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

Good afternoon. Thanks for joining. My name is Peter Christiansen. I'm on Citi's equity research team covering a bunch of areas, including fintech and crypto. Thanks for joining us today. I'm thrilled to have Alesia Haas, Chief Financial Officer of Coinbase here to discuss what's going on with the company recently. Coinbase has asked me to read a quick safe harbor before we get started. During today's discussion Coinbase may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ are -- is included in Coinbase's SEC filings. The discussion today will also include references to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measure 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 a substitute for GAAP measures.

Thank you. Thank you. Yes.

All right. Thanks. I do want to start off with, I think, understanding your role because I think your role is incredibly unique from that of other CFOs, I think, anywhere. And to be honest, it's difficult for us to think of a more dynamic CFO role than that required of Coinbase. Balancing and managing the business to inherent volatility of the crypto market and it cycles, capitalizing on unique opportunities and navigating for this technology with regulators and policymakers, meeting transparency demands of shareholders and stakeholders like you have a lot of tasks and a lot of things that you need to juggle. I think it would be really interesting for investors to maybe get a sense of from a day in a life perspective, can you walk us through where you're spending most of your time these days? And maybe if you can talk about how Coinbase goes about its financial planning process.

Okay. It's a lot of fun. It is dynamic. So it's funny. So Emilie, our President and COO, and I talk often about how Coinbase requires the most context switching the most, you start the morning thinking you're going to do one thing and then you learn 5 new things and you move into 3 different directions. You might talk about like, oh, my goodness, how is Canada expansion going and now how derivatives going? Now how is the policy effort? How do we need to like shape user experience? Like you can just jump all day. And so it's the most context switching that any of, either of us have had in any role that we've been at before. And that makes it incredibly fun because you can feel your brain stretching and growing, but also -- there's a lot there. So I do spend the majority of my time helping either with my exec team or my leadership team within finance, just navigates through new information. And -- our collective role, my role, the exec team's role, Emilie and me working together is how do we take new -- like and sometimes brand new, like how does this crypto drive policy, brand new? Or how do we make some more efficient just new information? How do we turn new information challenges into opportunities. How do we identify the key talent that we need to execute through something? How do we make something more operationally efficient? How do we identify risk and then build in to mitigate so that we don't have any footfaults. How do we understand the financial impact, whether that's going to be a new cost that we need to absorb within our guardrails, whether that needs to be like framing the revenue opportunity, how we build out new. And so it's just translating information into opportunity. And that is what I said on the bulk of my time helping navigate. On a granular basis like my day job. I would say like every day, there's time dedicated to looking at like what our data? What are our metrics, we're an incredibly data-rich metric-driven company and looking at anomalies and data and following up on that looks off, what are we learning here? But then one day, week I'm doing deep dives with the exec team and going into various business issues. One day, week, I'm going through roadmaps of my team, what projects are we working on? How do we get more operationally efficient? How do we do more with less? How do we become scrappy half a day a week, I'm working on global governance. We have about 20 regulated subsidiaries around the world that require different boards, different approvals and just participating in global governance. And the rest of the time really depends on where we are in the quarter. Obviously, we're a public company, and so part of the quarter is going through earnings cycles, part of the quarter is dealing and the opportunity to work with our regulators, our bank partners or other key constituents. And then the rest of it is balancing out product opportunities, how do we identify risks and financial opportunities within the various products that we have and how do we dog through them in finance? Because one of the things I tell my team and I think is most important about sitting in the finance seat in a crypto company is we should be the users of all the things we use, like our institutional platform. If it doesn't work for my needs, how is it going to work for any other clients' needs? How do we make payments in USDC. How do we make FX in crypto work for our own business operations before we go to clients. And so we spend a lot of time using it within our own personnel portfolios. I was really proud. We just came out of crypto onchain summer and we get out awards to employees about who is the most onchain. Finance is almost 50% of the award winners come finance team [indiscernible]. So we spend a lot of time then understanding our products with our product leads and pretty staying that way.

