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

All right. So we'll get started. Next up, we're pleased to have Alesia and Brian from Coinbase. But first, I'm going to get -- I'm going to read the safe harbor statement before we get going. So in 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 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 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. All right. Brian and Alesia, thanks for joining here. Really happy to have you guys yet again in the Communacopia Conference.

So let's kick it off, and we'll start off on just overall market conditions. Alesia, I wanted to ask you what you've been seeing recently. You've commented that this bull market in crypto assets hasn't seen the same type of volatility that's characterized prior cycles. What do you think is different this time around? Is that a healthy dynamic? And what does it sort of tell you about the evolution of the asset class?

Brian would add in here. But I like to think about it by zooming out and thinking about crypto being around 16 years old. And so when I think about our toddlerhood, our infancy, our like elementary school years, crypto grew up as predominantly a Bitcoin-only asset class. It was during one of the most benign interest rate environment we've seen in the past decades, low inflation. And people really were attracted to the first use case of crypto, speculative trading. And speculative trading, by its nature, leads to higher volatility. And what we saw in those early years was the volatility was driven by product innovation, the halvening, by very crypto-specific factors. What's happened now over the past 5 or 6 years is crypto as an asset class has matured. We've moved into our teenage years, for lack of a better word. Bitcoin now is roughly half the total market cap. If crypto market cap is $2 trillion, Bitcoin is roughly $1 trillion. So that is still a really important asset. But now that's a 16-year-old asset, where we're starting to see market participants. We've seen the ETFs. We've seen institutional investors get involved. And the volatility of Bitcoin itself has moved within the broader spectrum of other more high-beta stocks. Like if you look at tech stocks, the Bitcoin vol is no different than like high-vol tech stocks. So Bitcoin itself is just maturing, deeper liquidity, deeper ways to trade. We have derivatives on it. And I think that maturation of that asset has moved the volatility down. We've also now brought many new use cases into crypto. And now we have stablecoins enabling payments. Now we have people playing with new apps built on blockchains. That utility phase is going to bring down volatility in another way. And we've seen a change in the macro economy. So now we have high interest rates, now we have inflation risk, now we have geopolitical tension. So all of that change has led to new behaviors within crypto, as well as then just the growth and maturity of crypto. So that is why it looks a little different today than it did in past crypto cycles. But we're really enthusiastic about what we see today. We're really thinking that this is still that continuation of adoption and growth of this asset class, and we're ready to navigate through whatever environment that we find ourselves in.

Brian, would you add anything?

Yes. I mean, it reminds me a little bit about the early days of the Internet, right? And actually, if you look at the adoption rate of active addresses on-chain, it's actually following kind of a similar adoption curve to the early Internet in the late '90s and things like that. So it's -- a lot of it is just about getting the tools to scale to build the next layer of applications. We can talk about some of those payments and stablecoins that have really started to take off in the last year. But that's how I think of it, as going from that infancy to the utility phase of crypto, going beyond trading.

Yes. Brian, you outlined three priorities into 2024: Driving revenue, utility and regulatory clarity for the industry. The financial side has been good. So you've generated $3 billion in total revenue, $1.6 billion in adjusted EBITDA. Balance sheet has strengthened to about $7.8 billion in cash on hand. I wanted to maybe start off on Base, driving crypto utility. You spent time focused on driving utility of crypto beyond just spot trading, and Base is one of the major pieces of crypto market infrastructure to help make that a reality. In the most recent quarter, I think you pointed to a 300% quarter-over-quarter increase in Base transactions. That's partially fueled by lower fees. If you could just kind of level-set maybe for those in the room who are unaware, what is Base? Why do we need it? And it will be great to hear about what's driving the growth, and how it fits to the overall ecosystem.

