned payments. When do you think we'll see adoption, crypto rails for payments?

Yes. Well, I mean, it's already started to happen. So if you look at a number of emerging markets around the world, people -- especially where people have high inflation, they've started to use dollar-backed stablecoins. And so we made a big effort to get USDC, which is one of the largest stablecoins out there. The ability to send it instantly for free anywhere in the world on Base, which is a Layer 2 solution we can talk about that we've put out there. So we're already starting to see people adopt that in places around the world. And I think like it kind of makes sense. None of us really think it makes sense to pay 2% to Visa every time you swipe your credit card. It's just sending bits of data. It's roughly equivalent to sending a WhatsApp message, which is free and encrypted. Why does it cost 2% when you swipe your card? I think payments are going to flow to the path of least resistance over time. Crypto rails are already starting to emerge with that. Now Layer 2 is just coming online. And so like inside Coinbase, only about 7% of our transactions are going over to Layer 2 today. It should be 99% at some point. And so as we get these things more natively integrated into our products and the market begins to adopt it and some of these standards emerge, I think we'll start to see more and more flowing over to Layer 2.

So you mentioned inflation. Countries with higher inflation maybe have started to adopt those rails sooner. I have this friend in a country with high inflation. When do you think for the U.S.? Is that like a year away or 10 years away? Or is that bracket under in the over?

Yes. Well, now I'm just wondering who your friend is.

Just this one.

President Milei, right?

This one. Javier Milei, yes.

Okay. I mean, look, there's places in the world where people have a hair on fire problem, right, where if inflation is -- like in Nigeria...

Standards of living are affected daily.

Yes. I think inflation was maybe 40% in last year. And so -- but even in the U.S., inflation was a major issue. I mean it's a major issue in this upcoming election.

Absolutely.

I think people are feeling this at the gas pump and at the grocery store. So this has become like a major...

Rent, rent.

Right. And so if that's a way that people kind of get their first interest in crypto -- now of course, a U.S. dollar-backed stablecoin is backed by a dollar...

The dollar doesn't hedge you.

Right. But it starts to get people interested in this. And once they start using maybe USD Coin to reduce fees, they're going to also start to think about Bitcoin and other options, which give alternatives to that. So I think these are all complementary. But usually, places where the people's next best option is nonexistent or terrible are the early adopters, and then you eventually see it get adopted in more and more places.

Okay. So there's been product velocity, 2023, International Exchange, licenses, derivatives. You mentioned Base. We'll get to Base. What are you the most excited about product-wise for 2024?

Yes. Well, our core products, we have a lot of room to just grow the core. The core is very healthy, which is around simple trading and USD Coin. Those have been driving a majority of our revenue to date. So we're going to make sure that we grow those and international expansion is a big piece of that. The other ones are newer businesses for us that we launched in 2023, our derivatives products, both internationally and we got Coinbase Financial Markets in the U.S. got licensed to do that. I think derivatives have a lot of opportunity. About 75% of trading volume is in derivatives in crypto. And then we have a few more nascent items. So Coinbase Cloud is our developer platform for companies out there that want to integrate crypto into their products and services. I think a lot of the services we've built internally, if we can externalize them, kind of like Amazon did with AWS, I think that could be a really meaningful business. We're getting more interested in payments with stablecoins and seeing if we can show that. But these are all early bets. So we're going to make sure we grow the core, advance some of the things that we've already launched like derivatives and then try some of these new portfolio bets that are on the horizon. And so we tried to be really rigorous about our capital allocation and do kind of like a 70-20-10 and put 70% in the core, 20% in these businesses that are adjacent and then 10% are kind of venture.

So maybe there will be something similar on the portfolio on international. Last year, Brazil, Canada, Spain, France, Ireland is the EU hub. Whether it's over this year or the next few, what's the international expansion vector since this is clearly working? Where should we expect to see you next, near and long term?