So your R&D as well, sounds like.

We're just the first users. We've got a naive questions, it feel so great. Like this is clunky, like I need this. We're just be [ reckless ].

That's amazing. And I'd imagine you'd have an expensive encyclopedia playbooks and scenarios and things that...

So we want to get a financial forecasting. All right so lets talk about a financial forecasting. The second part. That was just my day and month. Financial forecasting. We're hard to forecast. I don't think this is a surprise to anyone in this room. And so the way that I think about it, I think it's important to say that my job immediately prior to this was out a hedge fund. So pretty hard to forecast, so I came into this with awareness of how to forecast difficult businesses. But we start with the following. We start with like what are our big picture objectives. And we discussed this at the exec level. We discussed this at the Board level. So for example, this is the objective of we've told you all, and we're holding ourselves to it that we want to be adjusted EBITDA positive in all market conditions. So that's like a big picture goal. Then we look at a lot of scenarios to then understand what our revenue could be. We are really good at what we consider scenario planning around macro drivers, black swan events like -- and we spent a lot of time mostly focused on the downside, I would say to you, I would focus mostly on what are the headwinds? What are the risks we can see. Because we can see that when we see strong volatility, we have upside, and that upside translates really nicely to the bottom line. We don't see our expenses really flex that upside, but we do need to prepare for the downside. And we've seen so many cycles in crypto. What we want to be able to do is really manage to the risk scenarios prudently and to continue to generate positive adjusted EBITDA. And so we look at a wide range of revenue scenarios and saying different drivers. Then against those, here's our big picture objectives. Here's the range of revenue that we could see as possible, not all those are probable, but they could all be possible. What do we feel good about taking as a fixed expense base to carry through those scenarios? And then what are the conditions in which we would open up, increased variable spend, what are the conditions in which we could see opening up additional fixed spend and we kind of set forth those guardrails. We update those scenarios quarterly. We update our big picture goals, sometimes annually, sometimes we have a persistent goal. And then those quarterly updates is what feeds through into our outlook and what we provide to you all at the Street. And so that's how we update. Obviously, if there's events in crypto, I mean, the good news is it's been relatively calm for the last year, no more bank sailing, no more FDX in the last year, knock on wood, we would update more regularly in those events.

Legal, public policy spend, how much is that -- and this is -- you're through a unique time. So I'm sure it's a big portion of your spending base right now. Let's say that goes away to some degree in the near future. Like what's the next phase of fixed cost expansion for Coinbase? Is it more people, more developers that kind of thing? And maybe I just want to add on to that, what were some of the lessons we learned from the last cycle? I know...

