Coinbase Global, Inc. ($COIN)

Good morning, everyone. Thank you so much for joining this year's JPMorgan TMC Conference in the fireside chat with Coinbase. I'm excited to host Emily Choi, President and Chief Operating Officer; and Alesia Hass, Chief Financial Officer at Coinbase. So Coinbase is a $60 billion crypto platform that facilitates trading, staking and custody of crypto tokens as well as other instances, a broader engagement across borrowing, lending, development, infrastructure across the crypto ecosystem and the list keeps growing. Before we start, I wanted to read off Coinbase's safe harbor statement. During today's chat, Emily and Alesia may make forward-looking statements. Actual results may vary materially from today's statements due to risks, uncertainties and other factors as described in their SEC filings. Our discussion today may include references to non-GAAP financial measures, and a reconciliation of non-GAAP financial measures is available on the company's latest shareholder letter. So thank you so much for joining today. To kick things off, I'd be remiss if we didn't start with the big news of Clarity advancing through the Senate Banking Committee and the Senate.

Emily, let's start there. How does the pass of clarity change the crypto ecosystem -- I'm sorry, the cryptocurrency landscape and which of the many things that Coinbase aspires to achieve becomes easier with the proposed legislation? And maybe start out, like what is CLARITY in the first place?

So CLARITY is the market structure bill. Last week, we had some great developments there where it passed out of the Senate Banking Committee on a bipartisan -- in a bipartisan manner, which is pretty huge, very unusual. So we're very excited. The next steps for that are it has to pass the Senate floor, then it has to be reconciled with the House bill, then it has to pass the House and Senate one more time and then the President signs it, and we think we're on a path where it will be signed this summer. So very, very positive development. If you think back to last summer, the GENIUS stablecoin bill was signed, and that really unleashed a whole new wave of stablecoin transaction volume, innovation, investment, and that represents maybe like 10% of the current volume in the market, this is the other 90%. So this is all the other stuff that we do as it pertains to trading and digital assets and so on. For us, when you think about the way Coinbase operated for the past whatever years, especially under the Biden administration, we had regulation by enforcement. And we didn't have clear rules of the road. So you can imagine that we're trying to build a product road map and ship things and don't really know for sure if something is going to be compliant or not based on the whims of the regulator and not actually based on clear rules of the road. It's a very, very challenging way to operate. So to be able to have this new legislation that clarifies what the SEC and what the CFTC oversee, how we can add our digital assets to the ecosystem, what is the security? What is it commodity and things like tokenized assets, tokenized equities, how these can be added to the ecosystem and a compliant manner, we think it's just going to unleash a whole new wave of innovation in this space, much as GENIUS did for stablecoins.

Awesome. So with that covered, let's pivot to the rest of the agenda. So my agenda is, I want to start with trading since this is the biggest part of the P&L, move to stable coins, which is really sort of the infrastructure and monetization or a monetization engine. Then agentic AI, which is potentially going to be this massive driver of growth and adoption and then tokenization, which I'm sort of calling the enabler. So let's start with trading.

And I love that because you started with our 3 biggest priorities growing our everything exchange, we are building stable coins and payments, and then we're moving things on change. So this is perfect. Let's go.

Yes. So the secret to being a good research analyst is to plagiarize and stable whenever we can. So trading. So trading is the biggest P&L driver. You're #1 in market share in spot, and global market share is at peak levels. Global market share is about 8.6% in rising. You're building out derivatives, you're adding predictive markets in equities, you're doing well in spot and doing well in the U.S. So it's a good place to start. Maybe Emily, can you talk a bit about the everything exchange strategy? What prompted the pivot to expand just beyond spot crypto trading?

