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

Hi, Brian. Hey, everyone.

Hey, Alesia.

Thanks for joining us live on X. I'm Alesia Haas, CFO of Coinbase, and I'm here with our Co-Founder and CEO, Brian Armstrong. We are excited to connect directly with you, customers, our community, our shareholders to talk about past quarter and answer your questions. So this is a live conversation, and we're going to be covering both pre-submitted questions and taking questions in real time. I think we just need to set some ground rules here. So we will not be answering questions when XYZ Token is launching. We're not going to answer any specific customer support cases. And we covered our regulatory questions in depth on our earnings day so we're going to let you read our shareholder letter and transcripts. And lastly, Brian and I aren't taking any personal questions. So beyond those rules, if there's something else on your mind, please drop your question in the replies to our most recent tweet, and we're going to try to get to as many as we can. So my lawyers love it when I make these statements. So before I get started, I have to remind you that during this call today, Brian and I may make forward-looking statements, which may vary materially from actual results and information concerning risks, uncertainties, and other factors that could cause these results to differ, those are included in our SEC filings. We have had an incredible quarter here at Coinbase and in the crypto industry at large, and we know there's a lot of excitement and curiosity about what's next. So to kick things off, we're going to go to our top pre-submitted questions.

First one, from Coinbase Doc, one of our top coverage analysts, so thank you for your long ongoing support of our company and your inquisitive questions. We are taking your top 1, and Brian, this one's for you. As Coinbase moves onchain, how does Coinbase monetize onchain while uplifting builders and growing the pie?

Yes, this is great. We can make it a lively conversation here. As Alesia said, if you have any questions you think of live during this, feel free to reply to our post on X on the Coinbase handle, and we'll see if we can get them in here in a moment. But for Coinbase Doc, shoutout to Coinbase Doc, by the way, we all love your account. So how does Coinbase -- as we move onchain, how do we monetize it more? Well, there's the direct ways that we're monetizing. So through Base, for instance, we're charging sequencer fees. We make money on that. Indirectly, we make money through USDC. And I think there's fees that our Coinbase Wallet app, for instance, can charge for the onchain trading and the swaps that are happening. But indirectly, the more utility that we're creating onchain, I think people are going to store more custody, more assets with us. They're going to do more trading, more staking across the board. Now the second part of your question really asked about how we uplift builders and grow the size of the pie. And I'm not sure if you're asking about like a Base token or something like that. We don't have any plans to do a Base token currently. But I think in general, as we see people building great apps onchain, whether it's on Base or [ Slaner ], any of them out there, because we're really a chain-neutral platform, we want to drive traffic to them and users, right? And so the best apps, we need to do a better job of surfacing those within our app. They might be deeply integrated like we just did this DeFi integration with Morpho for people to get loans against their Bitcoin. So some of them we call it like the DeFi mullet where we'll put a nice front-end in the app but it's using the DeFi protocol in the background and just make it simple and easy to use. We can also, as we make it easier to use third-party apps, actually surface those in Coinbase's app and our self-custodial wallet and just drive users to it, right? And so that's how I think we can grow the size of the pie altogether. And there's going to be -- everyone is going to win if we can just drive utility and build legitimate apps in crypto.

Thanks for that. Next question. Thank you, Base God for submitting this one. What methods and use cases does Coinbase have planned this year to not only increase the number of people coming onchain but retain them as well?