Okay. Let me talk about legal and policy spend first. So it's about we definitely have just a fixed investment in legal and policy that will persist in all market environments. We are seeing elevated policy spend as we go into the market right now because we're in a unique election year and we're in a unique precipice where we might get regulatory clarity in the U.S. And so we are spending into that tailwind and that opportunity. Crypto is so nascent and we think this product that will expand. So that may be the case, we see that in India next year. Maybe we see it in Argentina in the next year. So I'm not yet at the point where I can say with clarity how that will spend will evolve because we could see an opportunity to drive rules around the world that would then meet our product expansion opportunities. What I can say is it's going to be opportunistic spend. It will be seasonal and specific goal purpose spend. It's not just we're going to spend it to spend it, it will be around a mission and a goal that we think will then lead to product [ fixed ] expansion and opportunity for us. And that's what we see here in the U.S. in this election cycle, which is what's leading to the elevated spend that you saw in Q2 and persisting into Q3 as we go into the November elections. Again, legal spend, we can have heightened spend when it comes to around the SEC case we're in. But as we push the envelope and we drive new products around the world, I could see us needing to have elevated spend in these areas for some time until we become a more mature industry. We'll try and be as transparent as we can around that. Obviously, all of that's been is captured in our Q3 outlook, and we will give you what those outlooks look like at any time. And they'll be coupled with our broader goals around profitability and with the direction we are managing the business to. All right, moving away from the [ policy ] like what we learned and all of that. Look, we went public in 2021 and I think what's important to share at that time is the company was about 8 years old. And at that time, we had seen 3 Crypto winters. We had seen price cycles in troughs in 2013, 2015 and then 2019. And in every time, what we had said at that point is each trough was higher than the past trough each peak was higher than last peak. And we had seen ebbs and flows of the business. And especially in 2019, what we regretted the most as a company was that we did not invest ahead. And so when we got to 2021, we're like, "Oh, shoot, we are catching up. We wish we made this investment in 2019, but we were too conservative. And so then as we went into '20 '21, 2022, we said, well, we got to keep investing. We know where we want this product road map to go. We want to keep investing. And we told the market, we're going to invest through a cycle. We told you we'd breakeven through a cycle. The feedback we heard from the market in 2022, when we started losing adjusted EBITDA was like, we don't believe you Coinbase that does not feel comfortable, you're burning a lot of cash. And people didn't have trust in our management team that we were going to execute through a cycle. They didn't have trust that it would come back in the way that we had watched the prior cycle experience. And so we pivoted meaningfully as we went into 2023, and we said to the market, okay, Loud and clear, we've heard you, we will be more cost conscious, we will generate positive adjusted EBITDA in any market conditions. So as cryptocycles move up and down, we will continue to at least hit that bottom line of positive adjusted EBITDA. And -- we've done that now 6 quarters in a row like we had positive adjusted EBITDA through 2023. And I think what you can see now in 2024, as the market comes back and we start going into higher market cap, higher volatility, a lot of that increased revenue just trickles then straight down to the bottom line. So the lesson learned is, one, we need to listen to the market and we need to then execute and do what we commit to, which I think that we have executed on nicely. But the true lesson learned -- the true lesson learned, but I think that we, as a management team, took away is -- we grew to quickly. And we followed a playblock of big tech in build ahead, build ahead. And that what we recognize as we as a company and a culture is -- we value scrappiness. We value individual contributors. We value people doing more with less, and we actually think we move faster in that market. We move actually -- we moved more slowly when we were hiring so much because we had a new manager -- new manager upon new employee, and we did not have the culture push through. We did not have the knowledge of our operating practices push through. So now we're executing the best we have done in years, and we're really proud of our execution speed. And now we've also learned very carefully about how quickly we can grow in what areas, how we grow thoughtfully, how we then put the dollars against what we think there is more solid revenue-generating opportunities and how we scale up and down with more variable costs so we can meet the market but also not get too ahead of ourselves.

Also like how Brian used to talk about -- there's a point where there's a lot of mercenaries in this industry now focusing on missionary and maybe it was something that was kind of required of a washout that needed to happen.

We have a lot of resilience now in our employee base, lots of great here.

Absolutely. But at the same token, now investors now know that you could put up a 60% margin in a particular quarter and generate so much free cash flow in a healthier cycle. So maybe we all learned something along the way. I do want to talk about the political environment a bit here to the extent that you can certainly look I know it is, I know it's all of us. I've become an armchair attorney, a legal expert as well last year. But looking past the President. Actually, let's get that one. Let's talk about bipartisanship. Examples come to mind. Congressional repeal of SAB 121, passage of FIT21, Letters to prominent Democrats to the Harris campaign and such. Can you discuss the significance of these? And do you see any meaningful examples of bipartisanship coming together to further crypto regulation in the United States.