Yes. But we're definitely very proud of the adjusted EBITDA-positive nature that we've gotten to in any market environment now. So that's made the business healthier. A lot of hard work went into that. And so now we're very focused on this shift from crypto primarily being about trading to being about different forms of utility, and payments and some of those are a really big example of that. That shift is now well underway, as you said. The 300% quarter-over-quarter growth in Base, which I'll talk about in a second what that actually is, is a big indicator of that. We've also seen $19 trillion of stablecoin volume year-to-date this year, that's up 200% to 300% year-over-year. So this is already happening. This is not some pie in the sky idea. The crypto utility kind of for consumers is already fully underway. Okay. So what is Base? Because that's been a big component that's helped this trend start to kick off. Well, Base is essentially helping blockchains scale. The early blockchains were a computer science breakthrough that allowed you to not have an intermediary between every transaction. That made it global, decentralized. But they were still kind of slow and kind of expensive, right? So to do a transaction on Layer 1, Bitcoin, for instance, it took about an hour to confirm. It took anywhere from a few dollars to a few tens of dollars depending on how much network congestion there was. So was this -- it was kind of like the early days of the Internet with dial-up modems. It was decentralized, and it was really -- you could see the potential, but it was slow and it was a little clunky. With Base, we made a big effort to actually go and scale blockchains. And we put a bunch of effort into this, but it is a decentralized protocol built on top of Ethereum. And we made a big push to try to get the confirmation times down and the transaction fees down. And what I'm really happy to report is that we've now gotten that under 1 second and $0.01 for a transaction anywhere in the world globally. That makes crypto, I think, the best payment rail globally to date. There's some -- in the traditional financial system, there are some payment rails that are very fast, like credit cards, but they're expensive, 2%. There are some that are very cheap, like ACH, but they're very slow. 2 to 3 business days, right? And there's some that are very fast and cheap like WeChat payments, but they're only in one country, China. Crypto rails on Layer 2, like Base, are now the only ones I know of that check all three of those boxes. They're fast, cheap and global. And that's partly why I think we've seen that 200% to 300% increase year-over-year in stablecoin transaction volume. So that's really powerful. It's not just unlocking payments, it's actually starting to unlock another category of applications. So an example would be, if you had fast, cheap in global payments, what might that allow people to do? Sometimes on social media, people click the like button or they upload something. Why can't that be a small transaction, right? Today in the U.S., people get paid every 2 weeks for their paycheck. Why shouldn't you get paid every hour? Maybe this whole idea of payday lending could go away, right? Or every minute. And so if the world had a fast, cheap, global financial system that was decentralized, not controlled by any one country, I think a lot of friction would get taken out of the economy and you'd see a lot of growth. Even small amounts of friction that are reduced, you see huge increases in adoption. Like for instance, text messages used to cost $0.25. There was about 25 billion text messages a year at its peak. Today, with WhatsApp and iMessage and things that are -- these are now free, there's hundreds of billions of messages sent every day. So you can get an order of magnitude increase in activity just by taking out a small amount of friction. And that happened in messaging, that's now going to happen in payments.

Got it. Sticking with payments and speaking of Base. You said that payments is one of the most exciting nontrading use cases. How do you think about the opportunity that Base creates for crypto payments over time? And how does that kind of relate to your arguments and your efforts around driving USDC adoption?

Yes. Well, so I talked about Base, and we're getting blockchains to scale. The other major component was to have a trusted stablecoin. Bitcoin is great. It's kind of -- it's digital gold. I think it's a very important part of the crypto economy. But people also want -- and it's actually a feature in somewhat sense that it has some volatility. People want to trade based on that. But people also want to have a stable asset in the crypto economy to do contracts and long-term pricing and things like that. And so USDC has been the other big piece of the puzzle that's falling in here and said, okay, we now have a trusted stablecoin that's audited and backed and the reserves are there. And we're seeing really good adoption of that. It's been a good contribution to our subscription and services revenue. So anyway, we have scalable blockchains now. We have a trusted stablecoin. There's high demand for the dollar, of course, all over the world. People who are in higher-inflation countries, et cetera. We have other puzzle pieces coming into place, too. For instance, wallet onboarding just got a lot simpler with something called Smart Wallets, which I can talk about, if you want. So these -- and something like E&S is actually providing like a human-readable name to every person or business. So before, you had to send crypto to these addresses that looked like these long string of characters. Now you can send it to Goldman Sachs Studies or whatever. So these pieces are now coming together, where you can start to see how more and more global GDP could flow over these rails that are just faster, cheaper, more global.

Got it. And then turning to your third priority on regulation, and then I want to come back to some of the product stuff that you're mentioning. But driving regulatory clarity has been one of the big priorities for the year. What would you like to see happen as it relates to the U.S. policy framework around crypto? And do you have any perspectives on what has and what hasn't worked in other geographies?