Yes. So first of all, I think our competitive advantage is definitely the crypto economy and power in crypto. But we do also want to make sure we meet customers where they are. And our customers were definitely asking to be able to trade other assets. And so we did make a huge push over a very short period of time to be able to enable things like equities and prediction markets and so on. And it's been incredibly positive for us. When you think about just the volatility that we've historically had in our business, in many ways, this helps us diversify the offerings we have because there's a bull market somewhere at any given time, and it might not be in crypto. So for example, in Q1, crypto wasn't the biggest thing in the world in terms of volumes and trading, but prediction markets were big and commodities were big. And so this enabled us to have that buffer -- so I think customers are very happy about this new broader offering. Again, we're always going to be crypto first in the way we do things. But now that we have this broader offering, they can tap into these other these other opportunities to trade.

Got it. Alesia. How are you seeing the results so far? Is the engagement in these newer products coming from existing clients? Are these newer products bringing in newer clients to help drive growth? And to what extent are the new products in services sort of incremental to what you have been doing in the past versus potentially cannibalizing some of the existing business?

We're really pleased. I want to start with -- it is early days. As Emily shared, -- we announced this strategy at our December product showcase, and many of these products went live in the first quarter. But even over the first quarter, they started to make a dent in our overall P&L and started to demonstrate that our customers are really engaging in the broader product suite. It is both. It is monetizing largely through existing customers but also bringing new customers to our platform. We saw prediction markets in its second month of operation in the month of March, achieve $100 million of annualized revenue. We saw retail derivatives for the quarter drive to $200 million of annualized revenue. So we are seeing nice traction. Emily said it well, where there's a bull market somewhere. I don't think of these as cannibalizing what I think that we saw in previous crypto cycles. When we saw periods of declining crypto spot prices and/or low volatility. Our retail customers largely went into a hoteling mode, where they just didn't trade. They didn't move their assets from our platform. They just didn't trade in that period of time. So by diversifying the tradable assets, it gives them something to trade in all market conditions. And we definitely saw that in Q1. So with lower volatility with lower prices in Q1, what we did see pickup on were trading of commodity futures, silver, gold, oil in response to the global macro environment became very largely traded contracts on our platform. Prediction markets, as we said, saw the growth. So this will diversify the tradable assets and I think create more resiliency to our trading revenue over time as these products mature, and we engage more and more customers in this product.

Emily, I wanted to dive a little bit more into the derivatives and how you look to kind of continue to gain share in the derivative market. Does claim base needs to do this outside the U.S.? Can you continue to grow the derivative appetite inside the U.S.? And how do you go about doing this?

So derivatives at any given time in crypto are like 3 to 4 the volume of spot trading. And so they're a very, very important piece of the market. And so we've obviously felt the need to diversify that. And I think the answer -- the answer is we've got to do it not only in the U.S. but globally. If you'll recall, we acquired a company called herabit that is, by far, the undisputed leader in crypto optionhs globally. And so that is a great tentpole for us in addition to our spot position. But the goal here is to make sure that we have one platform for futures, derivatives, spot options and so on, all across crypto. This obviously helps us have a global pool of liquidity for things like cross margining and financing and so on that our customers deeply want. In the U.S., obviously, because we started in the U.S., we have a nice advantage there, particularly with our brand of trust. And so we were, I think, the first to launch a 24/7 hubs like contract in the U.S. with the CFTC is blessing. So you can expect to see more of that in general, like the TLDR is we definitely want to go aggressively broadly with derivatives across the whole globe.

And one of my observation is the derivatives in the purpose part of the derivative market is very concentrated. Any idea why it's so concentrated? And does that make it harder to kind of break in and be a sizable participant in the derivative markets or the market versus how successful you've been in the spot market.

Well, I think that some of the attributes of why derivatives have been so popular internationally is people can go really heavy on leverage and can kind of make really, really large bets. So sometimes you see that concentration there. We are going to always stick true to this brand of trust. We're always going to make sure we're protecting our customers and doing things in a more compliant way. So I think we're going to lead with that and the customers who are attracted to that will be drawn to that. Anything to add? .