So crypto is bipartisan. When we look across our customer base, when we look at the 52 million Americans that own crypto or have transacted in crypto in the last few years, it is a young group, it is a diverse group, it is urban, it is rural. It is really a cross section of America. When we look at the participants in Stand with Crypto, which is one of the advocacy efforts that the industry has put together and we have events, when you look across those events, you go, wow, this is the voting block. This is who both Republicans and Democrats are trying to get to the poles. And so it's an incredibly important moment in time for those voters to make their voices heard and to share why we want crypto legislation here in the U.S. It is to create consumer protection, is to create clarity so we can bring jobs to Americas, we can bring this innovation to America and we can then ensure that those customers can operate here in the U.S. in transparent and trusted way. So we are not at all surprised, and we are so pleased to see it bipartisan efforts as you point out. And we think that we see that the Congress, to the Senate that people have the goals. The key here is education. The key here is the more people understand the more they realize this is technology and technology should not be partisan. I mean we should allow clear rules to bring forth all new industries, all technology in the U.S. and it doesn't need to be a political event. I do fear and this is people want to politicize everything. So we're working very hard as an industry and as a company to dispel those myths, and we will work with any administration or with any participant who wants to bring forth clarity to these regulations and rules here.

Well, if I think about like fair shake, stand with crypto, actually, I think it's the largest single issue super-pack right now, which is pretty impressive. Maybe to point to some examples how politicians, particularly those who are going through their own election season, how are they perceiving the impact from those platforms? And do you think it is a difference maker?

Absolutely. This is part of the most interesting part of my job is just learning how this process works and learning about the impact on how you can drive clarity. We made our first political contribution to Fairshake in December of 2023. It's when it got started. This is a less than 12-month journey for us as a company and for the industry and bringing resources and so putting this pack together. We saw a lot of impact in the primaries and so in races that Fairshake participated in the primaries, we saw the crypto first candidates winning those primaries. That impacts the result of those dollars in action led us to the incremental investments that we made in Q2 and are furthering support of just general policy efforts into Q3. And you saw others stand up besides us and add resources here. And so yes, we are seeing those dollars have impact in those elections. And if we can get Senators, Congressman who understand crypto and are committed to driving regulatory clarity. That's what the voters want. Now the sister companion beside Fairshake is the grass recappers with Stand with Crypto. So Fairshake is super packet spending dollars and elections to try to get focus on the pro crypto candidates. Stand with Crypto then is to get up the vote. It's the grassroots effort, and we have 1.3 million Americans signed up with Stand with Crypto it is growing on a regular clip. We just kicked off a bus tour. So Stand with Crypto, I shouldn't say we, the industry is the globally when we say we, these are separate entities from Coinbase. These are just entities that we are contributing and making donations too. So Stand with Crypto is on a bus tour right now. When you look at Stand with Crypto and you look at the members of Stand with Crypto, they live in swing states. So people in Pennsylvania, people in Florida, people in Michigan, people and swing states. The number of Stand with Crypto advocates exceed the delta between who won and lost those states. So these are motivated. These are active voters, and I just sit there and I say, being anti-crypto is not winning you any votes, being pro crypto is winning new votes. And so this is an opportunity for both candidates. This is like non-par -- everyone should be going after these votes and try to say, driving policy is good, voters want this, let's move forward with this.

I hate to ask this question, but just would love to hear your view on how a potential Harris administration might fare for the industry. Anything that you've gleaned from -- I mean, I think the party hasn't been -- hasn't rolled out all of their policy agenda yet. But any sense you're hearing.

We have a huge opportunity as we just talked about it, it's a huge opportunity. Look, we're cautiously optimistic. She has not rolled out the details yet, but she has made overtures that she would like to drive crypto legislation. She is accepting crypto donation. So she's using Coinbase Commerce now to accept crypto for her own campaign. But this is what we're advocating for. So we will continue to push because we think this is -- we will work with either administration, but we think it is good for America, if we can get crypto policy. And so we were going to continue our advocacy to hopefully bring forth the crypto policy effort under her administration or Trump's. We're agnostic. We just want policy.

It's going to be a very interesting couple of weeks here.

It will be.