Yes. So -- and Alesia, just add anything I missed here. So I think on the international expansion front, we think about it as a go broad and go deep strategy. So on the go broad side, we have our self-custodial wallet called Coinbase Wallet. We have that live in 190 countries today. It's not really regulated like a financial service business because we never take possession of customer funds. It's more like a software product, and it allows us to kind of be in the long tail of emerging markets with our self-custodial wallet. So that's the go broad strategy. The go deep strategy is with our more centralized products, the retail product, the institutional product. And there's really about 10 markets in the world that are big enough where they really justify the investment we have to make to go for our centralized product into those markets. So we have to establish a local entity with its own Board typically, get local licenses and the compliance requirements for that, get local bank partners. And so you can imagine the 10 largest or so economies of the world, we have local entities where we're building out those go deep strategies. And the rest is going to be covered by our self-custodial app. And so we're trying to get global coverage with that approach. But anything you want to add on that?

I would share that last year, we planted flags in a number of new countries. Specifically, the new countries were Brazil, Canada, Australia and Singapore. When you mentioned the European countries, those were licenses that we needed to obtain to continue marketing and growing in those countries. What you see broadly around the world is the regulatory environment is evolving in a positive way where you're getting more clarity in a lot of global government. And so we're just keeping pace and ensuring that we remain compliant in certain markets in which we already operated. But the new flags we planted in Canada, Brazil, 2024, we're focused on growing those markets and really moving them from the crawl to the walk stage or moving them hopefully from venture to strategic in terms of their growth. So I don't expect us to be going into another [indiscernible].

I see. More penetration and the like.

Much more about penetration focus.

Yes. And we'll often go invest in a market once we see regulatory clarity emerging. And if you want, we can talk about our efforts there in the U.S. as well, which have been important.

Yes, go ahead.

Well, yes, I mean -- so the U.S. is actually a little bit behind. For instance, Europe has already passed comprehensive crypto legislation. Much of the rest of the G20 has made progress on this in a way that the U.S. has not yet. So Coinbase has been very supportive of trying to get regulatory clarity in the U.S. We're doing this, of course, through the court system itself, in our case, and we feel very optimistic about our chances of winning that case. But kind of regardless of the outcome, it's going to create clarity through case law. So that's fine. We're also working through Congress.

You don't think the government has provided you clarity?

No. I think -- yes, I mean, the way it should work, right, is the regulator engages in a rulemaking process. This is what the Administrative Procedures Act requires. And then if they publish clear rules, then we all have to follow it. We've seen that -- we've seen clarity in some areas like around AML, KYC. New York has a bit license, for instance. We have a trust company there. So there's some areas where it's clear. But other areas, for instance, is this a commodity or a security, and you have 2 federal regulators that have -- having kind of a turf war, that's where we have yet to see clarity in the U.S. And so that's an issue for America at risks being left behind. So we're doing that in the courts. We're in Congress, there's 2 bills that are going through the House Committees right now with bipartisan support, which are great. We're also doing it from a policy and advocacy point of view. So for instance, we gave some money into a Super PAC called Fairshake, which is now one of the largest Super PACs. It's really started to get a lot of attention in D.C., and its mission is to go elect pro-crypto candidates. We also have been contributing to this grassroots movement called standwithcrypto.org. And their goal is to get 1 million Americans to raise their hand and say, I'm a single issue voter on this. And they're at about 340,000 people who've signed up so far.

I want to party with them.

Well, actually, I went to a rally...

Single issue voter on crypto.

Yes. I mean there's 52 million Americans who have used crypto now. So if we just get 1 million of them that are really, really advocates of this. I went to a rally earlier this week in LA, where we had like a line around the block, 900 people, packed house all for Super Tuesday, like wanting to elect crypto -- pro-crypto candidates. So it's starting to really get attention. I think there's more people who have used crypto in the U.S. than -- like 5x as many as owning electric cars. There's like 3x as many have a Union card.

Like 100x [indiscernible] bought silver or something.

Yes. Yes, yes. So anyway, D.C. is really starting to take notice that this is going to be a major constituency in the November elections. And it's just bad politics to be anti-crypto. Like who are you getting as a voter, but you're upsetting a lot of people if you come out as anti-crypto.

