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

Thank you, everyone, for joining. My name is Pete Christiansen. I cover digital assets for Citi Research. As always, I'm pleased to welcome Alesia Haas, who's been a regular at our conference. Thank you so much for attending. Before I start, I would like -- Coinbase asked me to read this disclaimer. During today's discussion, Coinbase may make forward-looking statements. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that should 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 Investor Relations website. Non-GAAP financial measures should be considered in addition to, but not as a substitute for GAAP measures. I probably should have that memorized by now. All right. Let's get into it.

I always love the perspective question upfront. So a year ago, I posited to you that asking whether Coinbase was a general store or a specialist. And it seems in the last year, we've settled that question pretty decisively with the Everything Exchange, spot, derivatives, prediction markets, tokenized equities, payments, agentic infrastructure. So for someone who's checked out of the story 18 months ago, what's the one thing that would generally surprise them today?

So if you've been in a coma, I guess, for the last 12 to 18 months, our TAM has expanded meaningfully. What's gone from being, as you had mentioned, a single product spot crypto trading platform has meaningfully expanded out to 4 trading verticals, spot, crypto, derivatives, and I would note, derivatives have 3 flavors of derivatives and also various underlying contracts. There's not only crypto derivatives, but we also now offer derivatives on commodities, metals, et cetera. Expand that out to traditional equities, but then just a few weeks ago, we then started offering tokenized equities to non-U.S. customers. And then our last pillar is prediction markets, which for a 6-month old product now, has shown tremendous early product market fit, and we're seeing a really nice growth trajectory. So great benefits to our customers to be able to trade more and more assets on one platform because where their assets reside, they're more likely to trade. And as I mentioned, that has just continued to multiply the TAM that we're going after as a business, which should then lead to diversification of revenue and more opportunities for growth.

Yes. Now you're -- by my count, you're running 12 different product lines north of $100 million annually. That's a remarkable amount of simultaneous scaling.

That's my account too, just for the record.

Okay, fantastic. How do you and the team think about sequencing and resourcing so each one of these gets the attention it deserves?

Absolutely. Well, if you look underneath the hood of those 12 products, we have common infrastructure that support the products. So we started as a safe place to buy and securely store crypto. We are the world's largest crypto custodian. And crept needs to be defined as any onchain asset. We store roughly 12%. We layer on top of that foundation deep liquidity in our exchange. And then we have value-added services, for example, financing or our risk models, compliance, onboarding. So adding incremental products are leveraging a foundation that we spent years building and honing. And that enables us to really bring small pods of people together to add incremental features. We also have an approach -- I mean, we've all seen productivity gains with AI. We've shared in our public filings that our pull requests are up meaningfully year-over-year. Quality is up as a result as well. And we're able to put small teams of people against these. And as we see product market fit, as we start to cross milestones, we can add incremental resourcing against that and continue to drive positive unit economics and growth.

I'm going to sneak one in. I asked this last year. Any chance that Coinbase's financial reporting will change in 2027?

I love the question. There is definitely a change potential. And it's because we've always committed that as our revenue diversifies, we will look to then update financial disclosures accordingly. In Q2, if you look in our earnings presentation, we started to break out our trading volume. Historically, we just had one aggregate trading volume number. We're now disclosing trading volume for spot versus derivatives and then breaking out stablecoins and other because we believe that these monetize, you all know these monetize in different ways. And so this incremental transparency should help investors better understand revenue forecast as well. So yes, we've taken steps, and we will continue to evaluate how to make our financials more transparent and legible for our investors and our analysts.

I appreciate that. We continue evolving our model. If you think about it, so many of these brand-new products that are scaling so rapidly, tons of positive indications on product market fit. Is there one product that you're most excited about in particular, doubling down over the next year or so, even relative to everything else that's been scaling so rapidly?