Much like most asset classes, the key here is liquidity, working on the best products, the most contracts with the deepest liquidity on a global basis. And so we believe that we marry our retail customer base with our institutional product to really create those deep liquid markets. We have to build that as we continue to expand internationally away from our deep bench of U.S. customers. But we believe that there's no reason why we won't be able to do so with our expertise in bringing customers to our trusted platform, building those contracts and creating liquidity over time. So it's a product during the deep into that product journey.

Emily, you mentioned Deribit. Can you speak about what Derit is and what we should expect in the coming -- or looking forward as you continue to build out that business.

So Derived was an acquisition we did last year. It was the largest crypto options exchange in the world. We've been very pleased with the progress. We're very much on the journey of integration, we should be fully technically integrated by the end of the year. 1 of the cool things about Deribit is it's got a nice cross-margin engine that we're using to kind of integrate across our whole pool -- and as I mentioned, like we want to have this whole panoply of spot options, futures and so on that we can offer to customers so we have that global pool of liquidity. In terms of like next steps with Derabit, we obviously want to be able to offer this in the U.S. as well. And so we're working with the CFTC on that plan. But -- and we'll continue to kind of share milestones along the way as we go through that.

Okay. And then Emilie, finally on prediction markets, really good traction out of the gate, $100 million, as you said, in annualized revenue shortly after launch. How should we think about the early traction here? And what ultimately is Coinbase is right to win in these markets, given how much they proliferated across other platforms.

I mean prediction markets a huge phenomenon. We -- I mean we were sharing text last night about some of the wagers certain folks had on the primaries last night or the NBA semi finals and so on. It's just a fun activity and I think it's very engaging for users to be able to make these bets on these platforms. In some cases, I think it's just going to be a more popular activity than spot trading and so on. So we're really pleased we just launched a -- we have great traction with that $100 million-plus revenue run rate. I think our right to win generally is about the bundle, like I think we're obviously crypto first, and we're about a bundle where different customers are going to want to be able to access and tap into what they want to at any given time. We talked before about there's a bull market somewhere at any given time perhaps at that point, a customer wants to make a market. They might also want to be able to trade crypto or equities or so on. And so we offer that ease of use at most trusted bill for our customers, and we think that it's a great value prop for them.

Great. So let me...

I think it's so important to line that what offer is almost an opportunity for a daily use case. And it's exciting to see what the world is doing, what people are engaged with. And when people already have their assets on the platform. And remember, we are the largest custodian we hold our. We had $19 billion of USD Coin our platform as of Q1. So people already are storing assets. And now when they have an additional product that they can sell. It creates incremental monetization. It creates engagement with our platform. And I'd like to say people are coming for the convenience of being able to treat everything in 1 place, it's delightful to be able to be like, "Oh, great. I can go see this game that I wanted to depend on. But what we can really offer is the true value and why I think we have the long-term right to win is now you can take a bet on global politics on one platform and express that over equities, prediction markets, futures, crypto. It gives you the ability to do much complex positioning in one platform to take a view on world. And as the world becomes more complex and the opportunities to take bets, we are now a more comprehensive platform that people can express those views.

Everything exchange facilitates the everything exchange.

Yes.

Okay. Great. Let's move into stablecoins. You have one of the biggest fee wallets and stablecoins and one could argue that you've been the differentiator from a distribution perspective and the build-out of USDC into being the second largest stablecoin. So maybe let's start at the high level, Emilie, how do you think about your role or coin base's role in the stablecoin ecosystem?

Sure. We believe the power of a stablecoins, first and foremost, as a programmable digital dollar. And we were early in 2018 to partner and bring USDC to life and...

And we should just stop and remind that we are the distribution platform for stablecoins, that our platform since 2018 has been key to growing regulated stablecoins in the overall ecosystem.