Who do you win? Same page. Anything to add, Alesia?

I would say yesterday was a good day for crypto. So Super Tuesday ended up very positive.

It really did. It really did.

It was a great first step.

And in other ways, too, for our town here that we're in. So strength of the Prime offering you cited on the call, customer adoption, revenue. What do you really attribute that to on Prime?

So Prime, for those who don't know, is our institutional offering that has 3 major projects -- products underpinning it, custody, exchange and now financing. And we're really proud to see the growth of this product fleet over the last 2 years now. So throughout the winter, throughout 2023, we saw increased client onboardings on to Prime. We've seen growth of our financing business. We now enable our institutional customers to do cross-margin collateral to really have similar experiences they have in trading other asset classes. And that is really the ambition, to make crypto an asset class on par with other assets that institutional investors want to engage in. We now have roughly 1/3 of the top 100 hedge funds of clients. And so you're just continuing to see that adoption and crypto becoming more of an allocation of an asset class that everyone engages in. We were really proud of the Bitcoin ETFs now. So we are supporting ETFs through our Prime offering. We custody roughly 90% of all Bitcoin ETF assets. We were supporting 8 of the 11 issuers in the Bitcoin ETFs, and we were named as custodian in 5 of the 8 Ethereum applications. And so our infrastructure is really powering a lot of the growth that you've seen in that market over the last month.

And then sticking, Alesia, with you because -- we talked about this actually in the hall, both last year and this year, your financial strategy to survive the dips and survive the booms and the busts in crypto. How is the company in a different position today than it was back in '21? And have you positioned the financial strategy relative to that tolerance for volatility?

Yes. So we have developed a lot of tools to navigate volatility. And I think Brian said it really well when he spoke earlier about the internal mantra is it's never as good as it seems or it's never as bad as it seems. And so while the market looks at this, we're trying to just shoot straight across the middle. How we are different than 2021? I think there's a couple of things I want to talk about. One is we now have an employee base of 3,000 people who have lived through a cycle with us. And we say the word lived through a cycle, but you really have to experience the cycle, work in the cycle before you really know what those words mean. In 2018, Coinbase was a much smaller company. We only had 200 people that had lived through a cycle when we started entering then the 2021, 2022 period. Now we have 3,000 that are going to navigate. So that gives us the muscle memory of let's not be undisciplined, not assume current conditions will persist. Let's be ready for all scenarios. And so one, it's employee great resilience understanding that makes them better decision-makers. Two, it is we have much stronger framework, so we push budgeting down to much lower levels, where people feel much more accountable to outcomes than they did in 2021 when we had a little bit more of a shift to focus on gross, growth, growth. And finance knew it going on, but it wasn't as permeated throughout the company and the culture. So now everyone sort of understands that their drivers are bottom line. And I think that culture and discipline will serve us well going forward. And third that I want to point to is just the breadth now of the product offering. So in 2021, institutional was still relatively small. We didn't have derivatives. We didn't have Base. We were still really reliant on trading revenue on the simple trading platform. And then stablecoins were a growing part of our business, but more as a trading asset. They didn't have the opportunity to have lower cost payments, as an example. So we've really broadened out the number of products that can then become revenue generators going into next market. We've diversified our international footprint. And so I would just say we have over USD 5.5 billion. We have over $1 billion of crypto that's liquid. So we have a strong balance sheet. We have earned positive cash flow in 2023. We're lean. We're nimble. We've got a really dedicated employee base that's now ready to drive through this next cycle.

But other than that.

But other than that -- and the market's really shifted, and our competitive position couldn't be stronger.

That's a great list. That's a great list. We talked about ETFs. 10 years, so congratulations to the SEC approval for the ETFs. 1 month to be the second largest, passing silver and only behind gold on ETF -- commodity ETFs. What does that mean for the industry? And what does that mean for your business?