Yes. Well, one of the big barriers to getting people onchain has been the onboarding experience, right? Usually, in the past, you have to write down this 12-word phrase. If you lose it, you've lost your money. Then once you do that, you have to actually fund wallet, which has been difficult historically. There's been high decline rates on credit cards, debit cards. And so Coinbase is really trying to make the onboarding much, much simpler, so we created something called smart wallets, where you don't have to remember or write down this 12-word phrase. It just uses biometrics or passkeys to create a wallet instantly. And then if you lose your phone, you still have your biometrics, which are your fingerprint, your FaceID, et cetera. So you can get back into the wallet later. We've also tried to really make a Coinbase Pay is really trying to make onboarding or on-ramping funds to the wallet for the first time experience much, much simpler, both in our own products but also third-party products. So things like Apple Pay are now fully integrated, right, which a lot of consumers, they already have their card connected to it. It makes it more frictionless. And there's still a lot more we need to do to just make that like a very simple experience. Count the number of taps that it takes to get through it and just continually shorten that down. But once we get people onchain by lowering these barriers, the question also kind of asked how do we retain them as well. And the only -- there's no shortcuts here. The only thing you can do is drive real-world utility, right? So people, if they need to make payments, and crypto is like the cheapest way or the only way that they can send it cross-border, they'll come for that, right? If they're looking at prediction markets and trying to figure out what's true in the world, and they trust it more maybe than traditional media, right? Or if they want to get a better rate on a loan where -- because they have crypto assets, or if they're trying to create a new crypto business, like these are all things that are not just speculation. They're driving real-world utility. That's the only durable reason why we're going to retain these users. And I know over the last weekend, there was kind of a bunch of activity around memecoins. And I think memecoins, in general, like artists should be able to put out content, get paid for it, we should track social trends. But to the extent people are doing just like pump and dump or insider trading, I mean, these are -- they're illegal, it's a big no-no. We got to make sure we're building sustainable durable value in this industry and not doing get-rich-quick schemes essentially.

Absolutely. Do you want to talk about disclosures or community notes or anything about ratings that we talk about to enhance the knowledge that users will have in DeFi to really help them trust different protocols, different apps that they're using and how we think about the future evolving in this space, Brian?

Yes, sure. So at the highest level, Coinbase's mission is to increase economic freedom. We believe in free markets, capitalism. We believe that consumers should have choice. They should be free to choose what they want to participate in, and you don't want to have a nanny state. But at the same time, we also believe in putting the right information in front of customers so that they can make an informed decision and have appropriate disclosures and, in some cases, warnings. So you could imagine that as we more deeply integrate decentralized exchanges into our product, we're going to have to do a good job of providing information to customers because there's millions of tokens coming out now. And something is brand new, maybe they want to get in early, but do they -- are they even looking at the right asset? Or is it an imposter, right? Or maybe the tokenomics are bad, right, and we can see that onchain and surface that information to users. So some analogies you could imagine one would be like community notes on X and the community can actually generate ratings and reviews. Some of it is like Amazon, where you could -- you want to have the everything store, but some products in Amazon have 3 stars, some of them have 5 stars. You want to allow the user to get the best results to the top. Or another example would be Google's search engine, right, where they're indexing the whole Internet, but the results on the first page are usually higher quality and they're using a page rank algorithm for that. So these are examples. Like there's a lot of metadata onchain. You can look at the tokenomics behind these. You can look at our trusted users engaging with the smart contract. Is it -- like a huge percentage of it owned by insiders, things like that and surface that information to the customer. So that's what we're going to have to do in our products.

Thank you. Next question from [ 0x Suite ]. I think you covered a lot of this, but how does Coinbase plan to integrate memecoins and more onchain activities, utilities such as DEXUS?

Yes. Well, I think this is really -- a customer, I think they shouldn't really have to know or care too much about whether it's trading on a centralized exchange or a decentralized exchange. But we do need to probably notify them in the case if they're using a decentralized exchange that, that trade is not happening on Coinbase. So there's a greater sense of responsibility. The user may have to go read this information, diligence it. The reality is, I think, more and more trading in crypto will shift to decentralized exchange over time. And so we love decentralized exchanges. We want to make sure -- we already support them in our app in a variety of ways, but we need to make sure that it's actually seamless the way it's integrated where the customer can trade amongst these things and with appropriate disclosure to know what's happening, like they can just get the job done that they want.

Next question from Citi Research. When do you plan to publish proof of reserves for CBE and cbBTC?

Yes. Well, I'm glad you asked this because this is something that we have been working on. Coinbase BTC or cbBTC has been growing really nicely, and we're proud to provide that as a trusted option out there in the ecosystem. And of course, proof of reserves is an important part of that as well. So there's actually -- here, let me just share my screen for a moment. We just put this out on the Coinbase handle on the X platform, talking about proof of reserves are now live. So if you check out this post, there's a link down here, and you can actually go to this page and check out the total reserve, total supply. So this is a really good step in the right direction. We'll be doing it soon for CBE as well, but this is our first step in that direction. And yes, I don't know, Alesia, you've thought a lot about proof of reserves. Do you have anything you want to add on this topic?