It will be fun [indiscernible].

So much. So the challenge with many of these assets is there's decentralized developers contributing code. It is not like there's a company out there who is saying, "Here's my road map, here's my commitment to you, dear investors." And so you just have these assets. And even if all the people quit, the code still isn't existent and that asset still exists, and it's still tradable. It doesn't meet the spirit of some that can register with the SEC. It can produce quarterly financial statements. It doesn't know its customer -- it doesn't have any of the bearings of an investment contract or stock at this for the majority of these assets. We are full believers so there will be crypto securities that will then be existing stocks on blockchain technology in a tokenized form. We'd have loved to be a stock, we would love to put coin on the blockchain and for how all of you trade coin as a blockchain security. Those challenges are it settles instantly. This is interesting, like, do I need to register it with a transfer agent when you have instant settlement between parties, do the custodian and exchange need to be separate. Do the market structure rules that exist for securities match the risk on blockchain. So there's all sorts of registration differences, disclosure differences, transaction differences and market structures that we think need to be revisited to fit the technology in securities, in commodities, in treasuries, and you think about stablecoins, but the entire regulatory landscape needs to address the new technology opportunities here, much like MiCA has in the EU. Sorry go on.

No, that was great. That was super helpful. I do want to talk about some products and services here. There's been a lot of focus on Base and the success there has been really impressive. For those of you in the audience who are unfamiliar, Ethereum is the dominant smart contract platform, substantial network effect and Base is an Ethereum Layer 2 designed to improve the UX for Ethereum users by substantially lowering fees and improving scalability. So I think the initial goal with Base was to bring more users onchain, to bolster the crypto ecosystem as a whole. Can you just talk about some of the successes there and how some of the trends -- what are some of the trends that you're seeing. A big part of that was lowering the costs here. So maybe if we can weave that in [indiscernible].

So our big belief is that we've set [indiscernible] crypto as an asset, and the initial use cases were trading, sometimes mostly speculative trading around store value of Bitcoin or just trading these assets. But we really think it's the promise of crypto as crypto as a utility, crypto to update the financial system to bring faster, cheaper, more transparent settlement. So Base is a technology that enables faster, cheaper transactions. On a global protocol. So think about today, we're sending money via wires via SWIFT, via ACH, via SEPA in Europe, every single country has its own payment network. It's closed loop, it is geographically distinct. Blockchains now are global protocols that enable you to send a transaction me to you, me to someone in Australia, me to like someone in Argentina to somebody in Netherlands instantly and cheaply. And so our goal with Base was to bring things down to $0.01 1 second. We thought if we could bring you speed and cost on a global transparent payment rail that, that would then open up use cases and utility for more daily use cases, payments, people storing their assets in USDC versus their local currencies around the world. And technically, we are just now at that point. So the technology now exists that we've been able to prove with Base over the last 6 months, we've brought down the cost in Q2. We brought down the cost meaningfully and we saw 300% transaction growth. So it's proving that cost comes down, speed goes down, transactions go up. And those micro use payments will then -- but these are early days, Pete. So it's like the technology is there. We call these the Lego blocks. We now have the Lego blocks of, okay, we have Base with a Layer 2. We now have USDC as a stablecoin. We now need to put the user interface on top and really that's where the next kind of phase of investments is going to make this easy to use, push this technology below the surface. So it's just wonderful user journeys.

Maybe you could talk about some of those breakthrough applications. I mean forecaster comes up often. What are some of the use cases and applications you think are going to get the most traction or do you see a chance of a killer app.