Yes. The ETFs were a massive, massive milestone. Number one, they were a regulatory approval. And it just shows a steady drumbeat of getting more licenses, more approvals. This is becoming a regulated license business all over the world. The ETFs were approved by the SEC and the courts had a role in that, but it's an approval nonetheless. The other thing is that I think we saw fears from some people that this would cannibalize activity on our direct platform. And actually, it was completely the opposite. So we saw $8 billion of net inflows into ETFs, but we also saw net inflows into our retail product and our institutional product. It actually played out how we expected, which was the ETFs were new pools of capital.

And expansion, yes.

Yes.

It's catalyst -- the catalyst of growth.

Yes. New pools of capital got unlocked. It was just -- it created a broader awareness, more trust. And we saw increased activity on our platform, too, where people want to hold crypto directly or other types of crypto assets or actually using crypto. So it was really massive. And I think BlackRock, in particular, had a ton of volume flow in, which was really great. And then as Alesia mentioned, we were custodying 90% of it. And so it just felt good. It showed that we had the strength as the trusted player in the U.S. And I can't say enough good things. Now we're seeing these Ethereum ETF applications be filed. And so I think we're named as the custodian in 5 of 8 of those. So I think we'll see more and more of these kind of asset classes emerge in the traditional system.

And the -- maybe this is an analogy to your -- analogist to your political discussion of who loses. One of the larger asset gatherers didn't head the BlackRock path and looks exposed. And so if that has a signal for what happens on Ethereum or what happens on the next wave, that could also be something politicians are taking note of, asset managers are taking note of, banks are taking note of on what being negative accomplishes.

Totally. I mean their clients are asking for this. So good client services, if there are regulatory-approved products that your clients want, what are you doing if you're trying to block that?

Business trend -- it's a business trend. So let's talk about Circle. You have the strategic partnership. You have the investment in Circle stablecoin up to 25% of the business. So talk to us about the stablecoin business and that partnership.

I'll start and then you can add on. So starting in 2018, we started a partnership with Circle as we believe that stablecoins will be an important like utility and infrastructure layer that needed to be within crypto. And in 2023, we amended that collaboration agreement and entered into a new arrangement to just really simplify terms, clarify economics and rules and help us for the next wave of growth of USDC. So just to quickly articulate what that arrangement is, is that Circle is the sole issuer of USDC. Coinbase is a distributor of USDC. We resell USDC. And for that, we have an economic arrangement whereby all of the USDC on our platform, after certain fees paid to Circle as issuer, we get to collect 100% of the interest income from the underlying USD reserves. Circle gets the same thing for anything on their platform. And anything that's not on our platform, we share 50-50. And so that has just made it really clear for us to go forward in market. Now our goals are growth. We had a hard year in 2023 when USDC de-pegged. We've stabilized. And over the last now 8 weeks of Q1, we've seen USDC market cap rebound about $4 billion from year-end. So we're really starting to see the trough and growth again in this asset class. We're [indiscernible] with payments, as Brian alluded to. But more importantly, we're also just driving what we consider core use cases of what USDC was already strong in. Those are DeFi, those are the trading asset. And so we're working through incentive plans. We're working through deeply integrating it with our products. So for example, our International Exchange is all quoted in USDC pairs. This will drive behaviors of market makers and more adoption of USDC versus U.S. dollars because it's a 24/7 instant settlement asset. And now being able to do transactions for free instantly, globally on USDC, on Base, we think that just opens up use cases, and we want to make sure we're here to drive that adoption and that value add.

Yes. I just want to underscore. I mean I think stablecoins are a really big deal. When I go to D.C., we don't call it a stablecoin there. We say it's a digital dollar. And by the way, China has a digital yuan built on blockchain. They created it in 2019. Many people that I speak to there are very interested. They're not like some big fan of Bitcoin or something, but they really want to have a digital dollar that ensures that we maintain the reserve currency in our competition with China globally. It's a matter of national security. It's the way that the U.S. projects soft power globally, all kinds of things like economic sanctions, et cetera. So I think now that we have U.S. dollar-backed stablecoins and they're starting to be fast and cheap and these are really going to become the new rail instead of SWIFT or ACH, some of these things that take 3 business days or whatever, that's really, really important. And it's essential really for America. So it's getting another massive constituency of people very interested and engaged in why crypto needs to succeed. There's great -- I love Bitcoin, it's digital gold. We should have guaranteed scarcity from mathematics. I think it's a brilliant innovation in the world. We should have U.S. dollar-backed stablecoins. We should have all these other things being NFT and DeFi and...