I think just a bare picture. I think it's important to remember that Coinbase has audited financial statements, where we have, in our footnotes, audited customer balances that we safely store, both the assets and the liabilities. So don't forget our proof of reserves sometimes misses the important of are there any liabilities here. So a full audit is probably the most comprehensive proof that you can have that your assets are safely stored.

Yes, that's a really good point. If you show proof of reserves, you either have to use cryptographic proof to show that, well, is my balance included in there, right, which you can do with various techniques, although it gets harder because you have to start to publish a lot of information about different balances, so that the user can recreate it and it's like -- there's a little bit of a privacy challenge there sometimes. But if you have audited financial statements, you can match the liabilities to the assets and make sure that the assets exceed the liabilities. So that's what -- through a lot of hard work, that's what Alesia and her finance team have done, which I think is a really high bar that Coinbase has set.

We want to make sure that we're providing trust to our clients in everything we do. All right. [ 0x Nick ] What do you see as the biggest scaling issues for Base?

Yes. Well, I think Base has been scaling really well in general. They have been aggressively increasing the gas targets. And I think right now, they're at about 24 mega gas, I believe, per second. That's about a 10x increase year-over-year, and they're targeting to 10x out again this year. So probably by the end of 2025, it will be maybe 250 mega gas. Don't hold us to that but that's our current prediction. And I think some of the other things that the team has been working on is that they really need to transition from [ GEF to REF ], which is the execution client that's going to allow them to get more efficiency in terms of building blocks, better disk usage efficiency. I think at the current growth rate, it's approximately 8.5 gigabytes a day if I'm reading this correctly. So there's a lot that can be improved there and shoutout to the [ REF ] team. I think they've done a really incredible work. There's also a couple of upcoming hard forks. There's 1 in April and 1 in December, and these are implementing various scaling improvements, increasing the blob target as an example. So the Base team has been working -- I should mention, they've been working very closely with the Ethereum community and the Optimism community on different scaling solutions. And I think it's a really good chance for us to help the community and work with the community to build these open platforms that -- they're increasing on their -- they're also moving toward greater towards decentralization over time. They hit some good milestones earlier, I think, late last year and on fraud proofs, but they'll be continuing their progression towards decentralization over time, which will be complementary to the scaling efforts. So those are some of the updates on Base.

All right. So now we're going to switch over to live questions. And our first live question we have is from the [ Tungsten Tank ]. And the question, Brian, is how will Base continue to push the narrative for payments with digital assets? What are the top 3 talking points when pitching digital asset acceptance to small businesses and large merchants alike?

Yes. Well, we're very excited about crypto payments. I mentioned on our earnings call that we saw $30 trillion of stablecoin payment volume last year, which is pretty crazy to think about, and that was up 3x year-over-year. The talking points usually that I mention to folks about crypto payments are that they are fast, cheap and global, right? And there are some payment methods that are fast, like Visa. You can kind of get a confirmation back right away, but they're not that cheap, right? The merchant is paying 2% to 2.5%, something like that. Are they global? They work in a lot of countries. They don't work in every country. Their credit card penetration is not as good in emerging markets, right? So you can kind of go down the list. What about bank transfers or wire transfers? Well, they're very global but they're expensive and they're slow, right? There are some payment methods like WeChat Pay, for instance, which I think is -- it's fast and cheap but it's not very global. I think it only works in China. So you can kind of -- I believe this is a correct statement that the crypto rails are the only payment rails that are -- check all 3 boxes: fast, cheap and global. And this is very important because payments have a network effect. So these changes don't happen quickly. But payments are like water, they flow to the path of least resistance over time. And I think that's what we're seeing. That's why we're seeing such high growth in stablecoin volumes and we'll see more of this happen over time. So right now, there's a little bit of like -- there's a merchant acceptance problem, right? If you go into the average brick-and-mortar shop, they don't necessarily accept crypto. So the things that people are using crypto payments for initially, it's not like buying a cup of coffee at Starbucks in a developed country. It tends to be more cross-border. It tends to be more online communities. It tends to be more in emerging markets than in developed markets. So that's fine. Like it's going to take off first in the markets or the areas where people's next best alternative is either much worse or nonexistent. And if you're building an online community, it wouldn't make sense to use the fiat currencies at a bunch of these countries around the world. Like the common native currency of the Internet is crypto. So it's kind of you want to have everybody using that in one place on an online community. So I think those will be the early adopters. But eventually, you're going to have enough consumers who have crypto balances that they're going to go into stores and start to ask if they can pay with crypto. And they're going to get rewards back for that, too. That's the other piece that we've been trying to figure out because we have Coinbase Card. We have various Coinbase Commerce. We have various efforts in this area. But the cool thing would be if a stablecoin payment like USDC on Base, you can send it instantly for almost no money. Well, you have another 200, 250 basis points or something to play with there. So that could be a reward to the merchant. It could be a reward to the consumer. It could be a mix of both. And so we need to figure out how to align those incentives where everybody wins with this more efficient network.