Yes. Well, we've been putting a lot of effort into regulatory clarity in the U.S. And it's hard to overstate the importance of this. When we meet with our institutional clients, and they're holding 1% to 2% of their portfolio in crypto, and we say, "What would it take for you to get to 10% or 20%?" They all say regulatory clarity. So if we get legislation passed in the U.S., similar to how it's already been passed in Europe and other places, I think we'll see a huge inflow of capital. It will also just -- there's been this chilling effect on the start-up ecosystem in the United States in the crypto space because a lot of them have received these Wells notices. And you have to be a pretty grizzled entrepreneur coming right out of college with a couple of your friends and with a laptop and a dream and creating a company, and then you get sued by the federal government the next day. And so a lot of those start-ups have either pivoted to AI. They've gone offshore to do crypto stuff. They just don't exist. And so that's been really harmful to America. And if we get legislation passed in the U.S., which by the way, bipartisan support, the vast majority of Congress supports, as a draft bill already got passed through the house with strong bipartisan support, that would be -- it would just open up the floodgates in the United States to continue this industry to be built here. We need to be a financial leader, a technology leader in the U.S. And so a couple of updates on that front. One is that crypto has become a major focus of -- in D.C. in this election. There are political -- there's presidential candidates making it a core part of their platform. We were -- we've contributed to packs that others in the industry have contributed to as well. And I think crypto became, I think, the largest pack actually in this election. And then there's a big grassroots movement as well with something called standwithcrypto.org, which is a 501(c)4 that we helped fund and create. And so that now has 1.4 million people who have raised their hand and said they want to elect pro-crypto candidates. There's scorecards for all the candidates in every congressional district, et cetera, on that website. And so there's a big kind of turnout to vote effort from the crypto community in this election in November. Now the bill that already got passed through the House is now being debated in the Senate. Chuck Schumer has said that, that's a priority piece of legislation for him before the end of the year. We'll see if that materializes or not. The stars kind of always have to align in D.C. for something to get passed. But we're just going to keep showing up to the table, seeing what we can do to help. America is going to eventually get this right because the rest of the G20 have already moved down this path. Most of them already either have legislation passed or it's currently being worked on. And so America can't afford to wait too much longer. And what ,80% of Congress agrees with that.

Got it. So maybe turning to some of the more specific areas of product innovation. Brian, in the shareholder letter, you talked about the rollout of smart wallets. Could you explain what smart wallets are, and how they differ from sort of legacy self-custodial wallets? And what benefits do they provide to users?

Yes. So just riffing on this theme of the different Lego pieces coming together, you can start to see how crypto utility can really take off. Another one of those pieces is smart wallets. And what this does is it makes onboarding to wallets much simpler. So in the past, when you -- people had a self-custodial crypto wallet, there was a 12-word phrase like a password, but it happened to be 12 words that people would have to write down. And if they forgot it or they lost it, they would lose their money, right? That's -- it's hard to imagine 1 billion people using this if that's the situation. And so smart wallets uses a new technology called pass keys. You can think of it just like biometrics. It's typically -- it's very simple. When you create -- want to create a wallet, you basically just put in a thumbprint on your phone or a face ID, and boom, you're into the wallet. It happens in a few seconds. There's nothing to remember or to lose or forget. If you lose your phone and you want to restore the wallet on a new phone and device, it just works. And so we finally have a technology that we think could get to 1 billion people eventually, to make wallet onboarding and security really top notch. And so that was another piece of the puzzle that Coinbase really pushed on. And there's a few more like that, that we're working on as well.

Cool. Okay. So moving on. You recently launched your international exchange. And you talked -- you started offering U.S. customers the ability to participate in the derivatives space. And I think this past quarter, you called out derivatives as being one of the factors that drove an increase in the calculated retail take rate as we all see it in the financials. So it'd be great to get any updates on the appetite that you're seeing from customers. And then any updated thoughts about where you are in terms of penetrating that market opportunity.