We don't pick favorite children in general. But our priorities this year, and we've shared these publicly. Our priorities are growing the Everything Exchange and then growing stablecoins and payments related with stablecoins. And so underneath the hood of then the Everything Exchange, the 2 products I'd point you to are growth of derivatives for at large and also prediction markets. Those require the most scaling. We're seeing the most new product market fit. So those are 2 to keep an eye on. And then within stablecoins and payments, you're seeing obviously USDC market cap, the growth of the assets on our platform and then resulting volume, USDC trading volume, transaction volume on top of that.

Yes. I think a lot of people -- people are starting to look at the volume now as a real indicator, less so much as the market cap. I always joke with [indiscernible] on my team, they should call them stablerails at some point, but let's...

One of the same rail and asset together.

Right, right. We're going to hit all those topics. I want to start off with prediction markets. Prediction markets crossed the $100 million annualized level just with a couple of months of launch and then grew another 106% quarter-over-quarter in Q2. That's an extraordinary curve. What do you think is the biggest driver here, the new crypto binaries product, the breadth of markets? Obviously, we had FIFA World Cup and those sorts of things. If you could just give us a flavor what's driving the surge, in your view?

Prediction markets offer a new way to express a risk point of view. They're fun. They're engaging. You may want to just watch a market. You may want to be curious about an election and prediction markets are offering users just a whole new way to explore these areas. So what we've seen in our own platform is, yes, there's been tremendous growth, and it's come as we expand contracts. So we started, we then launched crypto binaries, we've then launched combos. Each of these incremental contract types is engaging customers in a deeper and a more unique way.

Daily active traders in this group speaking to product market fit, reportedly tripled. Daily revenue quadrupled after the crypto binaries launch. What did that tell you about product market fit that perhaps maybe you didn't know already?

Well, first of all, we're a crypto platform. So seeing this growth in crypto binaries, we really have a right to win in crypto binaries. This gives you the ability to take a bet, is Bitcoin going up in the next 50 minutes, is it going down? It just is a whole new way to express a perspective on the price of crypto assets without a lot of capital having to go to work to buy the asset or to trade the asset in other ways. So I think that it's natural for us to see that product market fit on crypto binaries. But what's more exciting is we continue to see growth with combos, which could be nonrelated to crypto at all. And so I think this demonstrates; one, we're seeing engagement. That means our customers are coming to our platform. They're looking at the various contracts. And as we add more and more, we think that gives us an avenue towards additional growth.

I'm sure it's benefiting both engagement and new user growth. Any color you care to share on that dynamic?

The thing that I want to point everybody to is a few things. One is, all of the activity that we've seen in prediction markets to date has come from existing Coinbase users. We haven't put growth marketing. We're not using this as a channel to acquire new users. It's a 6-month old product. We really need to harden that product surface and scaling before we open up marketing and grow. So we've seen great growth in adoption using it in a very modest cross-selling manner. Two, what I would point to is all of the revenue that we've seen to date is really incremental. We have not seen any cannibalistic behavior of prediction markets. So this is really nice incremental revenue coming from existing users as we opened up new products and services.

Fascinating. On Coinbase One, which crossed 1 million paying members, including myself, congratulations on that milestone. How are you thinking about that membership relationship evolving, especially as you're adding all these new products? I hate to use this old term we used to say all the time, like top of wallet, obviously, with the card and things like that. But how do you think about evolving that relationship?

It's such a great question. It's one of my favorite areas to look at. So first of all, I want to just note that while Coinbase One did pass 1 million paid subscribers in the second quarter, that was against a backdrop where the overall crypto markets were down meaningfully. And so the fact that we're still able to grow members during a down market demonstrates the value that people see in the overall membership. And that membership only gives you benefits for crypto spot trading today. We have yet to expand the benefits to prediction markets, to derivatives, to other nonspot trading and adjacent related products. So we think that we are just getting started with regard to opportunities. And that as we add value and add opportunities within the Coinbase One membership, that gives us an additional growth lever.

How much of the card -- how much has adding the card supported that in particular?

The card is an absolutely great value-add product for Coinbase One membership as is rewards on USDC. So Coinbase One does provide unique benefits to customers who are going to use our platform, and we think that, that whole bundle is a really important value proposition.