There's always a chance. So I think it's important for Coinbase to think about Base is more of a developer tool. It's a platform that we have launched. What's happening now is that developers are building applications on top of Base. And I think -- I'm going to put these in 3 buckets for the purpose of this conversation. So the biggest bucket today is around stablecoins. We talked about USDC, which is a U.S. dollar stablecoin. There's also Eurocoin, which is a euro-based stablecoin. You could do FX now, USDC, to Eurocoin instant 24/7 settlement in FX onchain. That transaction activity is on Base, on USDC, on EUROC's so that is starting to grow. And you see a lot of transaction activity in that area. On our earnings call, we shared over the prior 2 weeks we have to like $20 billion of transaction volume in this area. So starting to see meaningful USDC, EUROC transaction volume on Base. The next bucket I would put is broadly social. So you mentioned Forecaster, I'd mentioned Zora, I mentioned Rodeo. These are applications that are building Web3 versions of existing Web2 use cases. So broadcaster is like crypto or a DeFiX. It's like a social networking platform, but in -- on the blockchain. Zora is for creators and NFT. So a bunch of those applications are going. Now these are all great examples. Coinbase is supporting all of them. We want to support all developers who are trying to build new use cases onchain. Much like the early days of the Internet, much like Ventures Shark -- Ventures. So there's going to be a lot of things that are tried. We're ready and prepared as an industry for a lot of potential failures here. I don't want them to fail. But statistically, there's going to be failures. But statistically, when you get all this developer excitement and activity, some of these will break through and we're just -- our goal is to support developers and make base the chain that developers choose to work on, continue to build the network effects of having the chain, having USDC, the liquidity, the distribution of our own platform and our customers come together to build this ecosystem. And our goal is to bring 1 billion people onchain and to make those transactions bloom and blossom onchain, and that's what we're trying to do. Speaking of any one of these, it is so early days. We're in Ventures start-up land, and we're here to tier them on and support them with great tooling and see what comes.

That's exciting. There's so many more products to talk about. So hopefully, we can get to a lot of the things...

And the third one that we're I think about the other themes we talked about social. We talked about stable coin. The third one that's starting to gain some traction is corporates looking for loyalty programs and looking for ways to integrate crypto, integrate tokens within their existing business model. So interesting examples here in New York City, you have Blackbird restaurants that are using crypto to like build into a loyalty and a customer acquisition and ongoing retention program. That's the third area that those are being built on Base as other developers, but that's really bringing worlds together. And that's the other area where you starting to see some people dappling with these activities. And so you saw that early with NFT, some of the big brands reason this branding moments. Now people are creating more integrated experience. Those are the other early test cases and experiments that people are running.

There's a lot of onchain kind of activities. But when you think about off chain applications, can Coinbase play a part in that movement. You hear about an airline, a travel management company that's trying to pass on sustainability credits to an end user through making sure the planes fueled with sustainable fuel, something like that. These are a lot of private kind of off chain things.

I mean our view is that all of that will move onchain because the cost is lower to distribute, it's immutable, you can see exactly where it's going. When you just fall like -- and these are anecdotal examples that we're going to get into, but in the early days, the Ukraine war the money that was initially raised in crypto because it could move faster than other payment channels. Like distribution, quick spinning up money moving across the world is more native to go on blockchains than it is through the traditional rails. So the answer is yes. I believe when we get regulatory clarity to make sure that people are okay. These aren't securities anymore. Yes. Let's tokenize airline miles, let's tokenize distribution credits. Let's figure out ways this is fascinating. People are having early conversations around onchain summer, which is what we were promoting with Base for developers to build onchain. One of the things we do with coffee stores is work with coffee stores to pay in USDC, show it as a payment option. But you can also tip back to the grower. And you can see these transactions really emerge, like you make a payment, this scoops off, and you can see it land in their account. The idea to move money without middleman to get it to the end wallet that you want, not going through nonprofits where -- there could be lots of hands touching things, a lot of middleman has a real interesting appeal in use cases that I think we're just starting to see and talk about.

I think that's fair. Absolutely. Let's chat a little bit about derivatives. It's been a growing topic on calls. How should shareholders think about the opportunity there for Coinbase. Also challenges to scale this business and particularly bringing these transactions on chain. But how should we think about the opportunities and the challenges to scale Coinbase to being a global derivative service provider.