That we are the #1 distributor of USGC. As Alesia mentioned before, we hold $19 billion of USGC on our platform. At any given time, we roughly extract out 50% of the economics of USDC and also enable the trading and custody of other stable coins on our platform as well. So we're very bullish on stablecoins. We think we're at the very beginning of the journey. And if you think about the different components that we have together as we play this end-to-end platform role, -- we've got USC as the digital dollar or other table points is that digital dollar. We've got base chain as a settlement layer. We've got enterprise APIs that help with enterprise integrations. So we -- and then we also have x402, which I'm sure we'll get into, which is our standard for agentic commerce. So we have all these pieces of this end-to-end offering, and we think that that's a very powerful position to have given where we are right now in the beginning.

Yes, I completely agree. And I think one of the messages that I love everybody to take is these different pieces fit really well together and they're sort of perpetuating the other pieces to be bigger and grow faster. And anyway, we'll see how good a job I do here and pulling that all together. Alesia, you've had success building out USGC as the preferred digital cash balance for claim-based customers. On your time, USDC to many of the new initiatives at Coinbase, including trading, lending, borrowing and payments. How much do these newer initiatives contribute to; Coinbase presence in stale points? And where are you seeing the most momentum today?

Well, these are reinforcing products. So with our partnership with USDC, 1 of the reasons we become the distribution platform and 1 of the reasons we've seen the on-platform growth is we're embedding USGC deeply within our products. So we use it as the base quote asset in our international exchange. So if you want to trade futures, you are trading them against a USGC order book. That grows the USC balances. We offer lending products for our institutional customers, they can trade on margin. That grew to $1.4 billion as of Q1. That is us lending out USGC collateralized by other assets on our platform. We saw the growth the significant growth, quite candidly, in on chain agentic cons, 99% of that in USDC, 90% of that's on base. We are building those APIs, as Emilie said, with X402 and that is creating now a payments use case. So as we embed these stable points into the products and services, absolutely, it's a reinforcing flywheel. We see that product grow in the case of lending or trading and then we're seeing USDC balance growth, both on our platform, but also then in the platform through the ecosystem as you create more network effect, you create more liquidity, more people will choose that as the asset they want to trade with and participate with in the ecosystem.

Can I pause there, and I'm sorry. and this is where I think USDC is really important. We often talk about it perhaps maybe as a payments story. USDC is a collateral story. It's a trading pair. It is going to be a digital dollar, a better dollar, a global, cheap, fast dollar. And so it is going to underpin many products and services that you see us participate in. .

Last week, you announced -- maybe Emilie. Last week you announced a new partnership with Hyper liquid. One of the largest on trade, on chain trading platforms in the world. Can you walk us through the details here and maybe the financial implications for Coinbase?

Sure. So I'll start, and Alesia can hop in there. We announced a partnership with hyper-liquid for USDC to be the primary stablecoin on Hyperliquid. And if you look, USDC was already kind of the majority of the point usage on Hyperliquid you had like $5 billion worth of USDC on the platform. And so this was really meant to solidify that adoption and relationship. As part of that, our on-platform balances, we will be holding those of hyper liquid, which is positive for us. Broadly speaking, we think we're in an early phase of stable coin adoption. We think this is a big growth vector. And we believe that there are big network facts to stable coins and that liquidity begets liquidity. So for us to do this deal was essentially about making sure that we're reinforcing USGC as a vehicle for hyper liquid, which is obviously quite popular. And then that reinforces the value of USDC over time. So in short, it's like a growth vector for us that we are heavily invested in. And we think that doing these types of deals selectively really helps propagate the network effects and growth of USGC. Do you want to talk about any more on the economic side.

Think about this as another on-platform customer for us. And we will continue to grow those on-platform balances. We do have rewards agreements in place for the majority of our on-platform balances. And it's important to share that in the movement of CLARITY protected activity-based rewards. And so we'll see growth in top line revenue. We will see an increase in our sales and marketing expenses that we pertain to rewards. And as Emlie said, this is just a reinforcing phenomenon. You saw after GENIUS that we started to see a fragmentation of stablecoins and many people came up with we wanted a new stablecoin. We are really focused on driving one of the biggest global stablecoins to have deep liquidity and network effect. And this is a big step forward to the network effect of USDC.