Yes. So derivatives have become 75% of all trading volume in crypto. The take rate is typically a bit lower than spot trading, but it is the majority of volume. And in the past, some of our biggest competitors, Binance, FTX, et cetera, they really were doing the majority of their volume on derivatives. So we were really strongest on spot with retail. We did that in the U.S. first, then we did in a bunch of other markets. They were really driving it to a lot of the volume on derivatives. Now of course, both of those competitors had major enforcement actions. And so we saw this desire in the market to kind of have a flight to quality, if you will. They wanted to have a trusted counterparty that was following a compliant, regulated approach, which was the long-term strategy that we were following. And so we did see an increase in share when people moved over, but we realized that we wanted to go provide these derivatives products that they were really finding on these other platforms in a trusted and compliant way. So it's going to be a long journey to get there. I would say about half of the stuff that they were doing was just illegal, and we actually can't do it. And so it's hard to fully create that offering for the product for the customer if some of it is just we can't do it legally. The other half of it can be done legally. And an example of that is that, in Europe, we actually acquired a MiFID license, which we're in the process -- that was through an M&A process. We're in the process of operationalizing that license now. That will allow us to enable derivatives trading in over 20 EU countries with -- in a regulated and compliant way. That's an example of kind of the hard work. And it takes -- it just takes time, years to get these licenses operationalized in these markets. And so we're doing the work to slowly do that. We started to see our derivative share grow a little bit. But it's going to be a long journey.

I'll just address the take rate, if you want, quickly here. I think it's important to note that our revenue now is coming from a variety different sources. As Brian said, spot was the predominant revenue stream we had for many years, but now we're starting to see growth from derivatives. We saw growth from Coinbase Wallet, where we were able to turn on DEX fees post our win on the motion to submit on that leg of that case. And so we're now seeing in our transaction revenue, the start of diversification of transaction revenue that used to be very homogeneous. That revenue does not have a reported volume associated with it, and so it is not yet material. As Brian said, this is nascent, we're growing these, but it is starting to contribute dollars to the top line that are not in the denominator. And so that is going to have some play in the calculated take rates that you see going forward.

Yes, makes sense. Okay. And then 2024 has arguably been the gear of crypto ETFs. To start off high level, as you look back over the past year, what impacts have crypto ETFs had on the ecosystem overall? And then secondarily, I'd love to hear your perspective on a few things related to ETFs. First, in terms of the mass market retail adoption; second, on the wealth management space and wealth managers adding a crypto allocation to client portfolios; and then third, the direct contribution to Coinbase as a custodian for these funds. And just how significant that's been for the business.

So ETFs were the tide that raised all ships in the industry. We think that the approval of the Bitcoin ETF obviously contributed significantly to the growth in market cap, to the just investor appetite in this asset class in the first quarter. And we've seen that rise continue for much of the year at this point in time. What it brought was new capital to the table. We have also, for our own platform, seen growth in our own Bitcoin trading. We see growth in our Ethereum trading year-to-date. We have not seen a shift in behavior of our own clients, but we have seen new capital flow into the space. And we're really pleased to see that capital flow in. We think this is just the tip of the iceberg. So as Brian said, that it's going to be a slog for derivatives, if we continue to build the right products, get the right licenses. The same thing happens within growth of the ETF category, which is that wealth managers now need to go through their own operational due diligence, determine if this is the right allocation of assets within their portfolios, and we're just starting to see that. So Morgan Stanley recently announced that they are now allocating assets into Bitcoin. And that is just the beginning of those wealth management channels to come into the space. And so that will be a process and a journey, much like it is for any new asset class that gets adopted into these spaces. Yet we have still seen growth, yet we are still seeing more conversations, more doors open as people now realize that Bitcoin and Ethereum can be part of a diversified asset portfolio. And so we're really excited to see that. And with regards to then the impact to our financials, we have direct and we have indirect aspects of the contribution. So we did see growth in our custodial fees. We saw growth in our institutional trading. We saw growth in our prime financing as we provide financing to the asset issuers so they can then -- it's a 24/7 market, right? You've got to buy the Bitcoin immediately to go into the ETF, yet there's a delay on the fiat, whether it comes via wire or ACH, as Brian mentioned, who are not settling in stablecoin. So there's a financing opportunity. So we're seeing those direct benefits. But then, as I mentioned, rising tide lifts all ships. It brought more interest, more appetite into the space. And so we saw just some general growth of revenue as a result of the ETFs.