The other thing I just want to add on is being a company that accepts crypto as payment and also pays vendors with crypto, one of the things that we're still working on in the ecosystem is making sure the accounting systems are updated to easily transact in crypto, record crypto. It's all the back-end books and records that we need to continue to work on to make this ubiquitous in all of the recording and really easy to use in the back end. Like the technology is there, the transaction is there, but plugging into the rest of the ecosystem plugging into downstream processes are bridges that we still need to build.

Yes. That's actually a great point. I should mention that, too, is that we're building payments into more deeply into all of our products. And for instance, Coinbase Prime, which services institutions, adding payment functionality so that our large institutional customers can -- they can pay vendors, they can receive payments from different places around the world. They can integrate with -- via the Prime API in some of these platforms like SAP. And Alesia, you could probably rattle 10 of them off at the tip of your tongue, that these folks use big enterprises used -- to do payments. We need to get that working in our retail app as well. So this is going to be a big effort for us in 2025.

All right. Next question from -- I apologize if I mispronounce it [ Gorkhali Trader ]. Now that we have a pro-crypto government and with Coinbase being the #1 cryptocurrency company and exchange in the U.S. as well as globally, what specific sector or apps do you think will have the biggest adoption this year and in the near-term future? I think that's question one. And then will we see a Coin stock onchain, part 2?

Yes. Well, first of all, thank you for the complement embedded in that. I appreciate that. I think in terms of what specific sector or apps that we think will take off, so one we've already talked about is payments. I think it's already taking off and it's pretty clear. I'm pretty bullish on prediction markets. I think that there's something really innovative there. And we saw it in the zeitgeist in this recent election that it became one of the most popular apps in the App Store, not just for crypto or for finance but like broadly. And it speaks to this broader shift happening in society where people are trying to figure out what is true, what is happening in the world. And there's a lot of misinformation out there around traditional media, social media. So people are looking for real truth, and I think that prediction markets have the ability to give some of that. So that's exciting. I'm interested in decentralized social. I think that from a freedom of speech point of view, X has done a really good job of moving the needle there. So in some ways, I think they've solved that, although a decentralized system would be even more powerful over the long, long term. But there's an interesting another angle here for decentralized social, which is I think creators want to earn money, right? Like in the traditional social media platforms, 95%-plus of the value really went to the platform and only 5% to the creators. And I think crypto social media, decentralized social media could invert that, 95% of the value could go to content creators. And so you could see every artist putting out a song or every tweet, every Instagram photo equivalent, every Spotify song, every YouTube video, it's like they should be monetizing that directly with their fans. And every post should be an NFT and there should be a market for those. It's like you can kind of go on down the list. And it'd be really interesting to see novel mechanics get developed around -- like if somebody shares a meme and it gets remixed into something else, there can be sort of a provenance, a chain of history there about how this creative thinking together and how did it trend and economics can flow back to the people who contributed. So I think that's a pretty exciting area that's on the horizon as well. And we'll see how to see how it all plays out.

I'll maybe take the second part of that question, will we see a Coin stock in the future? So if you go back in the SEC filings and you look at the very, very first draft of our S-1, we tried so hard to go public via a tokenized security. And we just could not get it across the line with the SEC at the time, but we would have loved to have been the first major crypto player and a tokenized security in the market. So obviously, there's been an administration shift. We're very optimistic we can start reengaging in conversations. But we need market structure bills, we need to evaluate now what this path could look like in this new regime and it's early, early days. So we have nothing to announce. But we would love to see tokenization of securities and to be part of that trend going forward.