L2.

Right. These are all really important innovations that are happening. And anyway, it's a good talking point in D.C.

So let's talk about L2 and Base. Can you take us through -- explain Base as layman's terms as you can and then how that's fueling the industry and your business?

Yes. So blockchains need to become more scalable. And when blockchains first came out, everything was happening on Layer 1 with Bitcoin and Ethereum. And it took anywhere from a few dollars to $25 and maybe anywhere from a few minutes to a few hours to confirm every transaction. So they were distributed, they were decentralized. There was a computer science breakthrough, but it was kind of slow. And what we've seen now is that Layer 2 is coming online. You can think of it kind of like when the Internet went from dial-up modems to broadband. And everything got faster. A bunch of new applications got enabled. And so Layer 2 is basically just making every transaction in crypto faster and cheaper. Now Coinbase has a role to play here because there's a handful of different L2s that are out there, Layer 2 solutions. And we decided to work with one of the existing platforms called Optimism and have an economic arrangement with them. So we built basically on top of the Optimism a decentralized protocol, our own Layer 2 solution called Base. And people -- like developers that are out there building apps, they've really kind of gravitated toward it because they're looking at it and saying, okay, well, there's a big trusted company who is putting their weight behind it, right? It's kind of like Google putting their weight behind Chrome or Android. Even though it's open source, it has a big company as a sponsor that they know is going to continue to improve upon it and give it distribution. And so that's the other thing we're doing actually in our -- in Coinbase's applications, we're making Base a default, and we have an opportunity to give distribution to third-party developers who have built their apps on Base and then they can get users through Coinbase's platform. So Base is emerging as a Layer 2 standard that lots of developers want to build on. We have opportunities to monetize it, not just with our economic arrangement with Optimism, but also by getting what are called sequencer fees. This is all still early days, but I think it's a really interesting -- it has the potential to really create a strong network effect and interesting economic opportunities for Coinbase over time.

Today, we're focused on getting developer activity on the platform, building liquidity and really just embedding Base as like a default layer for developers to come to.

So Optimism, your partner, has their own L2 network. Are you collaborating, competing? How does that work?

It's collaborative. So they...

And are they interoperable?

Yes. So they built it as an open standard, and they really want companies to come in and build on top of it. So they were thrilled that we came in, all right, cool, we want to use this. We evaluated the different ones out there. We liked Optimism the best. So it's very collaborative, and that's probably why they were willing to share economics with us.

Okay. Okay. Well, let's get a couple of questions that get towards the future. We talked about a lot of Optimism. So let's stay on that for a moment. It's pretty -- the table is pretty set, it feels, and then you still have to execute. But what's the future from here as you now have this strong position? You've got the moats, regulatory leaning but not done, international, Layer 2, multiproduct. What do you see -- what are the drivers for the next 5 years?

Okay. Let me start and then I'll have you jump in. So I mean part of it is really just expanding our core business today. I won't dwell on that, but it's important to note that, that alone, I think, has enormous potential. And if we just continue -- more and more people are going to keep coming into crypto as Layer 2 comes online, and we do more international expansion and payments come online and these kind of things. I think that like the really interesting potential for this is that the shift is happening where people initially started thinking about crypto. They often get their first -- their feet wet with crypto by saying, oh, this is an asset class and maybe it's digital gold or something, and I could own a piece of it, maybe it will go up." So that's kind of speculative. It's a new asset class. It's kind of interesting. But the potential of it is much bigger than that. It's actually the chance to have Coinbase be someone's primary financial account in their life, right? The way that they do payments for everything, the way that they get payroll, the way they borrow and lend. We have some of these products in there today for direct deposit. Coinbase Card allows you to spend USDC or crypto at any place that Visa is accepted. We have Coinbase Commerce, which is a nascent business, right, that's allowing people to accept crypto payments online. So I think if Coinbase can become people's primary financial account and we can start to get a larger and larger percentage of global GDP running over crypto rails, it starts to get really interesting as really kind of the next iteration of the global financial system that's faster, cheaper, more equal access and more global, right, so that it's not like every country running their own proprietary ancient system. That's where this is going, and it's a technology to update the global financial system.