Sure is. Okay. the mandatory CLARITY Act question. Here we go. So we're still talking about it a year later, which is I don't think is too surprising to most people, but it seems like we're seeing some light at the end of the tunnel with the closure vote coming up next week.

5 days.

5 Days. Setting that backdrop, on one hand, we also have the SEC getting involved with proposed rulemaking. And on the other hand, we have unresolved disputes over ethics, blind trust provisions, so on and so on, stablecoin reward yields, all against this hard deadline of November midterms, just to put all of this together, it is quite a lot to navigate. Is the risk right now that -- or maybe I should rephrase this. Is the opportunity, in the way that Coinbase is thinking about, a, maybe there's still a chance. But with the SEC intervening with their own rulemaking that this is going to push a more bipartisan effort perhaps in '27?

Great question. So as you noted, September 15 is a key date. And we're cautiously optimistic. And we're going to watch the votes carefully that we can see congressional approval. That said, that is not the only path available. And we are so pleased with Chair Atkins and Chair Sealig's approach to rulemaking, innovation, really being deep in the process and driving forward their own regulatory clarity agendas. So it is not a one path door to the outcomes that we seek. We would love to get congressional approval because that's durable in a way that few other things are. However, it does not change our road map to be able to go down the path with the SEC and the CFTC.

There's also a flip side to this, especially when we think about tokenized assets, real-world assets, and we don't know, maybe you do, but we don't know what the proposed rulemaking, the innovation exemption, how that's going to be framed. But at least the language comes across that it may offer more freedom to experiment, to try some new methods. I'm just curious if you have any -- could shed any light without obviously sharing anything confidential, but...

You know what, I know. The wonderful thing about proposed rulemaking is these are public letters. The SEC has put out rules for comment. You can see everybody's submissions on what they would like to see within the rules. So this is a really healthy part of rulemaking in America. And I think that we will be able to drive forward innovation here, which is what really matters to us.

Yes. No, especially with the rest of the world being...

Ahead, a little inside of us, yes.

Yes. 100% agree.

It's not always first, but we tend to do it right, though. I have confidence in America.

Absolutely. You clarified -- I want to harp back on -- talk more about stablecoins, in particular, the USDC relationship, which comes up in client conversations still pretty frequently here. One of the things -- and I actually asked this on the Circle call. And I said, yes, there is this agreement that is perpetually in place. You're great partners together. And this was in respect to the OUSD news and all that kind of stuff. But one of the things that I think people weren't paying attention to is that Circle and Coinbase went in together in this deal with Hyperliquid, which was pretty interesting. So do you see there's more opportunities on the go-to-market side, expanding the use of USDC as -- maybe as more unified force? And should investors think of this is a special relationship that there's -- yes, the economics are what they are, but is there a special relationship here where both can mutually benefit?

We absolutely both mutually benefit with the growth of overall USDC adoption in the ecosystem. And there are certain opportunities where we will partner to drive that overall growth. However, we are both competing as well. And we compete for balances on our own platform, for integration with clients on our own tool set. And increasingly, you'll see us as frenemies or coopetition, no different than you see large financial institutions who partner on some deals, compete for deals as well. So what's important is that our collaboration agreement is perpetually renewable. We just renewed it on the same terms for the next 3 years that we've had for the last 3 years, and that we are incentivized to grow USDC adoption, and that will continue. We're also, at Coinbase, incentivized to grow USDC on our platform, win clients and deeply integrate them within our tool set.

Fair answer. Let's skip to tokenized equities. Coinbase launched one-for-one back tokenized equities on Base for non-U.S. customers last month.

Not even a month. Yes, a few weeks.

As we chatted before, we're still waiting for the innovation exemption for the launch of U.S. customers. So it's been excited to watch incumbents like NASDAQ, NICE, DTCC as well bring on their own tokenization pilots to life this year working with major custodians. Do you see this as validating the category in the way it helps everyone, Coinbase included?