Yes. Yes, we'd love to do it. It's going to require some legislation getting passed.

Absolutely. All right. [ Slobber Turtle ] up next. Is Coinbase looking at acquisitions now that the regulatory environment is more favorable? Any interest in gobbling up some DEXs?

Well, we're definitely looking at lots of M&A. Yes, it's a pretty exciting time. Some of -- we've actually done a lot of M&A. I can't remember which ones we've announced and not so I don't want to say too many names. But there's been a number of smaller teams or companies we've brought in to go build out certain features and functionality. I think we -- I think it's safe to say we're probably the most acquisitive company in crypto. I'm not sure if there's another one that's bigger. Some of it is looking -- it's part of our international expansion strategy of just doing what Coinbase does in other countries. And we sometimes look at those. We also have our own native -- we basically organically build in those markets as well sometimes, and we've been very successful with that playbook now. Other ones are areas that we're not as strong in, right, where we think something is big that we missed and we want to go acquire that. Others are these kind of tuck-ins, I would call it, that's like, "Oh, it's a really strong team working on something that we think would be a great feature within one of the apps." It's essentially accelerating our product road map. So obviously, I can't really share any of the deals that are currently in flight or are being discussed. But...

But anecdotally, I think it's important to say that we acquired a DEX back in 2018. And we also acquired a broker-dealer back in 2018. So timing is everything with deals. We were too early both on the tokenized security and the DEX trends back in 2018. And it's interesting to see them both being interesting opportunities for us to explore in 2025.

Yes. That's such a good point. I mean we've been into DEXs for a long time, too early actually. Yes, you got to think of these things as like a portfolio, right? And so make some appropriately sized bets. Some of them are going to be huge home runs and some of them are going to round to 0, but I'm really excited about our M&A opportunities right now.

All right. Next question. [ AI GenX ]. Excited to hear about Coinbase's Q4 and 2024 results but specifically would love insights on international expansion plans, especially in Asia markets.

Yes, I can share a few thoughts, and Alesia, you should jump in here, too. I mean, so I should say that we did a lot of effort over the last few years in places like Singapore, Australia, Brazil, U.K.

Canada?

Yes. And the good news is that I think we have a playbook now that really works. In fact, each of those markets have now been contribution margin positive. Keep me honest here, Alesia.

Yes, they're covering their direct costs.

Covering their direct costs.

We launched them, got the license, it's got the bank partners and now a product market fit in most markets and are covering our costs. It's pretty exciting.

Yes. So when you see something work like that, it tells you, you should do more of it, right? And this may not work for every company in the world, right? I think there are certain markets that are big enough where they have clarity around the rules. Those are the ones we tend to prioritize first. I think self-custodial wallets, our product there will actually work in the long tail of countries because that will spread more like a software product than a financial service product. So we sort of have this, we call it like our go broad, go deep strategy. To go broad is with self-custodial wallets where we can cover, I think, every country in the world, minus 5 or 6 that are sanctioned. And the go deep markets are the ones where we actually need to go have a local team, local license, local bank partner. And there's no silver bullets to these. It's a lot of lead bullets, right? It's like, can we get the onboarding to be seamless with the local IDs? Can we get the payment methods that people want to use locally supported? Can we localize the product, meaning translate it and have all of it feel like a native app in that country, which is harder than you'd think? Because there's always some -- even if you get 99% of it right, and there's like a word of English and some image, people can kind of -- 1 word out of 100 is actually a lot. You'd be like that doesn't look right. Why no native company would have put that there. Or that it's translated slightly incorrectly, right? So there's a lot of lead bullets to get this right. And the question here asked about, I think, the Asia market specifically. Yes, I would -- we've done well in Singapore. We tried entering in the Japan market, and we struggled with the regulatory environment there. There were some requirements that were frankly just like too difficult to comply with. And at the same time, customers were being served offshore, was frustrating to see. And so we may reenter the Japan market at some point. We don't have any plans currently to do that. I think South Korea is another big one. Philippines, Vietnam, there's a lot of people interested in crypto in that market. And I think -- yes, I'd love to prioritize it. It's just a matter of working our way down the list.

All right. Well, that was our last question. Thank you all for tuning in. Thanks for the great questions, and we'll see you soon.

Yes. Thanks, all.