That's a powerful answer. So what do you think is still misunderstood about Coinbase?

You want to jump in here? I feel like...

I think people are getting to know us a lot better. So this is...

Last year was a step function.

Yes.

Absolutely. I think what's misunderstood is just how broad the product portfolio runs and how many different use cases we have our fingers in. I think what's also potentially misunderstood is these commercial arrangements. We talked about how we're partnered with Circle to bring forth stablecoin as an ecosystem infrastructure layer. We're partnered with Optimism to bring forward Base as an ecosystem infrastructure layer. And many of our products right now, I would say, are supporting the development, so that developers can go build more apps and more use cases in crypto. And in a way then, we are touching different parts of every transaction that happens in crypto. So even though we don't touch the 100% of all assets that are underpinning ETFs, we also have the exchange, we also have the trading products. And so other asset issuers in the ETFs will still be trading to get the Bitcoin to put into a different custodian. So we are touching many, many parts of this ecosystem. And I don't think that, that is fully understood.

An unusual business model is why. That's an unusual business model, to be touching that many [indiscernible].

To touch so many parts. And so we want to be B2C, we want to go direct to customers, and we want to serve them in many ways. But oftentimes, we will find ourselves in a B2B relationship. And we think we have lots of growth opportunities ahead just because we have built so many core tools to deepen the stack.

So we'll get ready for audience questions in a minute -- oh, no, even now. We're going to get ready for audience questions now. Go ahead. We got them everywhere.

I have 2 quick questions. First, on just DeFi, we saw the recent proposal by Uniswap regarding their utility token might having some sort of rev share. Does that have any positive impact on Coinbase, if that gets sort of adopted? And secondly, anything around your Coinbase Ventures portfolio? Where does the Ventures strategy fit in? And why are you carrying it at cost when there are many investments there that are worth a lot more? It might just be an accounting thing, but just want color on that.

Yes. So I'll start with Uniswap, and then I'll turn to you for Ventures. So for those of you who don't know, Uniswap is a decentralized exchange. It's a really cool piece of technology. And Coinbase is actually -- through our products, you can trade on our centralized exchange or on a decentralized exchange. And so we actually think these are very complementary, and we're supportive of both. Now Uniswap has been making some moves with their own UNI token. And I'm not sure if there's a way that we're directly going to benefit from that. But I do think that we should continue to be supportive of decentralized exchanges. And there are -- there's fee generation opportunities for us over time with that. It's not something that we specifically focus on in our financials at this point. But I'll just -- suffice to say, we're very pro decentralized exchange and centralized exchange. I think they're both going to exist for a long time.

I'm going here and then [ Dave ].

[ Thinking ] about Ventures -- probably just quickly answer Ventures.

Oh, that's right, Ventures. Go ahead.

All right. For those who don't know, we have a very active role playing in the venture portfolio where we invest in early-stage startups. We're typically in passive roles, but this enables us to see the breadth of what's going on in the ecosystem. It enables us to think about what our future business development arrangements, where do our customers want to be and help what we call a thousand flowers bloom in the ecosystem, but also then bring that value back to our company and our product road map.

Go ahead.

I've got a quick question on -- so can you elaborate more on the ETF impact to the whole market dynamics? So basically, money flowing into ETF and ETF will buy through Coinbase and custodize. So you mentioned that BlackRock, 90% are custodized here, right? So basically -- but versus previous cycle, because there are many, like, individual buyers 2, 3 years ago and they are on much higher commission. But the institution are lower commission. So how should we think about this cycle versus previous cycle for Bitcoin trading revenue for Coinbase? And also, correct me if I'm wrong that the other -- Bitcoin probably on the lower spectrum of commission percentage, but other cryptos are higher. So on last cycle, I mean, the previous like 2020, '21 cycle, so how do Coinbase benefit from these other coins? And how do you see this type of cycle? Is it similar to last cycle? Or this time, it's just Bitcoin [indiscernible] others?