Great. Okay. Agentic AI. Okay. So McKinsey projected $3 trillion to $5 trillion of agentic transaction volume by 2030, and that's right around the corner. Alesia, for you and Emilie both, when we think about AI, Coinbase is not the intelligence layer like OpenAI or Google, but rather the financial and transaction layer. So what is the Coinbase tech stack for agentic AI? And how has it leverage the key pieces of the Coinbase infrastructure, again, pulling together some of the things that we've already been talking about.

So we have about product stack that enables agenetic AI. We've talked about USDC. It's a digital dollar. We've talked about base. It's a protocol. It enables fast, cheap global transactions to settle on chain. x402 is a new protocol that we've now added to the stack that enables specifically agentic commerce. And then we have the payment APIs that Emilie mentioned for businesses. So x402, what we've seen is it's processed 100 million payments through this gateway over the last 3 months? We have made this an open source standard on the Linux platform. We have major partners such as Cloudflare, Google, Shopify, others that are helping usher in this future. On our earnings call, last week, mid-call, and announced that Amazon is our newest partner, building on the x402,and so that's just getting started. So we absolutely believe that the future is going to be agents. Agents will be outnumbering us humans. Agents will be transacting in new ways. You'll see usage-based activity, and we are building the stack for them. And we've had early success. The things that are phenomenal to share in addition to a 100 million transactions, 99% of the agenetic on chain commerce is happening on USDC is happening on base. And so you see that our stack is really starting to be the leader in ushering in this future of agentic commerce.

Okay. Emilie, anything to add?

No.

Okay. So maybe the next question is, why don't agentic payments work over the existing financial rails? Why can't we just give an agent, like my Visa card, and have that be the financial layer here in agenetic AI?

It's a great question and one that we've talked a lot about, I'm sure it won't surprise no one to hear that I still write checks. I do it rarely, but it still happens. I still have a checkbook in my drawer. I also send wires, I also do stable claim payments -- this is and just like we send e-mail, we send text, we do messaging on all sorts of platforms. Stable coins provide a new payment rail or Stablecoins plus base is a new payment rail. And we've seen innovation in payments for a long time as we've all moved from cash to credit cards to ATM goes, et cetera. So what these uniquely provide for agents is agents are nonhuman agents are going to be looking for micro transactions. They're going to be buying compute. They're going to use ruthless prioritization and try to find the lowest economic cost to execute their transactions. They don't have brand loyalty. They're not emotional in the way that the current system was built for human payments. And they're also going to do so many micro payments. And so what stablecoins and wallets and the new on-gen infrastructure provide is programmable dollars, you can program a can be paid to this vendor. You can give it very specific rules, agents can't open a new credit card themselves. They're not humans. They can't pass KYC. So what we think it's going to do is usher in a new type of payments that will be the new growth vector of payment types, and that is where we're going to see most of the agentic commerce growth. So you can give your agent credit card. You can also have that credit card number stolen, then by the way, and that creates a lot of fun for all of us.

So as I was doing research on this, and you just mentioned again this concept of micro payments, which is something that's a little bit foreign to me. How does micro payments play into the agentic AI outlook in Coinbase, USDC and base as kind of the enablers of the future of payments here.

So we're moving forward in life and agents, we believe, are going to do more and more activities for us. They are going to be coding for us. They may need to buy compute while they code -- they're in no need to execute microtransactions move forward their workflows. -- or they may need to buy some data some research. Do they want to get a subscription? No, they want to buy specific research. And so these are going to, we think, turn into new monetization streams, new ways that we consume products and services. And those will become frequent smaller dose consumptions of information and data or usage, and that's going to be the future of how these agents want to buy and transact online.

SOkay. So interesting. Okay. tokenization. So tokenization is not where coin-based makes money today, but it's been a focus for Brian, your CEO, when thinking about regulation. So Emily, can you walk us through how Coinbase thinks about the full tokenization stack from sort of issuance and custody to compliance and trading? And with all those pieces seemingly in place, what's the unlock that gets us from the narrative to real proliferation of tokenized assets on the platform?