Absolutely. We long held the view that assets would move onchain. We saw the first true product market fit with stablecoins, dollars moving onchain. And now we're replicating that with securities moving onchain. And that will just be the first continuation of other assets moving onchain. And you're watching large, well-established players now take a similar view that there's benefits for onchain infrastructure.

And so, I guess, this is a debate between issuer-native issue tokens versus synthetics. Does -- and we've heard views on both sides. One can expand the market. There's one view that you need the issuer to be in control, and there's certainly hybrids and mix and match kind of opportunities here. Does Coinbase have a view here? Or is it just let's see how this market develops and we'll see where it takes us?

Alesia has a view.

I would love to hear Alesia.

I'll share the Alesia view. And Coinbase has a view, and you can see by the product that we launched. The product that we launched is a real equity on the blockchain. The equity is yours in bankruptcy. You're eligible for dividends. When we have the technology advanced, and this is not a regulatory approval, this is just a we need to get it on a road map, you will have voting rights. It will look just like any other security. But it's a security plus. You can hold it in a self-custody wallet. You can send it to a friend. You can use it outside of the intermediary system. But to receive those benefits, you have to have KYC. So we think we've brought a security plus, just like we thought we bought a U.S. dollar plus by moving it onchain. Now, I also think that the U.S., in particular, is a market that has long innovated. We have all sorts of structured products in the United States. We have a long history of structured products, and crypto has a long history of structured products. I mean, crypto really innovated with perpetual futures outside the U.S. And I think that we believe that perpetual futures will be a big growth category in the U.S., not only on crypto, but on all sorts of underlying assets. And so whether it's a derivative, whether it's a swap, I think that those are also legitimate products. The key for me and the key that Coinbase always feels is customers need to understand what they are buying. And so customer education to understand the risk and the uniqueness of the asset that they are purchasing is important to us. And so where we would take a stand is making sure we don't broadly put things under the umbrella of a tokenized security is a tokenized security is a tokenized security. Some tokenized securities are true securities, some are derivatives. And we think that, that is an important distinction. But I would point this to -- out to you, Pete, we also felt this way about stablecoins when everything was like it's a stablecoin, and there was algorithmic stablecoins and then there was one for one backed USDC. We didn't like that broad brush of like, "Oh, they're all stablecoins." And so I think that we are all learning how to use taxonomy appropriately with in crypto, and that is what is really important, education, proper use of taxonomy, clear rules so that investors understand what they're purchasing and what risk they're taking.

We hosted one of your peers earlier this morning involved in the tokenization area. And there's a lot of questions about value proposition to every player in the ecosystem, whether that's the issuer, the broker-dealer, the exchange, the buy side, sell side, all of that. And there's -- and I think the value prop might be different for each one of these contingencies. But what strikes me as the most interesting is the technology enablement that tokenized real-world assets provides. And is there -- I'm curious your view, there's a lot of equities practitioners in this building right now. How do you think this might change the world for the equities business in particular?

I have a very simple view here. My simple view is that roll back 50 years, we had certificated securities and many people owned a security certificate. We now have a digital version of that, where you can self custody and you can own a security onchain. But now that security onchain has all the digital benefits that we've also now learned about as we move from certificated securities into digital securities. So we went back to now self sovereignty, control, the ability to own something and the benefits of it being digital and transferable and liquid and getting access to a bigger market and giving more inclusion and access. So I think that we have security plus land going on. And I think that is good for issuers to have bigger markets to be able to issue their securities in. I think that's good for humans to be able to own more assets no matter who you are, where you are in the world. I think those are the 2 net benefits to society. And then I personally spend less time thinking about the -- well, I play this seat the equity ecosystem or I sat in this seat. I think we as businesses have all have to adapt and learn and grow to listen to where the market and the customers are taking us.

Adapt and grow. My first job Alesia, 1999, I was a runner, and stocks were still traded in fractions.

And I was an investment banking analysts and had to walk downstairs to library to pick up my 10-K to be able to type numbers into a computer. So yes, adapt and grow.

I used the fax machine a lot.

I did too. And now I use agents. Amazing.

we've come a long way.