Yes, makes a lot of sense. And then lastly, I just wanted to hit on the institutional business. I know we touched a bit on a different portions of that business. How are you thinking about the evolution of the business more broadly? And just the role that the institutional offering will play over time?

So our institutional platform now looks like a prime broker. We offer trading. We offer custody. We offer the exchange. We're offering an asset management arm. We have financing. And so we really have the baseline product offering that many large hedge funds or asset managers look to their product suite in order to trade. What I would note is it's a trading product. The green space that we have is we don't have a business banking, corporate banking arm to our institutional clients at this time, which over time could be an interesting area for us to explore. Today that we have a robust product suite for institutional trading, and we're really pleased to see that we are winning mandates. So note that we won 8 of the 9 ETF applications. We won -- for Ethereum. We won 8 of 11 for Bitcoin. We have become what I would consider a platform of choice for large, sophisticated institutional clients who are looking to grow in their exposure to crypto. Our goal now is to grow. It is to -- we have the foundation. We have the product suite. Now we need to be growing top line, adding new customers, driving the revenue per customer, both in the U.S. and around the world. So there's international growth opportunities and there's just penetration into the corporate balance sheets and asset management balance sheets here in the U.S. that we're excited to explore.

Okay. Let's switch gears, talk a little bit about competition and then a little bit on financials. A few quarters ago, we saw a lot of market share shift away from some of the large competitors you've already mentioned. Could you talk about how the competitive set has evolved more recently?

Yes. Well, it's been actually great to see that crypto is now being integrated into almost every fintech company, Stripe, PayPal, Robinhood, Square Block with Cash App. They really have all started -- they're not just started, they're actually live in the market with crypto. And then we've seen a lot of the big banks push on this as well. And of course, BlackRock, Franklin Templeton, a lot of the big names out there. And so we see this as a good thing. We really believe that crypto is a technology to update the financial system globally. We want crypto rails to be integrated into every bank, every fintech A lot of the neo banks, for instance in Latin America, are doing this, like Nubank in Brazil. There's ones in Argentina, et cetera. And so we see this as a good thing. Now Coinbase, the way that we want to differentiate is we want to be people's primary financial account in the crypto economy. We want to be the biggest, the one for the most people. We do that by being the most trusted and the easiest to use product in crypto. And so I think -- and by the way, I think we also are going to have role to play in every other company that integrates crypto, but -- because we're actually -- this is -- it's one of our newer products, but it's called Coinbase Developer Platforms, CDP for short. And it's really kind of like our AWS-type product. We've taken all of the hard work that we've done internally to connect all these blockchains, to do custody securely, trading and staking and all these services. We've now externalized them through our developer platform, and so third-party companies can actually go integrate. If they don't want to have to roll their own key storage solution or blockchain integration, which is a really hard thing to do at scale, they can use our developer tools. And so we'll actually get to sell picks and shovels in this gold rush, hopefully, and have a piece of the value chain for every big bank and fintech company and new app that wants to integrate this. Even Web 2 companies like e-commerce type companies, anybody who wants to do social. A lot of the social companies are now looking at crypto. So I think we want -- I don't really see it too much as competition. We want just every company. It's kind of like using the Internet or something like that. Like every company uses the Internet. We want everyone to be on crypto rails. And hopefully, we can power a lot of those underlying technologies for them.

I want to just add on, if I could there for a second, Will. As Brian talked about the Lego blocks for the consumers previously, where we talked about Base and then USDC and the smart wallet, there's a similar building blocks and Legos that I want everyone to kind of visualize on the developer platform, which is again, it all comes down to building on Base with the developer tools, that we can make it much easier for developers to build their first crypto app faster, cheaper, much easier than what Web 2 offers when we look at our own engineers and what they are able to execute on compared to what the legacy tech specs are. And so we think that we are, again, just building the tools and the pieces that will then grow the entire economy, create development activity. And then those flywheels work together so that there's more apps then there's more consumer activity and utility. And so that's how the product suite comes together.

Got it. And before we move on, I wanted to ask Alesia's favorite question. I think it's Groundhog Day that I've asked you this every year when you come. So crypto is becoming more and more mass market. ETFs are here. So far, there has been no pressure on the fee rate. Fee rates are actually up since the IPO. What do you think will be the catalyst to see more price competition in the market?