Yes. I can start off and then feel free to add anything. So the ETFs have been very accretive to us. So it's true that they have lower fees, but they're unlocking new pools of capital that previously couldn't hold cryptocurrency directly, right? And so we've seen $8 billion of net inflows from that. But at the same time, we've seen net inflows to our retail and institutional products. And I think there's a difference in the -- if you just want exposure to the asset class and you can only hold ETFs and you only want Bitcoin, that's a great option. Some people want to actually hold Bitcoin to do something with it and -- to spend it or to earn rewards on it with different -- or hold different crypto assets. And so we're seeing that the ETFs are having a positive accretive effect. I think it's good -- it's a regulatory check box. It's a branding marketing moment. It's just generally increasing awareness and more money flowing in. So every time crypto gets integrated into a new piece of the traditional financial system, whether it's an ETF or a bank or some payment processor, I think we might get some people who would ask that as a question like, well, what does that mean for Coinbase? We see it as all beneficial. We want crypto to be integrated into every piece of the traditional financial system. So every time a new company or a new product gets added or something like that, we think it's good.

Yes. And I would just say, as we shared on our Q4 earnings call, again, quarter-to-date, it's just been net positive, as Brian shared. And we disclosed in our financial statements the allocation of trading revenue and assets on platform to the different assets. Bitcoin has always been amongst the largest. But most of our customers hold more than just Bitcoin. Like the vast majority hold at least 2 assets. And they are coming, as Brian said, to the platform to learn about crypto to engage more deeply in the crypto market. We saw pretty strong adoption staking throughout the last 2 years once Ethereum became liquid and stake-able. So I think that we're going to continue to see growth in that behavior with the long tail, not just in Bitcoin and Ethereum. But people are still engaging the breadth of crypto assets that we trade on our platform.

James, the last question, over to here. Here you can use this one.

So thinking of crypto, it seems like take rates get taken to 0 because it's like the ultimately competitive environment. So Uniswap does half of your volume but with 1/10 of the employees. And then USDC, you capture 100% of the yield, but there's also projects like OANDA, which I believe you're an investor in, which is like a yield -- passes along some of the yield to the holders of the stablecoin. But just -- I'd love to hear your thoughts on the sustainability of margins in the industry and how to think through that.

I'll start off and then turn it to you. So we agree, I think over medium, long term, there's going to be margin compression. I mean why wouldn't there be? That's happened in every other 8 industry. But I don't think we've seen any margin compression so far. And I don't think it's going to happen that soon. And the reason is that, I mean, our 2 major competitors just ran into -- 1 blew up, 1 ran into a massive legal trouble. It turns out it's really hard to run this business. You have to be excellent at cybersecurity, at compliance, at marketing and engineering like a lot of different types of technology. And it's not been commoditized yet. The industry is also moving so fast. Every week, there's some new asset. There's a fork. There's a new way to earn rewards. There's some stablecoin. There's some payment opportunity. There's a borrower-lending thing. So if this industry matures at some point and just starts to slow down from an innovation point of view, I think we will see more commoditization. So far, it has not commoditized at all. In fact, in every cycle where it's like things come down, we see other players retrench. And they were kind of tourists in crypto, we added some features. Now we're not focused on it. Coinbase is 100% focused on crypto. So I think we're going to continue to have a disproportionate share of people who want to do something with crypto. It's like, all right, that's the place I'm going to go and do it.

We're -- I think we're after the buzzer, unless there's a critical thing to add?

I just wanted to share we [indiscernible] last year and raised market share.

Awesome. Nice to add. We're after the buzzer. Thank you, Brian, thank you, Alesia, very, very much.