Sure. So just to like set of the table here, derivatives roughly comprised 75% of global crypto trading volume. So spot being 25%, so it's about 3x happening in the derivatives market versus spot market. Largely, as with speculative assets when you can put less capital up and trade meaningful positions, there's a real opportunity for the trading of that speculative tail of crypto in the derivatives markets. The majority of this is offshore. It's mostly international volume as opposed to U.S. volume. And so that kind of sets the stage. There's a large market opportunity for us to enter this space. The difference for Coinbase is we've always approached everything is wanting to go in, in a trusted and compliant way. Derivatives in most major markets, as you can imagine, are regulated financial products. So -- this is not a native new crypto product. This is a contract on an asset. Those are regulated in the majority of large financial markets around the world. And so for us, what that looks like is we got a license through the [indiscernible] CFTC in the U.S. We are launched internationally through INTX that we've just acquired a MiFID license in Europe. And so now in the coming quarters, we'll be able to launch derivatives to European customers in a compliant door front open onboard marketing type of way. So we're going to go in through the requisite licensure. That is going to take us a little bit more time than just opening up and marketing to everybody. The next piece of this then is just matching our product road map to the existing landscape. So globally, the most common products, the perpetual future and we need to match the leverage in the market. We need to have the depth of order books with the right liquidity. We need to be able to offer all of the trading pairs to excite the market makers to then really concentrate activity on our platform. So offering trading pairs, increasing leverage ensuring that we're getting the product to meet the global liquidity providers' needs is what we're then closing up on the product side. But we're excited about the opportunity with Europe to start launching that out of -- and they will trade through INTX International Exchange.

Is there a natural reason as you get these licenses and build up these storefronts internationally? Is there something that attracts that user who's conducting their business on another platform to come to Coinbase? Is there a natural tie-in there or a differentiator per se.

Well, like everything our differentiator now is trust. And so derivatives are -- you need to know who your counterparty is, there's more risk than other products. And so we are the only, I dare say, public, global, well-capitalized platform where counterparties can clearly underwrite the risk by trading on our platform. And so assuming that we meet their product needs, I believe that, that is our largest competitive differentiation. It's pure trust and user experience on our platform.

And I imagine balance sheet as well.

Trust I put broadly into the balance sheet, like we're a strong counterparty, transparent operating controls, risk controls. They know what they're getting when they trade with us.

That's interesting. I do want to talk about tokenization. And we've seen increasing activity there, certainly. But the tokenization of what they call real-world assets and I know you guys don't like that term, but if you could see your perspective on tokenization and what's the next leg of that? And how does Coinbase capture that opportunity?

So it's early. The view and the opportunity with just tokenization assets is obviously they become 24/7 assets, they're instant settlement. You can do fractionalized trading, it's lower cost. And so we just like the efficiency and cost. So thematically, I just think faster, cheaper is what we're going to get with crypto compared to a lot of the legacy technology and systems that we have. But going back to prior comment, we don't have the regulatory clarity. We do not have the rules of the road. We don't understand how to register certain assets, whether they be security tokens or frankly, even like currency tokens. I mean tokenized deposits. So we've started to see some movement with tokenized money market accounts. That's the first tokenized security that I think has gained meaningful market share. And there's been growth. We're not yet using that in people can't sell custody that yet. Can't use that for transactions yet. And so it's just sort of a store value. So I think we're starting to get there. But the key here we'll be getting to -- how do we think about those benefiting from the blockchain technology versus just we can put it on a blockchain.

Right. So is that your customer is using a tokenized product? Or Coinbase being an exchange mechanism for these products? Like what is Coinbase's hand in, let's say, we get to the point where this is regulated and...