It is my favorite question, will. Every quarter since going public, roadshow included, #1 question. Why are your take rates high? When are you going to see spread compression? The answer is not yet. I think we've been very consistent in our comms since we went public that consumers are choosing us because of our product breadth, because of the trust that Brian spoke to, because of the ease of use, and I do not yet think crypto is commoditized. I think that we will not see spread compression until you get to crypto being adopted by every bank, every new fintech in the ecosystem. And then you drive commoditization, in which case then, you'll start to see fee compression. And due to the product complexity, due to regulatory lack of clarity, we just do not see that being a highly competitive area. So our goal right now is to continue to grow our user base and diversify those users' engagement in crypto beyond trading and so that they'll start to use staking, they'll explore wallet, they'll learn about Quests, they'll use USDC for payments, and drive that engagement and used the love of our platform, quite candidly, so that when competition comes, we'll be able to revisit our monetization strategies, shift how we explore that and continue to hold those customers on our platform. But you're right. Take rates have gone up over time on a blended average. We do not yet see price competition, and we'll be the first to share with you all when we do.

Great. Okay. Maybe switching gears. Alesia, over the past 2 years, the business went through a really significant market downturn. You executed on a really aggressive and successful strategy of pulling back on expenses, getting the business back to consistent profitability at the bottom of the cycle. And more recently, this quarter, you talked about starting to lean in on the marketing front. So I wanted to get your thoughts on how to think about the trajectory of marketing expenses overall. And how we might see that pendulum swing back in the other direction.

Sure. We view much of our marketing spend, not all of it, but much of it, as variable spend that we can dial up or dial down depending on overall market conditions. We are really thoughtful at deploying that spend when we see attractive return on investment. When we have about a 1-year payback, we're looking to really increase that spend and bring customers onto the platform. And then if we don't see it meeting our pay hurdles, we will then bring it back down. So I think you're going to see us be opportunistic. We're really disciplined about how we deploy those dollars and really thoughtful about it. But we see good customer retention over time, we see good cohort growth, and we feel that we have the tooling and the data to suggest these are good dollars to deploy when the market opportunity is right. And so we saw that in Q2 as we brought up our spend. We've given you the guidance for Q3. And I think that this is an area we feel confident in our ability to continue to generate positive adjusted EBITDA in all market environments, as we've committed to, and continue to grow top line customer usage on our platform.

Got it. And then I guess the second piece on the financials that I wanted to dig into is the outlook for interest rates. So the Fed is widely expected to begin cutting rates this month. I think GS has about 200 basis points of rate cuts over the years in our forecast. So when we think about the interest rate sensitivity and the revenues that are sensitive to interest rates, obviously, fairly high margin. How are you thinking about levers to offset that? And what's the philosophy around managing through some of those impacts?

Sure. So USDC specifically, our stablecoin revenue, is the revenue stream that is most sensitive to interest rates. We have other corporate assets that generate interest income. However, I would say those are adjacent to the business, not the core strategy of growth. Our goal, and we've talked about it a lot today, is to grow total USDC market cap by generating use cases with USDC that people are going to want to hold more USDC over time, transact in USDC, where the growth in market cap in native units will be offset by the headwinds of interest rates. What I would comment on to you is, when we shared this on our last earnings call, every -- for the first 25-basis-point rate cut, that is about $1 billion -- $2 billion of market cap, sorry. $2 billion of market cap for every 25 basis points for the first 100 basis points. We've already almost achieved that for Q3. Market cap is on its way to growing in the $2 billion range. We're about $1.5 billion of growth since the end of the second quarter, so we can absorb that first 25 basis points with no change in revenues essentially. That is what our focus is, continuing to grow that market cap. It's not guaranteed that we will be able to do that, but that is the approach over the next few years, just to continue to grow that utility and build that market cap and use case. The other business that we hope to grow over time is our prime financing. However, that's a NIM business that we'll be able to adjust and pass through those rates to the market.