Sure. So I think be unlocked is CLARITY, to be clear. So -- that's already CLARITY. The CLARITY Act. And the reason we think that it is so important, why we've spent so many cycles working to get this over the line is because as we've talked about with genes unlocking the stable coin wave, we think that this then opens up the whole wave of on chain financial assets and so on. So yes, as you mentioned, we have the full stack of capabilities, whether it's issuance, custody, trading and so on. So that end-to-end stack can then power this on chain economy once we have that regulatory unlock -- so I think we're in a very, very -- in the very early days of all this with when we have that clarity being able to offer things like tokenized equities and more on chain assets and activities. In general, we're very bullish on chain over the longer term just because we think it's a much more robust system. It's more efficient. There's no moment. It's cheaper. It's global. -- all the things that we care about, it's the fastest settlement. And so to be able to power that in a compliant way is kind of maps exactly to the built to the stack that we've built.

Okay. So maybe moving to Infrastructure and Resources and delivering the above, I think base is sort of a key part of the infrastructure that's moving the rest of the agenda forward. So that's what is Base? What's next for the Base road map and talk about the growing ecosystem. So maybe Emilie, do you want to start there?

Sure. so Base chain is a settlement layer for on chain financial transactions for payments and trading. And I think Alesia quoted this, you see things like 99% of Agentic-on-chain transactions are done via the base chain. So it's very powerful early stats here, given the fact that we just launched it. not too long ago. And so when you think again about that stack that we've been talking about with the digital dollar of USDC or other cable point and then base is a settlement layer in x402 as that standard for agenetic commerce, we think that that's quite powerful. . When we think about base change specifically in terms of what else -- what the future is for Base chain, it's more of that. We'll need to add things like a privacy layer, for example, because businesses care very much about that, and that's a big theme right now in crypto and in financial transactions. Another thing that we've brought up in the past is that we plan at some point to launch a base token -- so we'll keep folks updated on that progress. But I think that's another exciting part of the road map.

And then separate from the chain, we also have the base app. And the base app is our self custodial product. that is really designed for customers who want to hold their assets in their own custody away from a centralized platform and enables us to grow in markets that we don't have a presence. So for example, our custody product is available in major markets such as the U.S., the U.K., EU, Singapore, Australia, Brazil, et cetera, Canada. But there's many, many other countries, and we can move with speed to enter those markets for other countries with this product, then the AR products to serve the globe and access to over 100 countries through a self-custody offering. And so a lot of that international customer growth we anticipate over time will come through the base app self-custodial product.

Okay. Great. Thank you Okay. In closing here, the question I sort of closed with last year, I think it's fitting again given the dynamic crypto environment. But for both Alicia and Emily, what do you see as the use cases that are most exciting to you in the crypto ecosystem as you look out to the rest of 26 and into 2027, and -- and how does -- what is exciting for the ecosystem tie into what's exciting for Coinbase. I kind of like that question as well.

Well, it's funny. It's a great [indiscernible]. It's everything we just talked about, I think, -- but stablecoins and payments and payments, I think we're just a surface of that -- our Board constantly tells us like we're -- if there's one place that like we are going to be growing it is going to be stable coins and that whole -- that just we're at the early innings of what's possible there. Obviously, tokenized equities and tokenized assets, we just think that going to be a very big unlock with clarity and then Agentic Commerce, which maps to all the interesting fun themes going on in AI right now and being able to be on the forefront of that with having developed the standard of x402. So those are the 3 big ones I think, from our perspective.

I think it's the new products and use cases, but I would also just point to our expansion in derivatives and the growth of our derivatives platform is a key near-term focus for us, and we expect to see a lot of growth this year. It's been one of the biggest drivers of our market share growth, and we anticipate that to continue.

Yes. Great. Okay. Thank you so much for being with me today. We're not taking questions. Thank you to the audience for being here, and enjoy the rest of the conference.

Thank you.