We would love to do security tokens. We would love it. As I mentioned earlier, we'd loved to go public with our own security token versus a traditional security. What that means for us is we know how to custody their instruments. We've done it for 12 years. We know how to do transaction monitoring on chain. We know how to think about putting all of the different protocols onto our system. So Bitcoin versus Ethereum versus Solana. These are all different protocols where you have to manage a node and then it's not just a securities of security, it's security. So we think we have a lot of tools that we will bring to bear to be able to offer these side-by-side with our other trading products. We think that getting to a 24/7 liquid market provides a lot of interesting opportunities for global trade and to reduce counterparty insetlement risk through the system, but we can't get there to regulatory clarity. So we pushed on this for many years, but now we're just going to wait for clarity to come before we build. Our focus is going to be on the greenfield, not the brick walls that we can continue to run into.

That's fair. Fair comment. Stablecoins. Supply continues to grow globally, surely indicative of increasing awareness and the use cases that go along with that. Maybe you can walk through some of the differences that you're seeing in major stablecoins today, client transparency, use case perspective, why is Coinbase use USDC.

So stablecoins is like the umbrella word that got used for a lot of things that shouldn't have. So algorithmic stablecoins where we saw Terra LUNA, we've seen lots of liquidity issues with algorithmic stablecoins or for U.S. dollar coins that are backed by a whole basket of goods versus the U.S. dollar. So we need regulatory clarity so we can probably define these things and understand what is backing the asset and what is the value proposition? What is the redemption of value? So the reason we support USDC and offer it in a differentiated way on our platform and integrated in our products, is because USDC does have transparency of reserves. They are all short-duration U.S. dollar treasury bills. You can see the BlackRock Money Market Fund every day post the total value of USDC collateral. And so that trust, the disclosure that reserve requirements is really why we're backing USDC and we think that is a U.S. dollar backed stablecoin, unlike some others in the market. The value proposition that is the 24/7 global trading. It matches crypto trading. It offers the ability on Base to send money instantly nearly instantly within seconds and at a very low cost to anyone in the world, as we talked about earlier. It gives people in countries where they have ramped inflation, the ability to hold a U.S. dollar asset. It helps just drive global trade in the FX market. So I think that, that is why we are partnering with USDC and things that have a lot of potential. So important though that USDC we're also seeing some great recent milestones, which is the first stablecoin being MiCA compliant in Europe. That will be a competitive differentiation for the European market is there's no other stablecoin yet that can be offered in that market post MiCA. We are seeing nice market cap growth now. We reached recent all-time highs this quarter. It kind of [ titering ] around $34 billion to $35 billion, it continues to grow. That's when overall crypto markets were down 11% in Q2 versus Q1. So we're getting it into daily use cases, and that's the real opportunity for that asset.

It surely is exciting. I mean, the use cases are very attractive, certainly an area that we're spending a lot of time looking at. We're running up on time here. So I do want to thank you again for coming. It's just a fascinating conversation. But I do want to wrap up with just a general kind of -- obviously, we have a lot of politics going on in the next couple of weeks, but maybe you could discuss what are you most excited about maybe in the next 2, 3 quarters, maybe the next year to 1, 3 years, those 2 things. What do you think -- how do you think people -- investors' perceptions of Coinbase could change?

I think we're going to continue with the execution that I think we've done over the last year. We're focused on driving revenue. We're focused on driving utility. We're focused on regulatory clarity, and we're proud of the progress we've made against those 3 goals this year. We didn't talk about this over the long term. I'm excited about the intersection of Crypto and AI. I think those 2 technologies are very complementary and will reinforce one another in many ways. I'm excited about the utility that we're seeing. And I think just building those more utility daily use cases is what we're really all excited about. And embedding crypto and more day-to-day transactions and bringing 1 billion people on chain.

That's, you're absolutely right. And the AI thing is something super interesting, not perhaps what AI can do for crypto, but what crypto or blockchain can do for AI is very, very interesting. Alesia, thank you so much. I wish we had more time. But thank you again for coming. Great discussion.

Thank you.