One thing I would just add is that there is a countercyclical nature of this a little bit. When interest rates are high, we see trading volumes come down sometimes. But the interest revenue from USDC goes up. And then conversely, we get rate cuts, and sometimes you see more volatile trading. So trading fees and USDC are actually complementary and countercyclical, which has made us more of an all-weather company.

Right. So the internal hedge that you see in some trading businesses.

Yes.

Okay. And then just to wrap it up with a couple of bigger-picture questions. The company has done several successful deals over the past couple of years. Bison Trails, which I think now is Coinbase Developer Platform. Last year with One River expanding, extending the institutional offering. With the much more consistent levels of profitability, how has the thought process evolved around capital allocation?

Well, we're always looking to buy, build, partner as we grow out our product road map. And so we will be opportunistic and acquisitive where it makes sense to do so. And I think our team is always in the market looking for exciting opportunities. And I would say Brian is our Chief like motivator to be like, have we looked at that? Have we look at that? What is the opportunity for us to continue to grow products, talent, assets on our platform? So we hold cash for that purpose, to be opportunistic when the opportunities arises. We're also holding and utilizing a fair amount of our corporate cash today to bootstrap our institutional financing business. And those loans are not always indicative of the peak that we have every quarter because these can be 2- to 3-day loans to facilitate trades for our hedge funds or asset managers who are creating Bitcoin ETFs. But we are bootstrapping that business into existence on our own balance sheet, and that is driving a fair amount of capital usage. And we like to hold capital for rainy days, for self insurance, to make sure that we can weather any market environment that we find ourselves in. And so that is what's really driving our capital usage today.

All right. Just one more to kind of close it out. Brian, I think moving deliberately and responsibly in a very uncertain regulatory environment has always been in Coinbase's playbook, and that's sometimes meant moving more slowly when your peers are moving more aggressively. You spent a lot of time talking about how the regulatory agenda and driving regulatory clarity is a big strategy. So if that were somehow fixed tomorrow or turn of the calendar, what are the top few things that you would like to see Coinbase move forward on? And how would you frame the opportunity for the public at large and for Coinbase from achieving that regulatory clarity that you're looking for?

Yes. Well, so there's a couple of kind of more -- smaller areas of our company where we're a little bit hindered right now. There is like -- we had to disable staking a few -- for new customers in a couple of different states and things like that. But I'd say, by and large, we're actually able to operate mostly how we want to for now while the courts are kind of working out some of this case law and in Congress is deliberating what the law should actually be. The bigger issue is not really what we're able to do because we're continuing to -- we talked about many of these things, Base and USDC and smart wallet. So we're actually driving a lot of product innovation in the midst of this lack of clarity. We're also, by the way, investing in a bunch of different countries where we do see more friendly regulations. And so there's always kind of somewhere in the world where they're rolling out the red carpet and they're saying, "Hey, we want crypto to be like Malay and Argentina," for instance. Things like that. So those are -- we have no shortage of things we can go build. The bigger thing that regulatory clarity will unlock is really new pools of capital from institutional investors, which is where most of the money in the world is tied up. And the other big one is hundreds of startups. To me, that's the part that really bugs me the most about the lack of regulatory clarity, is that it has created that chilling effect with these entrepreneurs. And if you talk to some of the biggest venture capitalists in the crypto space, they'll tell you that the vast majority -- like they'll write a Series A check for 5 crypto companies, all 5 will get the Wells notice from the SEC like maybe within the next week or something. And it's like that's -- you have to be a very ambitious entrepreneur, to be right out of college, and you have to go tell your parents you're getting sued by the federal government or something or -- and your parents are all worried about that. So this -- that's not a healthy environment for business to operate in America. The rules -- the way it should work is publish the rules and everybody has to follow the rules, right? But if there is no clear rule book, this kind of regulation by enforcement environment is really destructive. So I'm mostly concerned for America. I mean, Coinbase, we're a big-enough company now, and we've been able to create positive adjusted EBITDA in all these market environments. We have different countries around the world that we can invest in at any given time. We can go get case law in the courts and things like that. Start-ups can't always afford to do that. And so that's the biggest thing I'm hoping, is that it will unlock this engine of growth, capitalism, start-ups in America, once we get that clarity.

Great. Well, I think with that, we're out of time. Thank you for joining us today. I really enjoyed the conversation.

Thank you.

Thanks, Will.